Sensata Technologies Holding N.V. (ST) Q4 2020 Earnings Call Transcript

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Sensata Technologies Holding N.V. (ST 1.77%)
Q4 2020 Earnings Call
Feb 2, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Sensata Technologies Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I'd now like to turn the conference over to Mr. Jacob Sayer, Vice President, Finance. Please go ahead.

Jacob Sayer -- Vice President, Finance

Thank you, Jason, and good morning, everybody. I'd like to welcome you to Sensata's fourth quarter 2020 earnings conference call.

Joining me on today's call are Jeff Cote, Sensata's CEO and President; and Paul Vasington, Sensata's Chief Financial Officer. In addition to the financial results press release we issued earlier today, we will be referencing a slide presentation during today's conference call. The PDF of this presentation can be downloaded from Sensata's Investor Relations website. We'll post a replay of today's webcast shortly after the conclusion of today's call.

As we begin, I would like to reference Sensata's safe harbor statement on Slide 2. During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K as well as other subsequent filings with the SEC.

On Slides 3 and 4, we show Sensata's GAAP results for the fourth quarter and full year 2020. We encourage you to review our GAAP financial statements in addition to today's presentation. Most of the subsequent information that we will discuss during today's call will relate to non-GAAP financial measures. Reconciliations of our GAAP to non-GAAP financial measures are included in our earnings release and in our presentation materials. The company provides details of its operating segment on Slides 13 and 14 of the presentation, which are the primary measures management uses to evaluate the business.

Jeff will begin today's call with key highlights of our business during the fourth quarter and full year 2020. He will then provide an update on recent progress in our key Electrification and Smart & Connected, Megatrend growth areas. Paul will cover our detailed financials for the fourth quarter of 2020, including organic end-market outgrowth by business unit, our segment reporting, corporate expenses and balance sheet progress in the quarter, and provide financial guidance for the first quarter and full year 2021. We'll then take your questions after our prepared remarks.

Now I'd like to turn the call over to Sensata's CEO and President, Jeff Cote.

Jeffrey J. Cote -- Chief Executive Officer & President

Thank you, Jacob, and welcome to the call everyone.

I'd like to start with some summary thoughts on our performance as outlined on Slide 5. The rebound from commercial lockdowns and quarantines, instituted by governments around the world as response to COVID-19 earlier this year, continued in the fourth quarter. Our response to that rebound enabled our revenue to grow 15% in the quarter sequentially to $906.5 million, consistent with the updated revenue guidance that we provided on January 8, and significantly higher than what we had anticipated during our third quarter earnings call. This growth is a testament to our leading positions and our strength and flexibility of our manufacturing model. I'm proud that we are able to capitalize quickly on improving markets and support our customers, as they return to higher levels of production during the quarter. I'd like to recognize the agility and hard work of our entire team in achieving these strong results.

Looking at our performance year-over-year, we continued to deliver strong market outgrowth. For the fourth quarter of 2020, we produced 990 basis points of outgrowth in our heavy vehicle off-road business, and 970 basis points of outgrowth in our automotive business. Continuing the trend we saw in the third quarter, inventory in the supply chain and in our customer's finished goods has continued to come down, a trend most pronounced in automotive. This sets us up very nicely for revenue growth of 2021.

For full year 2020, we delivered market outgrowth above our target ranges for both heavy vehicle off-road and automotive. We are confident that we will sustain our outgrowth for 2021 in the range of 600 basis points to 800 basis points for heavy vehicle off-road and 400 basis points to 600 basis points for automotive, consistent with our long-term goals and supported by our new business wins.

Sensata today is in a strong financial position. We generated a record $240 million in free cash flow in the fourth quarter, a conversion rate of 178% of adjusted net income. At $453 million for the year, a conversion rate of 130%. And we are taking several steps to further enhance our financial position and flexibility.

We continue to benefit from incremental savings from the restructuring program announced last summer. These actions generated savings of $12 million in the fourth quarter, and we are expected to generate -- and they are expected to generate annualized savings of $60 million to $65 million starting in 2021.

While market uncertainties and supply chain risks remain, our business and customer visibility has improved significantly. And we have reinstated full year 2021 financial guidance today. Later this quarter, we intend to redeem our $750 million 6.25% Note due in 2026, which will lower our overall cost of capital.

During the fourth quarter, we closed more than $145 million in new business wins, bringing us to more than $465 million in new business wins for the year. This is higher than our five-year average of $440 million and solidifies our ability to continue to deliver market outgrowth in the coming years. We believe our success in closing a higher level of new business wins in 2020 despite the disruptions caused by the pandemic clearly demonstrates the mission critical nature of Sensata's products.

Finally, as I will discuss in more detail momentarily, we continued to invest in our Megatrend growth initiatives and achieved a meaningful milestone and Electrification by acquiring Lithium Balance. This brings Lithium Balance's battery management capabilities in-house, expanding important e-mobility system offerings in heavy vehicle and industrial applications, and enlarging our position with the -- within the evolving energy management solution space.

In the Smart & Connected, we began installing sensors and vehicle area network [Technical Issues] on our first fleet customers equipment and collecting revenue on a recurring subscription basis. We are pleased that this business is gaining significant momentum with quoting activity growing dramatically with future fleet customers.

Moving to Slide 6, Sensata takes a holistic view of Electrification and its impact on the markets we serve. We have expanded our capabilities in the e-mobility space, beyond components to deliver hardware and software systems. The acquisition of the GIGAVAC positions Sensata as a leading provider of high voltage protection on EVs and charging infrastructure. We are broadening our focus beyond automotive to e-mobility applications and heavy vehicle and charging infrastructure, as well as into broader industrial and grid applications. This is because we see a great deal of customer need, which Sensata is uniquely positioned to address.

During the fourth quarter, we closed another $40 million in Electrification new business wins, bringing our annual total to $180 million, including four of our top five NBOs in 2020. We are increasing our capabilities and charging infrastructure in smart grid applications, including our recent acquisition of Lithium Balance.

Moving to Slide 7, we are expanding the Electrification solutions we provide for critical applications across all the end markets we serve, but especially in Automotive, and it aligns well with the fast growing interest in production of electric vehicles around the world.

Today, the rapid introduction of new energy -- new electric vehicles to the market provides a tailwind to Sensata revenue growth. Our content EVs represents a 20% uplift in content value as compared to internal combustion engine vehicles. This content uplift is derived from a broad array of Sensata sensors and other components that we designed into battery electric vehicles. Some of these are carryover from internal combustion vehicles such as brake pressure and tire pressure sensors, while others are unique to EVs, such as contactors and electric motor position sensors.

We have broadened and deepened our portfolio to support this expanding market segment. In 2020, our EV-related revenue represented approximately 5% of our automotive end market, as compared to EVs representing approximately 3% of vehicles manufactured globally. So we feel confident we can grow along with the accelerated growth of EVs.

To date we have closed new electrification business with many of the largest and most innovative automotive OEMs around the globe, whose logos are shown on this slide. We are proud to have existing business or design wins on future EVs with nearly every automotive OEM, with an announce EV launch. Helping these OEMs launch the next generation of EVs represents a significant growth factor for Sensata, as electric vehicles increase in number and become a larger percentage of the total vehicles fleet worldwide.

