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Delphi Automotive (DLPH)
Q1 2019 Earnings Call
May. 02, 2019, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is Darinda. I will be your conference facilitator at this time. I would like to welcome everyone to the Delphi Technologies first-quarter 2019 earnings conference call.

[Operator Instructions] As a reminder, this conference call is being recorded and simultaneously webcast. I would now like to turn the call over to Sherief Bakr, vice president, investor relations. Sherief, please go ahead.

Sherief Bakr -- Vice President of Investor Relations

Thank you, Darinda, and good morning and good afternoon, everyone. Welcome to Delphi Technologies' first-quarter 2019 earnings call. With me today in London is our chief executive officer, Rick Dauch; and our chief financial officer, Vivid Sehgal. This call includes a discussion of our first-quarter 2019 financial results as disclosed in today's press release, as well as our full year 2019 outlook.

In order to follow along with today's presentation, you can find an accompanying set of slides on our investor relations website at ir.delphi.com. Please note that our discussion includes references to non-GAAP financial measures, which are reconciled to their corresponding GAAP measures in the tables within our press release. Now before we begin, I'd like to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results, and are subject to a number of risks and uncertainties, including those contained in the company's Form 10-K and 10-Q as well as other filings with the SEC.

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I would encourage all of you to review these risk factors listed in these documents. And with that, I'd like to turn the call over to Rick. 

Rick Dauch -- Chief Executive Officer

Thank you, Sherief, and good morning, and good afternoon to everyone on the call. Before I comment on our Q1 performance, I wanted to provide a quick update on my first 115 days as a CEO, and tell you why I'm even more bullish today about our future here at Delphi Technologies. Vivid will then take you to the details of our first-quarter performance and our outlook for the full year before we take your questions. Let's move to Slide 2.

As I mentioned on the last quarter's call, I've spent the majority of my first three months here at Delphi Technologies traveling the world, getting to know, and getting a deeper understanding of the company. This included spending extensive time meeting with our executive and site leadership teams and our truly diverse and global workforce, visiting our 30-plus operating sites and technical centers, learning about our product portfolios, business models and internal processes and systems, and visiting customers and suppliers, and identifying meaningful opportunities to improve our business. My travels around the globe literally in 80 days included visiting and assessing 90% of our sites in 12 countries, holding 28 town hall sessions at our global locations, receiving direct feedback from our workforce from more than 6,000 of our employees through handwritten five by seven cards; meeting face to face with eight of our top 10 customers; hosting 26 of our key suppliers at a supplier day, followed by on-site visits to three of our critical GDi component suppliers; reviewing all of our major transition service and contract manufacturing units with our former parent, which I am pleased to say remain on track; undertaking a thorough analysis of our corporate overhead costs and structures, including our extensive global engineering footprint, and taking a deep dive into our GDi and power electronics businesses and the detailed plans we have in place to deliver improved property in these areas; speaking with a number of our top shareholders, individually interviewing the top 50 executive leaders here at Delphi Technologies and recruiting, and adding new leadership talent to the company in a few key areas of the business. The bottom line, I now have a much deeper understanding of our business and what we need to do going forward to prioritize our resources, and to create shareholder value.

If you recall, I also talked at my first earnings call about how I believe we have a unique opportunity here to create a great company at Delphi Technologies. Based on what I've seen and learned over the last three months, I came away with two main conclusions: our strategic direction and portfolio of choices are fundamentally right, and we have even more potential than I initially thought at the start of the year. More potential to better serve and grow with customers across the globe as our industry works through major powertrain and propulsion system transformations and more potential to improve our financial performance. Once we get beyond our near-term spin related and technology ship headwinds, improve our GDi operational performance, streamline our overall cost structure and become a true lean system company.

Slide 3 lays out my assessment in a bit more detail and I have bucketed them into what I call the five Ps: people, products, partners, processes and profits. Before getting into some of the details, the areas where I see the most potential for improvement and where we are performing at less than peer group benchmark levels fall in three main categories. First, our process discipline, IT systems and lean tools across the company; second, our overall SG&A spend and organizational structure; and three, our engineering footprint and spend. Improving our performance in these areas will be key to our future success, and will improve our free cash flow performance, and provide additional options for us to allocate capital more effectively in the future.