As part of our holistic approach to electrification, Sensata seeks to be a partner of choice for heavy vehicle and industrial OEMs transitioning to electrified solutions as well. We recently acquired Lithium Balance after a two-year collaboration that began when we acquired a minority stake in this company. Over that time, we have jointly one business with new electric truck and bus designs with several OEMs, that bring over $250 of content per vehicle to Sensata.

Battery management solutions in heavy vehicle and industrial applications will represent an incremental $500 million of serviceable market for Sensata by 2030. In addition to battery management systems for heavy vehicle and industrial applications, Lithium Balance also provides battery energy storage solutions under the XOLTA brand, that will establish Sensata's total in this very fast growing space, which is estimated to exceed $6 billion in addressable market by 2030.

On Slide 9, I want to provide an update on the meaningful milestones we achieved in our Smart & Connected Megatrend initiative. During the quarter, we began to rollout our first Smart & Connected installation with a top 25 North American fleet manager, demonstrating our ability to move from selling hardware to providing data insight on a monthly recurring subscription model.

Several additional fleet trials are also moving toward commercialization this year. We've gained significant momentum with more than $140 million in total contract value having been quoted, representing more than $45 million in potential annual contract value with five fleet managers. Our expanded offering now includes the deployment of full-stack solutions that help unlock value for fleets, including functionalities such as a vehicle area network, cloud-based data analytics and insight delivery, web portals, mobile apps and integration with third-party telematics service providers.

We're pleased by the increasing interest and continue to believe that our Smart & Connected fleet management initiative open $6 billion in addressable market for Sensata by 2030. Reaching and then expanding commercialization with this exciting solution demonstrates its power to dramatically improve safety and reduce cost across commercial truck fleets.

In addition, in the new equipment space, we expect to close incremental new business with several leading heavy vehicle OEMs this year, building upon close to $100 million in new business wins closed to date for Smart & Connected solutions. As we capture more of this $1 billion addressable market in the OEM space, we are confident that our new business wins will convert into revenue as OEM production commences.

In closing, I'm pleased with the progress against the Megatrend initiatives, and this progress supports our increased investment in this area as we pursue these large fast growing market trends. We intend to continue our efforts to expand Sensata's solutions for these areas organically and through third-party collaboration and through acquisition as appropriate. As I've said before, we see numerous opportunities to utilize our strong financial position, our engineering capabilities, supply chain and customer relationships to meaningfully enlarge our addressable markets, through organic efforts as well as bolt-on acquisitions within these megatrends.

I'll now turn the call over to Paul.

Paul S. Vasington -- Executive Vice President & Chief Financial Officer

Thank you, Jeff. Key highlights for the fourth quarter. As shown on Slide 11, include revenue of $906.5 million, an increase of 7.1% in the fourth quarter of 2019. Organic revenue increased 5.3%. Changes in foreign currency increased revenue by 1.8%. And sequentially from the third quarter reported revenue increased 15%, reflecting our strong response to the continued rebound in our markets.

You'll recall that on January 8, we updated our revenue guidance for the fourth quarter. Throughout the quarter, we saw continued strengthening, especially within our global automotive, heavy vehicle and industrial end markets, in addition to a revenue uplift from foreign exchange rate movements. And those contributed to the higher revenue performance in the quarter than we anticipated in late October.

Adjusted operating income was $195.6 million, an increase of 1.6% compared to the fourth quarter of 2019, primarily due to higher revenues, savings from cost reduction programs and favorable foreign currency, partially offset by elevated costs resulting from the COVID-19 pandemic, higher incentive compensation aligned to improved financial performance, and higher spend to support megatrend growth initiatives.

During the second quarter, you will recall that we announced a series of actions to structurally reduce our semi-variable costs by about 10%, to achieve an expected $60 million to $65 million in annual savings. We achieved the targeted $12 million savings from these programs in the fourth quarter and expect to achieve the full annualized savings starting in 2021.

Adjusted net income was $134.7 million a decrease of 4.9% compared to the fourth quarter of 2019, largely due to higher interest expense from our new bond issuance during the third quarter of this year. Adjusted EPS was $0.85 for the fourth quarter, a decrease of 4.5% compared to the prior year quarter.

Now I will discuss our performance by end market in the fourth quarter of 2020 as outlined on Slide 12. Overall, we reported an organic revenue increase of 5.3% year-on-year, against an overall end market decrease of approximately 2.4% representing market outgrowth of 770 basis points for Sensata.

Our heavy vehicle off-road business posted organic revenue increase of 16.2%, representing 990 basis points of outgrowth as compared to 6.3% end market growth. Our China on-road truck business continued to post better than expected growth from accelerated adoption of NS VI emissions regulations.

For the full year 2020, we delivered 880 basis points of outgrowth in the heavy vehicle off-road business, higher than our long-term targeted range of 600 basis points to 800 basis points. Our automotive business posted an organic revenue increase of 4.4%. Automotive production remained in high level during the quarter, creating broad supply chain challenges, while OEM customers worked down their inventories which altogether created a 5.4% negative impact on revenue.

Our automotive business produced market outgrowth of 970 basis points in the fourth quarter, led by continued new product launches in emissions, electrification and safety-related applications and systems. For the full year 2020, we delivered automotive outgrowth of 690 basis points, once again higher than our long-term target range of 400 basis points to 600 basis points.

Looking ahead, lower inventory levels at our automotive customers especially in North America sets us up well for strong growth in 2021. Our industrial business increased 7.7% organically with global industrial end markets return to growth in the quarter. Strong growth in heating, ventilation and air conditioning and 5G applications in addition to supply chain restocking benefit our industrial business.

Our aerospace business decreased 24.8% organically, reflecting reduced OEM production and much lower air traffic, which has negatively impacted our aerospace aftermarket business for most of the year. New product launches primarily in the defense space, partially offset the significant aerospace market decline this quarter.

Now I'd like to comment on the performance of our two business segments in the fourth quarter of 2020, starting with Performance Sensing on Slide 13. Our Performance Sensing business reported revenues of $689 million, an increase of 8.9% compared to the same quarter last year. Excluding the positive impact from foreign currency of 2%, Performance Sensing organic revenue increased 6.9%.

On a sequential basis, Performance Sensing revenue grew 18.6% in the third quarter, as customers maintained a high order rate through the quarter. Sequentially from the third quarter, our automotive business reported an increase of 17% and our heavy vehicle and off-road business reported increase of 23%, demonstrating the accelerated rebound of both of these markets.

Performance Sensing operating income was $185.1 million, an increase of 7.9% as compared to the same quarter last year, with operating margin of 26.9%. The increase in segment operating income was primarily due to higher revenue, savings and cost reduction actions and favorable foreign currency, somewhat offset by elevated costs caused by the COVID-19 pandemic. Sequentially Performance Sensing generate incremental margin of 31% on a higher revenue, underscoring Sensata's profit potential associated with rebounding end-markets.