Let me cover the CEO scorecard, and let me start with what I consider to be our strengths or our green area, and that's our people and our products. At Delphi Technologies, our greatest strengths reside in our deep-rooted technical heritage and our capabilities. It is the foundational strength of our company and a great foundation to build upon, and it all starts with our people. As I met with a number of our largest customers and visited our technical centers [Inaudible] around the globe, it quickly confirmed my initial view that we have a dedicated and technically skilled workforce that designs, tests, validates, produces and supplies cutting-edge and industry-leading products that fit at the crossroad and heart of the propulsion revolution under way in our industry.

We have a long established engineering leadership in internal combustion engines, electronics, software and controls. And in many areas, we are the technology pioneers in our industry. As a pure-play propulsion company that bridges traditional internal combustion engine and electric propulsion technology, our customers recognize and appreciate how we are able to help them improve vehicle performance and the driving experience for their customers, specifically in the areas of fuel efficiency and reduced emissions. Our product technology leadership and the depth of our customer relationships truly differentiate us from our peers and will allow us to outpace the industry from a growth perspective going forward.

This is evidenced by the strong commercial wins we have secured over the last two years in three key areas of our product portfolio: commercial vehicle diesel and automotive gas-direct inject -- fuel injection systems and power electronics where we have unique, proprietary and patented technology. How we execute on these wins will clearly be an important driver of our future financial performance. And one of my priorities has been on ensuring we have the right processes, systems and resources, both human and financial capital, in place to support our future profitable growth in these areas. Turning to our primary business partners, which I'll define today as our customers and our suppliers.

On the green side, we have a very strong relationship with our customers across the globe, many of whom are relying on us to help them meet increasingly stringent regulatory targets focused on cleaner and more efficient vehicles for both passenger car and commercial vehicle applications. Often we have embedded engineers working directly with the OEM engineering teams to codevelop the next generation of propulsion products and software solutions. These technical partnerships are long term and deep seated, going back many decades. This plays to our strengths and gives us tremendous opportunities to drive long-term growth with existing customers and the potential to expand our global presence, especially with Asian-based commercial vehicle OEMs with European-based partners.

The rapid transitions from diesel to gasoline and from ICE to electric propulsion systems while creating difficult operational challenges, and heavy investments today will undoubtedly benefit Delphi Technologies on the other side of the transition. On the yellow side of the bar is where we place our supplier relationships. It's clear that we have some work to do here in terms of improving our decision making, use of common systems and production forecasting methodologies. We are already making some near-term organizational changes in this area, and I will dig in even deeper to our supply chain management processes in the second quarter. This leads me to processes, where we are clearly not world class and have a significant opportunity to drive more efficiency, speed and flexibility into the way we operate our business.

We have all the tools in place, capable people, great equipment at our plants and technical centers, but we must do a much better job of putting in the systems and the processes that tie the various functions and tools together. We are not a truly lean company in terms of our cash conversion cycle as compared to our Tier one peers, and we are addressing these issues immediately. It starts with disciplined and efficient product engineering, on-time sourcing to and management of our supply base and then world-class operational performance and inventory management at our factories. We can and we will get better in these critically important areas.

We will soon start our lean system journey here at Delphi Technologies using a proven system that has been effective for me over the past 20 years at other companies. All of this leads to our financial performance. While our Q1 performance was solid and better than our own forecast, I am by no means happy with our current level of profitability. The bad news is that in the shorter term, we are fighting through some major market swings and technology transitions that are negatively impacting our business and some of our peers as well.

The good news is that I do see a number of opportunities to improve our long-term financial performance to what I would call self-help measures. These are target-rich opportunities which we will address quickly and cost effectively. First, we're going to execute on our initiatives to improve GDi profitability, and this is our No.1 priority here at Delphi Technologies. Second, reducing our SG&A as we complete the roll-off of TSAs, and focus on getting more efficiencies throughout the organization.