As shown on Slide 14, Sensing Solutions reported revenues of $217.5 million in the fourth quarter of 2020, an increase of 1.7% as compared to the same quarter last year. Excluding the positive impact of foreign currency of 1.1%, Sensing Solutions organic revenue increased 0.6%. On a sequential basis, Sensing Solutions revenue grew 4.9% from the third quarter as customers ramped up production through the quarter. Sequentially from the third quarter, our industrial business reported an increase of 4% and our aerospace business reported increase of 11%.

Sensing Solutions operating income was $70.7 million, an increase of 2.3% from the same quarter last year, with operating margin of 32.5%. The increase in segment operating income was primarily due to higher revenue, savings from cost reduction actions and favorable foreign currency, somewhat offset by elevated costs related to the COVID-19 pandemic. Sequentially, Sensing Solutions generate very strong incremental margins from a higher revenue and from productivity gains.

On Slide 15, corporate and other costs not included in segment operating income were $69.6 million in the fourth quarter 2020. Excluding charges added back to our non-GAAP results, corporate and other costs were $58.5 million, an increase of $12 million from the prior quarter, primarily due to higher global incentive compensation costs aligned to our improving financial performance and higher design and business development spend to support our Megatrend growth initiatives somewhat offset by savings from cost reduction initiatives.

Items added back to our non-GAAP corporate operating expenses include restructuring-related and other costs, and financing and other transaction costs.

Megatrend investments were $8.8 million during the fourth quarter, an increase of $1.5 million from the prior year quarter. We currently expect approximately $50 million to $55 million in Megatrend-related spend in 2021 to design and develop differentiated sensor rich and data insights solutions, venture new markets, develop new business models and design new product categories in fast growing and transformational megatrend vectors of Electrification and Smart & Connected solutions.

Slide 16 shows Sensata's fourth quarter 2020 non-GAAP results. Adjusted operating income was up 1.6% compared to the same quarter last year. While adjusted operating margin decreased 110 basis points to 21.6% which is near the top of our peer group and represents an attractive operating income margin profile. The decrease in both adjusted gross margin and adjusted operating margin largely reflects the elevated costs we have experienced due to the impact of the COVID-19 pandemic and the related operating and productivity challenges.

We acted early during the pandemic to reduce our cost structure, while continuing to invest in Megatrends and are shaping our end-markets that we believe will enable us to deliver long-term sustainable growth. Incentive compensation costs have also increased aligns with rising operating income as our end-markets recovered from a low point in the second quarter of 2020.

Adjusted net income declined 4.9% compared to the same quarter last year. The decrease largely reflects higher interest expenses related to our bond issuance in the third quarter of this year and higher taxes due to jurisdictional profit mix. Finally, adjusted EPS was $0.85, down $0.04 to 4.5% as compared to the fourth quarter of 2019, as the decrease in adjusted net income was partially offset by the benefit in share repurchases in intervening periods.

And as shown on Slide 17, we generated record $240 million in free cash flow during the fourth [Phonetic] quarter, representing a 178% conversion rate of adjusted net income and finished the year with a 16-day reduction in inventory days on hand. This brings free cash flow generation of $453 million for the full year, representing 130% conversion rate. For 2021, we expect free cash flow conversion of approximately 85%.

Our capital expenditures for full year 2020 were $107 million in line with guidance. For full year 2021, we expect capital expenditures to be in the range of $160 million to $170 million, a more normalized level as compared to 2020. Sensata's net debt-to-EBITDA ratio was 3.2 times at the end of December, which is within our target operating range of 2.5 times to 3.5 times.

During the first quarter of 2021, we have the opportunity to call-in $750 million of senior notes due in 2026, which pay 6.25% in annual interest. It is our intention to repay those notes later in the first quarter, reduce our interest expense and that assumption is built into the financial guidance we're providing today.

We're providing financial guidance for the first quarter of 2021, as shown on Slide 18. As a result of our improving economic conditions, and greater stability in customer order patterns, we expect to generate revenues between $875 million and $915 million for the first quarter of 2021, representing a reported revenue increase between 13% and 18% compared to the first quarter of 2020.

At the mid-point of guidance, we expect that foreign currency will increase revenues year-over-year by approximately $17 million. Excluding the impact of foreign currency, we expect an organic revenue increase of 11% to 16% in the first quarter. You'll recall that we called out approximately $20 million to $25 million inventory that was built by our customers largely automotive OEMs in the first quarter of 2020. That inventory build now reverses and acts as a headwind year-over-year growth comparisons to the first quarter of 2021.

Our current flow rate is approximately 93% of the revenue guidance midpoint for the first quarter. We continue to monitor leading economic indicators and third-party forecasts to help form our view of future demand. One headwind affecting our outlook is the expected impact of a global microchip shortage if the entire auto supply chain is currently experiencing that we expect will add 25 basis points to 50 basis points to our operating costs in the first quarter. Including this expense, we expect to report adjusted operating income between $166 million to $182 million. At the mid-point, operating income margin is expected to be 20.2% excluding the impact of foreign exchange.

On the bottom line, we expect to report adjusted net income between $106 million and $122 million, which would represent an increase of 27% to 47% compared to the first quarter of 2020. We expect to report adjusted EPS between $0.67 and $0.77, which includes a $0.01 negative impact from foreign currency at the guidance mid-point.

At the bottom of slide, we provided a margin walk from the first quarter of 2020 to the first quarter of 2021. This includes expected impacts from the semiconductor shortage, increased COVID-related costs, increased incentive compensation for employees, increase Megatrend investments and the impact of foreign exchange.

Sensata's core business is strong with 400 basis points of margin improvement expected from operating leverage on higher revenues and net productivity gains, including savings from cost reduction actions. Operating income margin reflects a very strong 40% incremental profit on the incremental revenue from the same period a year-ago.

We're providing financial guidance for the full year 2021 as shown on Slide 19. For the full year 2021, while our degree of market uncertainty remains, we're planning for a continuation of recent rebounding economic and business conditions. Accordingly, we expect to generate revenues between $3.425 billion to $3.575 billion for the full year 2021 representing reported revenue increase between 12% and 17% year-on-year.

At the mid-point of guidance, we expect that foreign currency will increase revenue year-over-year by approximately $64 million. Excluding the impact of foreign currency, we expect an organic revenue increase of 10% to 15% in 2021. We expect to report adjusted operating income between $695 million and $755 million, which includes the expected impact of a global microchip shortage and expected 25 basis points to 50 basis points cost from the first half of the year. At the mid-point, operating income margin is expected to be 20.9% excluding the impact of foreign exchange.

On the bottom line, we expect to report adjusted net income between $488 million and $544 million which represented an increase of 40% to 56% compared to 2020. We expect to report adjusted EPS between $3.06 to $3.42 which includes a negligible impact from foreign currency at the guidance mid-point.

At the bottom of the slide, we provided a margin walk from 2019 to 2021. We show a margin comparison to a pre-pandemic period, while fluctuating revenue has had the greatest impact on our operating income margins, COVID-related costs, incentive compensation for employees, Megatrends investments and foreign exchange have also had a meaningful impact on our operating income margin.

Sensata's core business remain strong, and on a like-to-like basis, absent these additional costs, 2021 operating income margin would be higher than 2019 on similar revenue.