This includes simplifying our organizational structure to eliminate unnecessary layers in bureaucracy, having greater discipline across the company and how we invest and spend money, and three, utilizing common processes and IT systems across the company. Third, taking the opportunity to simplify our engineering footprint and reduce our engineering spend. While we are a company that has undergone a major rotation of its manufacturing footprint over the last few years, my site visits across the globe underscored my initial view that we have an overly complex engineering footprint with overlapping capabilities, capacity, staffing relative to what we truly need to support our customers. No doubt addressing these three key areas will require a lot of fundamental hard work, and based on my previous experience, will likely take us into 2021 to complete some of the necessary changes to become a world-class company.

As a leadership team, we are aligned in the key areas that we need to address, whether that be SG&A, engineering, supply chain, manufacturing performance or program management. And we are working at pace to define the actions we will take to significantly improve both our operational and financial performance. That work is well under way, prioritizing the quick wins we can achieve in the short term while being very thoughtful to ensure we focus our efforts in the right places to drive sustainable long-term value here at Delphi Technologies. Let me provide you with a few of the changes that we've already made in the past 60 days.

We now have a cross-functional SWOT team in place dedicated to improving our GDi profitability. I personally receive a 40-page deck every Monday that tracks our key operational performance metrics at our five GDi plants. Issues are addressed, resources are allocated and decisions are made weekly to drive improvements. We will also conduct quarterly on-site operational reviews at our key European plants that are currently in launch mode on GDi.

This stronger focus and higher-level focus is already delivering improved results at our operations. We are implementing a new program and launch management process called Foursquare that raises the visibility of our major capital projects to the C-suite level on a monthly or quarterly basis. We hired a seasoned executive who I have worked with before to lead these efforts and kick off the process in April and we'll have our first in-depth reviews at my level in May. Previously, our program management system was too administrative in nature and issues were not addressed to the right levels until it was too late, leading to poor and costly launch performances over the last few years.

As I mentioned earlier, our team has been trained on to understand many of the individual tools used in the lean process or the Toyota Production System, but we do not understand how to make those tools work across the entire value stream. We have identified 16 of our 24 major operating sites that are stable enough to start the transition to lean systems over the summer. And we will go through a 3-year hands-on training and implementation process that radically changes how we operate our plants and manage our supply chain. I've led this same transition at over 60 plants in the past 20 years, and I am confident we will see marked improvements in our operating and financial metrics going forward once that system takes place and takes root.

We pulled our senior leaders and technical leaders together and it took a companywide look rather than a business unit or specific technical center view at our global engineering resources, footprint and lab equipment usage. What we found are many opportunities to improve in this area. We're in the process of analyzing what we have and what we need going forward and identifying the opportunities we have to reduce our operating and future capex cost in the engineering area. We are also doing a deep dive into our forecasted post-spin SG&A costs.

Let me just say there are plenty of opportunities to improve in this area, and we will. Finally, we are starting to take a hard look at our current IT systems, networks, applications, hardware and staffing needs. Let me say the team has done a tremendous, almost Herculean job in completing the spin-related tasks to date on time. However, what we inherited in this area is far from world class and I see another significant opportunity for us to invest and get better in the future.

We expect to complete our analysis of each of these key areas over the next few months and will develop plans to address them in a cost-effective manner over the next two, three years. Let's turn to the next slide and talk about immediate priorities. In the more immediate term, we are laser focused on ensuring we meet our 2019 objectives. While we are off to a solid start in 2019, we also continue to operate in very dynamic marketplace conditions, especially in China.

More broadly, we see certain macroeconomic, geopolitical and regulatory factors which continue to cause uncertainty across the value chain. I expect the choppiness we have experienced since last summer will continue over the coming quarters as we deal with the industrywide powertrain technology transitions and macroeconomic impacts, which include the transition from passenger car diesel to gasoline engines, especially here in Europe, to projected growth and timing of electrification, mostly in China and in Europe at this point, as well as the ongoing trade and tariff dynamics around the globe. Our teams are continuing to work closely with our customers to ensure that we are on top of any regional market, regulatory or technology changes that may occur to ensure we are able to adapt accordingly and rapidly as necessary. During this uncertain period, I expect my leadership team to work with urgency and decisiveness, making the tough choices needed to balance delivering near-term results while supporting our long-term profitable growth ambitions.

In terms of where we have more control, my shorter-term priorities continue to be: first, ensuring we complete our full transition to a stand-alone company and are rightsized to support our growth plans; second, executing our plan to improve GDi profitability, which includes improving our operational performance on installed equipment and flawlessly launching new plant and production lines over the next 18 to 24 months. We are making good progress here and our GDi business remains on track to breakeven by the end of 2020; third, ensuring we have the right foundations and resources to properly scale our power electronics business. This includes building and launching three new plants in 2019. All projects in these area were on time and on budget to the first quarter.

The upfront costs to build our E&E foundation is -- are currently weighing on our business. This includes the construction of the three plants, the purchase, installation and qualification of hundreds of pieces of equipment and the hiring and training for our new workforce at those locations. We are operationally on track and continue to expect to get power electronics to breakeven in 2020; fourth, building on the great work our leadership has done to improve the profitability and position our aftermarket business for accelerated and profitable growth. I'm extremely encouraged by the deep experience of our aftermarket leadership team.

They have a detailed plan for profitably grow on a global basis and they are executing on that plan. The strength of the Delphi brand is a strong enabler for our aftermarket business. I believe this business is a hidden gem for us with strong free cash flow potential to help us fund our overall global company growth; and fifth, completing the work to define the specific actions we will take to become a great company to all of our stakeholders. That is a nice way for me to say we are doing a lot of hard work and analyzing key market trends, our overall cost structure, our business systems here at Delphi Technologies to identify and prioritize where we must move and move quickly to make the company better.

As we make decisions, we will convey them to you on a timely and as appropriate basis. Let me move to Slide 5. And before I turn the call over to Vivid, Slide 5 gives you a high-level recap of our first quarter performance, which, from an adjusted operating income perspective, came in a little ahead of our expectations. In our full year basis, we now expect to be toward the higher end of our adjusted EPS outlook range.

From an operational and transitional perspective, we are on track with some of our key initiatives such as completing our spin-related tasks on time, executing the challenging transition from diesel to gasoline, as well as expanding our manufacturing capacity for our CV fuel injection systems at our Stonehouse plant. Revenue of $1.15 billion for Q1 was consistent with the outlook we provided on last quarter's call. Vivid will cover the key drivers behind the year-on-year declining revenue, as well as some of the below-the-line favorability that led to the better-than-expected EPS performance. Operating cash flow of $21 million was impacted by the timing of inventory builds relative to the uncertainty around Brexit.

And we also began our share repurchase program in the quarter, returning $15 million of cash to our shareholders. From a gross bookings perspective, we have $1.6 billion of wins in the quarter, in line with where we expected to be at this stage of the year. We continue to have strong momentum in key areas of our portfolio with customers across the globe. And our wins in the quarter included a significant GDi program with a major European OEM for our industry-leading 350 bar fuel injection systems, a 4-year contract extension with a major global commercial vehicle customer for our heavy-duty diesel fuel injection systems.

And for power electronics, we booked additional volume with a leading global OEM for our inverter and onboard charging solutions. We continue to see high level of pursuits from both our ICE product portfolio and our electronic and electrification portfolios and remain focused on leveraging our disciplined commercial strategy to deliver long-term value. Most specifically, we see opportunities to secure material business wins, particularly on the power electronics side and in the CV segment over the coming quarters. And I remain very confident that we will have another year of strong new business wins in 2019.

In summary, we're off to a solid start in 2019. My orientation to the company is fundamentally complete. We are on track with our key initiatives such as improving profitability of GDi and power electronics. And my team and I are ready to take control and drive technologies to higher levels of performance in the near future.

With that, I'll turn the call over to Vivid.