On Slide 20, we provide our estimates for OEM production growth for 2021 as compared to 2020. North America automotive production is expected to rebound sharply this year, as the industry seeks to address record low inventory levels at the end of 2020. Global automotive production is expected to grow 13% on a revenue weighted basis. Moreover, all of our end-markets are expected to grow in 2021. And these assumptions underpin our outlook for strong revenue and earnings growth in the coming year.

In sum, Sensata delivered an excellent financial finish in 2020, despite an extremely challenging environment throughout the year. We expect this strong performance to continue into 2021, as demonstrated by the financial guidance we're providing today. Driving this performance is our continued ability to achieve our growth targets, including a secular long-term market outgrowth target of 400 basis points to 600 basis points for our automotive business, and 600 basis points to 800 basis points for heavy vehicle business.

Now let me turn the call back over to Jeff for closing comments.

Jeffrey J. Cote -- Chief Executive Officer & President

Thanks, Paul. I'll wrap up with a few key messages as outlined on Slide 21. Sensata has responded very well to the rapid improvements in many of the end markets that we serve, which demonstrates the strength, flexibility and reliability of our organizational model, which enabled us to capitalize on the end-market demand recovery. Our ability to respond quickly to shifting demands, as well as will position us very well as a trusted resource for our customers.

We're delivering attractive end-market outgrowth. We remain confident in our ability to continue to deliver this attractive end-market outgrowth into the future based upon our strong levels of new business wins. We continue to deliver solid free cash flow and drove our record cash generation of $140 million in the fourth quarter, which demonstrates Sensata's resilient financial model and operating discipline.

We continue to invest in our Megatrends and other growth initiatives that are opening large and rapidly growing opportunities for Sensata across all of our end-markets. We're making excellent progress as evidenced by the rollout of our first commercial fleet adoption for Smart & Connected Solutions, by the acquisition of Lithium Balance, which expands our electrification offerings, and by the $180 million in new electrification business wins in 2020.

We continue to believe that the overall market environment may provide interesting opportunities to further strengthen our portfolio through strategically important value-creating acquisitions. In addition, we're pursuing technology collaborations and partnerships with third-parties to expand our capabilities and accelerate our Megatrend growth. We expect to continue to deliver industry-leading margins for our shareholders, while also investing in growth opportunities and our people.

We continue to believe that the overall market environment may provide interesting opportunities to further strengthen our portfolio through strategically important value creating acquisitions. In addition, we are pursuing technology collaborations and partnerships with third-parties to expand our capabilities and accelerate our megatrend growth. We expect to continue to deliver industry-leading margins for our shareholders, while also investing in growth opportunities and our people.

And finally, I'm excited about Sensata's long-standing mission to help create cleaner, safer and a more connected world, not just for our customers' products, but also for our own operations. We are incorporating ESG areas into our strategy to help ensure the long-term sustainability and success of the company from all of its stakeholders. We look forward to reporting more on this topic in the future.

I'd now like to turn the call back to Jacob.

Jacob Sayer -- Vice President, Finance

Thank you, Jeff. Given the large number of listeners on the call, please limit yourself to just one question each. If we have time, we'll circle back for follow-up questions. As we're in different locations today, feel free to direct your questions to either Jeff or Paul directly. Jason, would you please begin the Q&A?

Questions and Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Scott Davis from Melius Research. Please go ahead.

Scott Davis -- Melius Research -- Analyst

Hi. Good morning, guys.

Jeffrey J. Cote -- Chief Executive Officer & President

Hey, Scott.

Paul S. Vasington -- Executive Vice President & Chief Financial Officer

Hey, Scott.

Scott Davis -- Melius Research -- Analyst

Good morning. The Megatrends spend, the $50 million to $55 million, should we think about that as kind of the new normal as a long-term run rate? Or is that more likely to grow with revenues over time? Or is it more of kind of couple years, you got to catch-up and then it settles down a little bit or just how are you guys thinking about that number?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes, it's a great question, Scott. It's going to be success-driven and opportunity-driven. And so given the progress that we experienced in 2020, we believe that that activity earned incremental investment. I would tell you that we will monitor it closely. We're not approaching this from a standpoint of we budgeted that money and that's how we're going to spend it. We'll monitor our progress very closely, quarter-to-quarter, against the initiatives and the objectives that we've set out. That allows for that spend, we understand our responsibility to make sure that we're looking after long-term growth of the company. And so, right now, that's what we're planning to spend in 2020. But we'll continue to provide huge amounts of transparency to that spend and the success that we're able to achieve based upon that spend to our shareholders and adjust accordingly.

Jacob Sayer -- Vice President, Finance

Thanks, Scott.

Operator

The next question is from Craig Hettenbach from Morgan Stanley. Please go ahead.

Craig Hettenbach -- Morgan Stanley -- Analyst

Great, thanks, Jeff for all the color on the EV front. I guess just starting there, you mentioned a number of new components, specific to EVs, be it around braking, e-motors, just curious kind of where do you think you have seen the most traction in some of these applications? And then, I can see through the breadth of the OEMs you announced that it's broad-based, but just any particular region right now, where you feel like you're seeing the best traction for EVs?

Jeffrey J. Cote -- Chief Executive Officer & President

Yeah. Craig, so just to set the context, obviously, I think everybody is feeling this, a trend associated with electrification driven by government regulation and consumer pull is a trend that's accelerating it. And we've observed that for several years here and made sure we've invested in it.

The point that we wanted to make very clear in our comments, is that a lot of the content we have on combustion vehicles ports over. So it isn't as though there is a discontinuity and complete loss of all of the opportunities that we see on the combustion side, a half or more of that content applies in an EV environment. But we've also invested organically in e-motor, positions and others -- position sensors and others, but we've invested inorganically GIGAVAC, high-voltage contactors, Lithium Balance with battery management systems.

The trend in terms of EVs, I think that we're seeing clearly is more pronounced in Europe and in China. But again, you have to look at the segmentation of the electric vehicle. In China, they are more lower-end vehicles, in terms of the penetration, and we don't believe long-term. That's where the market will go -- will go toward longer range, shorter-charge time vehicles. That's the future of electric vehicles in our view, and that's the target market that we're going after.

And we're seeing the trend of NBO opportunities pretty globally. The slide that you saw in terms of the number of customers that we're engaging with is very broad. And we're doing that on purpose because candidly, we believe that our customers have an opportunity to really continue to grow here. But the true winners in terms of the market are unknown. So we're casting the net very wide to make sure that we're serving all of the customers that are making those products.

Jacob Sayer -- Vice President, Finance

Thanks, Craig.

Operator

The next question is from Wamsi Mohan from Bank of America. Please go ahead.

Wamsi Mohan -- Bank of America -- Analyst

Yes, thank you. Jeff, the drag from semi shortages on margin, is that a function of higher prices of components that you're alluding to in the first half? Or is there a function of lower production that you anticipate? And is first half basically a reasonable way to think about this at the moment? Why can't that sort of last longer? And if I could, Jeff, just given the importance of this electrification trends that you have alluded to, if you could just maybe give us some sense of how you expect first Sensata, the split of this to be in maybe a two-year or five-year timeframe between the opportunities from a heavy vehicle standpoint versus autos, that'll be great. Thank you.