Vivid Sehgal -- Chief Financial Officer

Thank you, Rick. Good morning, and good afternoon to everyone on the call. My remarks will focus on our Q1 performance, our full-year outlook and some of the below-the-line actions which take us closer to the top end of our EPS outlook range as well as providing additional commentary on how we see our phasing over the balance of the year and the drivers of our margin improvement into the second half of 2019. Looking at our Q1 performance in more detail on Slide 6.

Revenue of $1.15 billion in the quarter declined by 6.4% year on year, slightly better than the overall market decline of almost 7%. Consistent with recent quarters, our Q1 performance was driven by double-digit growth in power electronics and commercial vehicle, which was offset by expected lower sales in China, and lower passenger car diesel revenues in Europe. In addition, we saw some revenue softness in our aftermarket business, primarily due to the timing of certain customer programs that shifted into Q2. I'll come back to this in my later remarks.

Adjusted operating income of $87 million or a 7.6% margin declined by 470 basis points year on year, yet came in slightly ahead of expectations. On an adjusted basis, our first-quarter operating margin benefited from the timing of customer recoveries that we had assumed would be recognized in Q2. Excluding this, our adjusted operating income for the quarter and our expectations for the first half of 2019 are essentially in line with the outlook that we provided in February. Adjusted EPS of $0.67 was stronger than expected, driven in part by the higher operating income performance as well as some below-the-line favorability, most notably lower minority interest, as well as a slightly favorable tax and interest expense.

Consistent with our priority to focus on cost and cash flow in a softer growth environment, I was particularly pleased with some of the actions we executed in Q1. These included completing the roll-off of a number of key TSAs, particularly in IT, closing our final salary pension scheme to future accrual in the U.K. and lowering our expected full year interest expense. The result of these actions is expected to benefit our adjusted EPS over the course of 2019 and beyond.

Given our U.K. footprint, we also took appropriate actions in the quarter to offset some of the potential supply chain disruption related to no-deal Brexit, resulting in an incremental inventory build of approximately $20 million, which impacted our operating cash flow in quarter 1. We expect to unwind this in the second half of the year subject to the outcome of Brexit negotiations. Finally, capex of $131 million in the quarter is consistent with our front-end-loaded phasing for the year given the strong current and future demand we see for GDi and power electronics as well as expected onetime capex related to the separation from our former parent as we build three new plants for our electronics and electrification business, and establish our own IT infrastructure.

Our full year capex outlook is unchanged. Turning to Slide 7, which provides more details on our revenue progression in the quarter. As I mentioned earlier, we continue to see strong year-on-year growth in two key areas of the portfolio, namely power electronics and commercial vehicle, which we both revenue increases of approximately 10% in the quarter. The power electronics revenue growth in Q1 was slightly lower than expected due to a slower program ramp in China, which we expect to accelerate through the balance of the year.

However, on a full year basis and beyond, we continue to expect very strong growth. And as Rick indicated, we have great momentum with customers. GDi revenues came in slightly ahead of our expectations, only declining by approximately 5% year-on-year, primarily related to lower revenues in China. Over the course of 2019, we expect sales of our newer 350 bar GDi products to be an important driver of our revenue performance, particularly in the second half of the year.

As you can see on the right side of our slide, from a total company perspective, revenue in Europe increased by 3% as growth in commercial vehicle and GDi was again offset by the ongoing decline in passenger car diesel revenues. Revenue in North America was impacted by the expected changes in production schedules I referenced last quarter, which more than offset continued growth in commercial vehicle. Finally, our sales in China declined by 29%, in line with our expectations, driven by the combination of market softness, as well as our own customer mix. Slide 8 walks through our operating income performance for Q1.

Adjusted operating income was $87 million, down from $159 million in the prior year quarter. This was primarily driven by unfavorable mix, lower industry production, particularly in China, unfavorable FX dynamics, high commodity and tariff-related costs, as well as a higher year-on-year spin-related cost. This was partially offset by ongoing improvements in material and manufacturing performance, overall cost control including lower engineering spend, as well as the timing of customer recoveries related to GDi. Turning to our segment performance on the next slide.