Jeffrey J. Cote -- Chief Executive Officer & President

Sure. So, Wamsi, first on the semi question, it's -- the cost is a combination of pricing and increased logistics costs, given the short supply chain. So everything's expedited freight, to make sure that we can keep things open and running for our customers. And again, this is a pretty broad-based industry trend.

I would note that although the semi shortage, electronic shortage is most acute, the reality is the supply chains across the world, not just with Sensata, I think we're doing a great job managing through this, but very -- on a very global basis or very broad basis are stretched thing right now with the increased demand and the challenges associated with capacity, with keeping plants open, with labor shortages and COVID-related risk. But I think that, we have as a company demonstrated really strong resilience there.

On your question associated with electrification, our view is that clearly near-term, the penetration of electrification will be more broad in light vehicle. But we're not stopping there. We noted in our prepared comments that Lithium Balance brought the opportunity to be able to go after heavy vehicle and bus applications as well. And our view is that, more in the bus, I think will become electrified, but in heavy vehicle, the power requirements will take a longer period of time to migrate toward EVs. But we're focused on those markets, because we think that it although behind light vehicle, it will happen over time. And we want to make sure that we have an offering to be able to serve that.

Jacob Sayer -- Vice President, Finance

Thanks, Wamsi.

Operator

The next question is from Mark Delaney from Goldman Sachs. Please go ahead.

Mark Delaney -- Goldman Sachs -- Analyst

Yes, good morning. Thanks very much for taking the questions. I was hoping if you could speak more on Lithium Balance? And I understand as a company you've known for some time, but maybe talk a little bit more on their technology. And after having worked with them, what led you to want to complete the acquisition. And if you could also maybe speak to the financial dimensions of Lithium Balance? What kind of revenue and earnings impact we should expect starting out and perhaps other margin profile, Lithium Balance may look longer-term compared to the corporate average?

Jeffrey J. Cote -- Chief Executive Officer & President

Sure. So originally, about two years ago, we acquired 25% of this company. We saw the trend toward electrification accelerating. You know that we had an inorganic -- or excuse me, an organic effort around wireless battery management. So we reached out to them to build-out our capability more broadly on battery management, which obviously has a hardware component, but has a pretty significant software component as well. And so that -- that was the original view of the synergy between the two companies.

Clearly, given where electrification has gone, as the content opportunity on wired battery management, we pursued the acquisition of the balance of this company, it's a small business, but it has great potential market size of over $500 million in -- by mid-2030. So it's an exciting opportunity for us in terms of expanding beyond just components into that space.

And as we've highlighted, we had early, strong success in terms of a win with our heavy vehicle customer, way beyond just a component but around battery management. So we're excited about that.

The margin profile is pretty consistent. We often talk about the fact that as we go beyond a central component into systems, it may not be at Sensata margins, but it will be differentiated margin, and it will help growth for the company. And so yet to be determined as that business grows, it's a small business today, but as that business grows, we're very confident that we'll have differentiated margins and when it becomes a bigger part of the business we'll be more specific in terms of the margin profile that we're experiencing there.

Jacob Sayer -- Vice President, Finance

Hopefully, that helps. Thanks, Mark.

Operator

The next question is from Samik Chatterjee from J.P. Morgan. Please go ahead.

Bharat Daryani -- J.P. Morgan -- Analyst

Hi. Good morning. Thanks for taking my questions. This is Bharat on for Samik. So if I could just ask a question on the content gain, you're coming off Europe very strong content in and outperformance in 2020. So as we look to 2021, how should we think about the trajectory of that? And in terms of key drivers as we look into 2021, I think in 2020, you were benefiting from China emission standards and that being a big part of the story. So in terms of drivers, is it going to be more toward EV story in 2021. How is that going to change? Any color there would be helpful. Thank you.

Jeffrey J. Cote -- Chief Executive Officer & President

Sure. So just as a summary, I think we've quoted some of these statistics, but fourth quarter companywide 770 basis points of market outgrowth for the full-year of 600 basis points. So at or above what we've quoted as being the target range is, and that's four years running now, right. So the thing that's really important about the outgrowth is that because we're long-cycle business, we get a lot of visibility to do this. Remember, during 2020, we called out third quarter that we're going to see a little bit of depth in our outgrowth. And that's exactly what happened. It tends to be a little lumpy, but we're confident in the long-term growth given the engagement we have with the customers, but most importantly, the MBO wins that we have and the pipeline of those which are driving engineering work for ultimate launches.

It's very broad-based, right. So it's no one thing that's creating incredible opportunity in terms of content growth. But as we've talked about it, it's the drive around regulation globally. It's the drive around consumer preference globally, which drives customer product portfolio roadmaps that we engage with them on to make sure that we're helping them, whether it be increased fuel efficiency on a combustion engine, or longer range on an electric vehicle, or safer application in an Ag equipment. There are literally dozens, if not hundreds of drivers. But there are some chunky ones, implementation of TPMS in different jurisdictions around the world or rollout of our exhaust gas recirculation applications. They tend to fan overtime, but there are dozens of trends that are allowing us to be confident in that trend long-term.

Jacob Sayer -- Vice President, Finance

Thanks, Bharat.

Bharat Daryani -- J.P. Morgan -- Analyst

Thank you.

Operator

The next question is from Matt Sheerin from Stifel. Please go ahead.

Matthew Sheerin -- Stifel, Nicolaus & Company -- Analyst

Yes, thanks. Good morning, everyone. Jeff, I just wanted to ask concerning your full-year guidance, which we certainly appreciate, and as you know, several of your peers have been reluctant to guide beyond Q1, just because of lack of visibility and a lot of moving parts. So wanted to ask about your visibility, are you getting a better sense of order flow from your customers? And does your revenue guide contemplate hiccups in terms of production at your customers, any issues beyond the operating costs that you talked about, but in terms of topline being impacted by the chip shortages?

Jeffrey J. Cote -- Chief Executive Officer & President

Yeah. So we had pretty good discussions internally regarding full year guidance. You know that in our business, we have really good long-term visibility of revenue, certainly within a quarter, we quote our fill rate 93% higher than we normally are in terms of our fill rate in the quarter. But even beyond the quarter, we get a pretty good deal.

The supply chain shortages have resulted in a situation where we've really doubled down on the engagement with customers because in some instances, we've placed longer term orders on the supply chain and therefore we've gone to our customers and asked for longer-term visibility and commitment from them. So that adds to our confidence.

But overall, we've factored in some conservatism on the full year given that things may happen. You'll know -- I think you all know that IHS brought down some of the full year numbers from a light vehicle standpoint given supply chain shortages. And we're following along and using similar expectations on that. Clearly if there's a major disruption, major lockdowns, we'll need to relook at it. But based upon what we're seeing right now, we feel very confident demand situation and you highlighted it. I think the bigger concern is broader supply chains, both at our customers, there's some other suppliers in within Sensata. We're going to focus on what we can control within our own business to make sure that we deliver for them the extent there's demand.

Jacob Sayer -- Vice President, Finance

Thanks, Matt.

Operator

The next question is from Amit Daryanani from Evercore. Please go ahead.

Amit Daryanani -- Evercore ISI -- Analyst

Thanks for taking my question. I guess, Jeff, you touched on seeing incrementally better, attractive M&A opportunities. So I was hoping you would perhaps just remind us how do you think about M&A in terms of the focus area deal sizes? And really how much leverage are we comfortable running with on our balance sheet?

And if you can also just touch on the second topic the Megatrend initiatives, I appreciate the opex clarity you folks are providing, but is there any way to think about how much revenue contribution you get in calendar '21 from those?

Jeffrey J. Cote -- Chief Executive Officer & President

Sure. Let me try to hit on several topics. So let me get on M&A first and then I can come back to the Megatrend net revenue contribution. So on the M&A front, we absolutely believe that there will be opportunities, the pipeline is quite full. Our capital allocation process will continue to be very balanced, but [Indecipherable] associated with M&A and buybacks. But right now, the focus is on M&A to drive the strategy which will drive accretive growth for the company as we pursue opportunities in these fast growing market segments that we've identified Electrification and on Smart & Connected. And so we'll continue to keep you updated on that, but that is the focus area right now.

In terms of leverage, we're comfortable with the same range of leverage. We've talked about more bolt-on acquisition. And we're very comfortable with the leverage range that we've given, done a lot in terms of earnings growth that drives that leverage down, which we're pleased about, but that's the range that we're quoting right now.

In terms of the Megatrend, we'll keep you posted. I mean, we talked about the revenue that's generated today in our automotive business associated with electrification of 5% of that revenue, but only 3% of the fleet is coming from electrified vehicles. So we were very confident in the tailwind, we'll experience as that trend occurs, and we will provide some more transparency in terms of the revenue that's being generated associated with both the electrification trend but also the smart and connected trend as they become bigger components of the overall business.

Jacob Sayer -- Vice President, Finance

Thanks, Amit.

Operator

The next question is from Steven Fox from Fox Advisors. Please go ahead.

Steven Fox -- Fox Advisor -- Analyst

Thanks. Good morning. Jeff, I'm just curious, you've talked a lot about electrification, can you just obviously, your ICE programs aren't going away overnight. Can you sort of talk about your outgrowth prospects there? And then how you manage sort of the shift in your business transferring from an ICE-dominated business to electrification without that's hurting the overall revenues? Thanks.

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So you said it right. The combustion engine is not growing away right now. But many companies have made some very bold statements. GM's announcement that they won't make combustion engines beyond 2035. This trend has accelerated and we're prepared for it, it's a positive thing for us.

But having said that, you point out a very important point, there is continued content growth on combustion engines, because between now and 2035, there are mandates regarding fuel efficiency and other CO2 emissions, and other safety-related requirements that will drive content, will continue to drive content. So we're thinking about that in terms of our reallocation, we're thinking about that in terms of which opportunities we pursue, but we'll kind of support our customers in terms of their roadmaps and help them migrate along this curve from combustion engines to electrified platforms.

So, again, not just in auto, in HVOR, in industrial applications, we'll do the same thing. And they make up a big portion of the NBOs that we won, a $180 million of our $465 million relate to electrification, but the balance relate to other application safety and missions-related application. So it's been still a meaningful part of the business and we're going to focus on it, manage through this transition in a very thoughtful way along with our customers.

Jacob Sayer -- Vice President, Finance

Thanks, Steve.

Operator

The next question is from Nik Todorov from Longbow. Please go ahead.

Nikolay Todorov -- Longbow Research -- Analyst

Yes, thanks. Good morning, everyone. Guys, I think relatively last quarter it looks like Megatrends investment outlook for 2021 have increased. If that is true, maybe can you talk what's changing there? Are you may be seeing acceleration in the Smart & Connected, given the quicker turnaround of those programs. And I think, Jeff, you talked about those quotes. And just related to the Smart & Connected, is that $45 million per year for five customers, that's about $9 million to $10 million per program for the customer. Is that the average size and how should we think about Smart & Connected wins? Thanks.

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So the trend -- excuse me Megatrend spend, we ended the fourth quarter at $8 million -- I think. $8.8 million of Megatrend-related spend. So clearly an uptick supported by the progress that we're seeing both on Smart & Connected and on Electrification. I think all of our callers and all of our investors would agree that if these trends are just inevitable, and we need to make sure that we're investing heavily and that's always an incredibly difficult balance for a long-cycle business and we take it very seriously.

We're investing shareholder dollars today in future revenue opportunities. And so we wanted to again provide the transparency on that. So you don't confuse the core business and the results of the core business, but it is an area that we believe makes sense to continue investing in. I mentioned to Scott earlier, our spend will be successful in market opportunity driven, and we'll keep you updated in terms of the progress.

The specific question regarding the annual contract value. The $45 million, it clearly depends on size of fleet, right. Not all fleets are similar in size. And when you're talking about building out the applications and serving up data across smaller fleets and larger fleets, the annual contract value could vary pretty dramatically across those. And you can imagine we're starting with top 25. So that makes sense in terms of focus for us. But it's a meaningful opportunity that we're excited about. We're looking forward to giving you additional updates in terms of our progress as we go forward.

Jacob Sayer -- Vice President, Finance

Thanks, Nik.

Operator

The next question is from David Williams from Loop Capital. Please go ahead.

David Williams -- Loop Capital -- Analyst

Hey, good morning, and congrats on the quarter and appreciate you letting me ask a question here. Just wanted to kind of dig into the -- maybe the geographic trends in terms of the EV dollar content, and how that differs may be in China, where you have a lower end vehicle versus maybe an North American electric vehicle? Any sense in terms of the 20% uplift, how that would maybe break down between geographies?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes, you've hit it perfectly. The reality is we're going to have lower content on vehicles that are lower range, longer charge time vehicles. So if you think of the class of vehicle that has an 80, 100 mile range, where we have less content on those versus the average of 50, right, which we've quoted 20% uplift from our average combustion engine environment.

But in China, for instance, where there are long-range vehicles, there's more content. So it tends to be less about the geographic location, it's more about the type of vehicles that were being designed into, and the content in them. Obviously, when you go outside of light vehicle into heavy vehicle applications or other bus and on-road truck type applications, the content goes up much more dramatically.

And so -- and it's well on energy storage and other applications, when you start to think about components, but also battery -- wired battery management systems, the content opportunity really is significantly higher, not at the volumes of light vehicle clearly. But we are in a fortunate position to be able to leverage the scale capability we get in that high volume, light vehicle market to those other market segments that are growing very rapidly as well.

Jacob Sayer -- Vice President, Finance

Thanks, David.

Operator

The next question is from Christopher Glynn from Oppenheimer. Please go ahead.

Christopher Glynn -- Oppenheimer -- Analyst

Thank you. Good morning. Just going back to Slide 9 again for a sec, the OEM market of $1 billion got a pretty robust $100 million wins to-date, in terms of the fleet market opportunity of $6 billion, just curious to hear a little more about that bridge? Is that a focus for further M&A and a focus -- a substantial part of the Megatrend investment?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes, absolutely. Clearly, there's a much bigger market in the retrofit world. But this was born out of our OEM relationships, right. So as OEM started to implement tire pressure monitoring, which was a legislated requirement, or regulated requirement, we realized and our OEM customers realized that you needed a vehicle area network to capture that data, and also to allow for a seamless truck to trailer link.

And the Smart & Connected initiative, and then we went, started researching it and engaging with fleet managers, because there's a whole bunch of vehicles out there, whole bunch of logistics equipment out there that is in need of essentially becoming IoT. You're getting it smarter to become safer and more efficient. So this is an area along with electrification that will continue to focus from a inorganic standpoint, but as well it's a big chunk of our Megatrend spend from an organic standpoint as well.

Jacob Sayer -- Vice President, Finance

Thanks, Chris.

Operator

The next question is from Brian Johnson from Barclays. Please go ahead.

Brian Johnson -- Barclays -- Analyst

Yes, thank you. I just want to talk a little bit more about Slide 7, and if you kind of think about the content, obviously, the argument you'd be making there is 20% content. So if you put uplift, I assume that translates the -- whatever content is in the engine block and transmission itself going away. But I think as you kind of think about the EV specific components, what's your expectation for market share, and profit pool in those EV specific components, versus the ICE components that are being carried over?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes, great. Great question. So let me start by saying that the 20% uplift that we've quoted is not -- we're not done. So the story hasn't been written yet in terms of all the needs that OEMs will have as they rollout more of these vehicles. So we're clearly aiming for more than 20% uplift, I just want to start there, both through organic efforts, more success in terms of commercial activity, but also through inorganic efforts. So more to come on that, but we're going to keep at it.

In terms of market share, the competitors that we see in these markets, they're different, but they're -- the dynamics aren't different, right. So there tends to be, three to five capable competitors in each of these applications that we're talking about, high voltage contactors as an example. We don't see the typical competitors that we see in a pressure environment, but we see the same competitors, it's the Panasonic's, it's the GE has a high voltage contactor offering. Hongfa is a China opportunity or China company. LSIS is a Korean supplier of high voltage contactors. So the dynamics and the competitive nature are very similar. They're really hard to do mission-critical application. So you tend not to see hundreds of competitors.

So longwinded way of saying we would expect similar market shares. We always aim for number one or number two slot in the market. And I think that we're heading certainly in that direction. From a profit pool standpoint, commodity level very similar margin -- margins, higher ASP, but similar margins that we would see in our other component business, which is different from what I quoted earlier, when you start to get higher in the stack, if you will, in battery management systems, we will continue to believe we'll see differentiated margins, but perhaps not at the same level of margin that we would see there in the content side of our product offerings.

Jacob Sayer -- Vice President, Finance

Thanks, Brian.

Operator

The next question is from Jim Suva from Citi. Please go ahead.

Jim Suva -- Citi -- Analyst

Thank you. Just one question, Jeff, the chip shortage how long do you think it will last? Do you have visibility into that or like when the auto production slows down in July/August, will that allow a time for kind of raising to catch-up? Or do you think it will be resolved before them?

Jeffrey J. Cote -- Chief Executive Officer & President

That's a tough question. Right now, the expectation is that, depending on how demand from both, it's not just an auto phenomenon, it's broader demand for chips, right. So as that evolves during the year, the hope is that second half of the year will be less challenging than we're experiencing right now based upon that demand, the capacity profile that exists.

Summer shutdowns, if they do have shutdowns in the automotive space always provide a little bit of breather for folks to catch-up a little bit. But, our expectation is similar to what I think you've quoted that second half of the year, we'll get a little bit of breather in terms of some of these shortages, lot of things driving that as well the expectation of vaccine rollout a little bit of flexibility on that front will help us well as the year progresses.

Jacob Sayer -- Vice President, Finance

Thanks, Jim.

Operator

The next question is from Luke Junk from Baird. Please go ahead.

Luke Junk -- Baird -- Analyst

Good morning. Jeff, I was wondering if you could give us a rough breakdown as the $50 million to $55 million excuse me in Megatrend spending in 2021. If I remember right, it was a little bit more weighted to Smart & Connected in 2020 as we look at the incremental spend here, can you just give some color on what you're leaning into?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes, it's still leaning in on the Smart & Connected from an investment and organic investment standpoint. It is a little bit higher in the electrification side than it was in 2020 though. So not quite at parity, but certainly the majority on the Smart & Connected side and the smaller portion on the electrification side.

Jacob Sayer -- Vice President, Finance

Thanks, Luke.

Operator

The next question is from Joseph Spak from RBC Capital Markets. Please go ahead.

Joseph Spak -- RBC Capital Markets -- Analyst

Thanks very much. I know regarding free cash flow for '21 is 85% conversion, which I think is at the higher end of what you've historically targeted and capex is clearly going higher. My guess is, there's probably a little bit of working capital investment to support the sales snapback. So did something changed there, are there additional efficiencies? Or do you have sort of a new target on conversion?

Jeffrey J. Cote -- Chief Executive Officer & President

Paul, do you want to grab this one?

Paul S. Vasington -- Executive Vice President & Chief Financial Officer

I think you described it well. We do expect to be more efficient on the working capital side, so big improvement on inventory this year. And we've been struggling with inventory days in the last couple of years and finally cracked the code here. And I think we're on a much better trajectory going forward. We're going to have to invest a little bit to support to grow. But all in all, I think we should expect conversion better than you saw in the last few years, which was in the high 70s, low 80s would be a good outcome and what we're just paying for 2021.

Jacob Sayer -- Vice President, Finance

Thanks, Joe.

Operator

The next question is from David Kelley from Jefferies. Please go ahead.

David Kelley -- Jefferies -- Analyst

Hi, good morning, guys. I was hoping you could provide some more color on the 5% OEM inventory impact in autos, just going back to the third quarter, there was a discussion of channel inventory normalization. And first, we were curious as to the drivers of the incremental work done in Q4, but also how you see channel inventory today would be great?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So it was an interesting year, Q1 inventory build in the supply chain given how quickly demand drops, they weren't able to shut the status off quick enough and they built inventory. And then clearly in the second half, there was a depletion of inventories. As a data point, North American automotive vehicle inventory was 48 days ending the year. I can't remember the last time we saw 48 days. Data we experience and talked with folks who are buying vehicles or vehicles we're selling at less price.

So there's a higher demand than they can make vehicles right now. And that's having the impact of tightening up the supply chain. But then certainly the North American vehicle inventory is a very valid data point. And it's consistent with what we're hearing from customers in terms of what they're seeing in their inventory more broadly in the supply chain.

Jacob Sayer -- Vice President, Finance

Great. Thanks, David.

Operator

The next question is from Michael Filatov from Berenberg Capital Markets. Please go ahead.

Michael Filatov -- Berenberg Capital Markets -- Analyst

Hey, good morning, guys. Just a quick question on the vehicle area network. You guys say that, the first rollout on small number of trucks and trailers will use the TPMS as the first sensing application. What can we see as the opportunity beyond TPMS in that Smart & Connected universe? What other sensing applications do you see on those platforms, and maybe what the content opportunity to grow from on an annual basis since it is supposed to be the SaaS type business model?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So we've talked about two other parameters that are key care-abouts for fleet managers that we're focused on from an organic standpoint. And that includes load management. So understanding not only total load in the trailer, but also the distribution of that load for safe -- distribution of the load for safe travel.

And the second area is around wheel and sensing. So that's essentially monitoring wheel bearings to prevent downtime on the road. And so short of doing regularly scheduled maintenance on that in addition to doing regularly scheduled maintenance, understanding what's going on, on the wheel and to predict potential failure of a bearing is another area.

We announced last year that we had a product that we developed in conjunction with Hendrickson to be able to bring that sensing parameter to market. Those are the three that we're starting with. But as you can imagine, once you have a captive piece of equipment with your vehicle area network on it, with a connection to the cloud, with a network that can analyze data, the opportunity is pretty broad in terms of adding either other Sensata sensors acquired capabilities, or third-party collaboration to bring more sensors to enrich the data profile of what we're offering here. So more and more to come, and obviously every time you add more data, right, you start with adding a sensor to collect that data. You bring it to the cloud, the value proposition increases for the fleet. So that the pricing would be commensurate with that expanded offer.

Joseph Spak -- RBC Capital Markets -- Analyst

Thanks, Michael.

Operator

The next question is from Joseph Giordano from Cowen. Please go ahead.

Robert Jamieson -- Cowen -- Analyst

Hey, good morning. This is Robert in for Joe. Thanks for taking my question. I just had a quick one on HVOR, I just want to dig into your expectations for 2021. I see you have market of six now to growth of like 600 bps, 800 bps. Just wondered what's going to be driving that outgrowth this year as you need change from like China VI emissions, do you see any other opportunities there, and then any sense of like geographic puts and takes that where you expect to outperform more?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So it feels really good to be in an HVOR market that has turned the corner on growth, right. This has been a market that started declining way before COVID hit. Middle of 2019, it started to decline, and in terms of just market downturn. We've been dealing through that. In the first quarter of this year, we're starting to see a turnaround on many of those. Certainly across the overall market, in the first quarter, we're expecting about 15% market growth. And as you look at the full year across the globe, where that tapers a little bit, a little bit less, but we should call it 6% plus market growth in across the world.

Now where we're seeing geographic impact? Clearly, in first quarter, we're seeing it everywhere other than European on-road. In the full year, interestingly, what has been a big driver of growth, which is China, will start to turn down and will start to get into more difficult comps. But all the other markets, North America and European on-road, Ag, construction, all positive market comparisons 2021 versus '20 and China would be down a little bit versus 2020.

Jacob Sayer -- Vice President, Finance

Thanks, Rob.

Operator

The next question is from William Stein from Truist. Please go ahead.

Joseph Meares -- Truist -- Analyst

Hey, guys, good morning. This is Joe on for Will. Thanks for taking my question. Acknowledging that this is far from a normal demand environment, and just -- it looks like the Q1 guide is roughly mid-single-digits below normal seasonal, is that just a pulling from Q4? Are there some conservatism baked in there? And then if you could just comment on inventory levels specifically at Tier 1 customers? Thanks.

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. It's a good question, but I'm little bit at a loss. I mean, things have been so volatile. It's hard to sort of look at normal seasonality. I would say that, clearly we're seeing some good growth in terms of first quarter versus first quarter of last year. But the seasonality aspects of it in terms of how that demand would normally play out is a little bit harder, honestly to be able to speak to. And as we sort of get to a little bit more consistent trend, perhaps we'll get back to that more normal seasonal trends that we would see in the business.

Jacob Sayer -- Vice President, Finance

Thanks, Joe.

Operator

The next question is from Rod Lache from Wolfe Research. Please go ahead.

Rod Lache -- Wolfe Research -- Analyst

Hi, everybody. I had another EV question. You mentioned that the EV specific content is on a longer range faster charge vehicles, which makes sense given the GIGAVAC and other technologies you have. Obviously a lot of those are higher-end luxury, like the Tesla's and the Taycan's of the world. I was just wondering if you're seeing a similar 20% uplift in content on the high volume mass market vehicles with longer range that are rolling out like the ID3s of the world, are those that are being contemplated where do you see a similar content and margin opportunity for those mass market cars?

Jeffrey J. Cote -- Chief Executive Officer & President

Yes. So I think we do right in. So I don't always attribute long range to luxury. I think that there is some segmentation that's occurring there where you're going to see more vehicles go to long-range, even though they may not be historically considered to be a luxury vehicle. But I understand your point on that. But we don't see any specific variation in terms of mass market, in terms of content. Clearly, some of the companies that are producing larger vehicles or larger numbers of vehicles, you know that we are suppliers to them, right. You saw our list on there. And so we're -- that's the purpose of including the customer list is to accentuate the broad engagement that we have across the market with many of the, if not all of the OEMs that are producing electric vehicles.

Jacob Sayer -- Vice President, Finance

Thanks, Rob.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to Jacob Sayer for any closing remarks.

Jacob Sayer -- Vice President, Finance

Thank you, Jason. I'd like to thank everyone for joining us today. Sensata will be participating in several upcoming virtual investor conferences during the first quarter including those sponsored by Goldman Sachs, Barclays, Wolfe Research, Berenberg, Morgan Stanley and Truist [Indecipherable]. We look forward to seeing you at one of those events or on our first quarter earnings call late in April. Thank you for joining us this morning and your interest in Sensata. Jason, you can now end the call.

Thank you, Jason. I'd like to thank everyone for joining us today. Sensata will be participating in several upcoming virtual investor conferences during the first quarter, including those sponsored by Goldman Sachs, Barclays, Wolfe Research, Berenberg, Morgan Stanley and Truist Capital. So it's going to be a busy calendar. We look forward to seeing you at one of those events or on our first quarter earnings call, late in April. Thank you for joining us this morning and your interest in Sensata. Jason, you can now end the call.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Jacob Sayer -- Vice President, Finance

Jeffrey J. Cote -- Chief Executive Officer & President

Paul S. Vasington -- Executive Vice President & Chief Financial Officer

Scott Davis -- Melius Research -- Analyst

Craig Hettenbach -- Morgan Stanley -- Analyst

Wamsi Mohan -- Bank of America -- Analyst

Mark Delaney -- Goldman Sachs -- Analyst

Bharat Daryani -- J.P. Morgan -- Analyst

Matthew Sheerin -- Stifel, Nicolaus & Company -- Analyst

Amit Daryanani -- Evercore ISI -- Analyst

Steven Fox -- Fox Advisor -- Analyst

Nikolay Todorov -- Longbow Research -- Analyst

David Williams -- Loop Capital -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Brian Johnson -- Barclays -- Analyst

Jim Suva -- Citi -- Analyst

Luke Junk -- Baird -- Analyst

Joseph Spak -- RBC Capital Markets -- Analyst

David Kelley -- Jefferies -- Analyst

Michael Filatov -- Berenberg Capital Markets -- Analyst

Robert Jamieson -- Cowen -- Analyst

Joseph Meares -- Truist -- Analyst

Rod Lache -- Wolfe Research -- Analyst

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