On a year-on-year basis, powertrain systems adjusted revenue declined by 7% in the quarter as growth in power electronics and commercial vehicle was more than offset by lower revenues in passenger car diesel, as well as softness in GDi and ongoing transitions within our own customer mix in China. Adjusted operating margin of 7.5% was down 480 basis points year-on-year, primarily due to the factors I just described, most notably unfavorable mix, primarily related to the ongoing transitions away from higher-margin passenger car diesel, higher launch cost related to new GDi, and power electronics programs and plants, lower overall volumes, and to a lesser degree, foreign exchange commodity and tariff-related headwinds. In the shorter term, and as Rick referenced, one of our key priorities is ensuring we execute on our initiatives to improve GDi and power electronics profitability. I was pleased with the progress we made in the first quarter, particularly in GDi, and our teams remain highly focused to deliver the profitability improvements we had targeted.

Turning to our aftermarket segment on Slide 10. On a year-on-year basis, our Q1 aftermarket performance was impacted by the timing of certain customer programs and we remain on track to deliver our full year outlook of low single-digit revenue growth and adjusted operating margin expansion. Revenue of $193 million in the quarter declined by 6% on an adjusted basis. Adjusted operating margin declined by 220 basis points year-on-year, driven by lower sales, unfavorable foreign exchange and mix, and the timing of new programs with independent aftermarket customers, which are now expected to occur in Q2.

In addition, aftermarket adjusted operating margin was impacted by higher year-on-year tariff headwinds. Now let's move to on our outlook for 2019. Slide 11 highlights our outlook for the year, which is essentially unchanged, and our solid Q1 performance puts us on track to deliver on our full year revenue, adjusted income and operating cash flow targets. From an adjusted EPS perspective, the below-the-line favorability we saw in Q1, and expectations for the balance of the year positions us toward the high end of our EPS outlook range.

More broadly, we continue to expect 2019 to be a transitional year with an acceleration of our own mix dynamics, as well as continued macro uncertainty and industry headwinds. From a global production perspective, we still expect to see an approximately 2% decline in 2019 with China down by approximately 8%. We also continue to expect strong growth in power electronics, 350 bar GDi and commercial vehicle revenues, offset by the ongoing decline in passenger car diesel. And as I mentioned earlier, we expect the aftermarket segment to deliver growth this year with growth returning in Q2.

Our full year outlook continues to include headwinds related to ongoing trade and tariff dynamics, as well as commodity exposure. In total, this equated to approximately $20 million of higher costs in our previous 2019 outlook. During Q1, we saw a number of puts and takes related to the trade and border situations between the U.S. and other nations such as China and Mexico.

In addition, we saw some additional cost pressure related to certain commodities. Putting this all together, our earlier estimate of approximately $20 million headwind for 2019 is unchanged. While we are not providing a specific quarterly EPS outlook, I wanted to spend a few minutes on how we see our phasing through the year. Starting with Q2, from a revenue perspective, we expect a low to mid-single-digit adjusted revenue decline with strong year-on-year revenue growth for the aftermarket segment.

As I mentioned earlier, and as you will see on the next slide, our adjusted operating margin outlook for the first half of 2019 is essentially unchanged. Consistent with this and given our stronger-than-expected margin performance in Q1, we now expect Q2 margin to be in the similar range to quarter one. On the last quarter's call, I provided some additional color and commentary on the drivers of the stronger margin performance we expect to achieve in the second half of the year. As you can see on Slide 12, those drivers are essentially unchanged.

And on a full year basis, we remain on track to deliver on the approximately 9% adjusted operating margin outlook. From a volume perspective, we expect to see modestly higher growth in the second half of the year given the phasing of our launch activity, which we expect will more than offset the declines in roll-offs we expect elsewhere in our mix. What we have added to the slide is our perspective on how we break down that approximately 300 basis point of margin improvement from H1 to H2 between areas that we can control or are specific to Delphi Technologies versus external dynamics. Consistent with my comments on last quarter's call, approximately three fourth of the drivers are in areas that are within our control.

Specifically, first, the phasing of our cost in 2019 both in terms of engineering and spin-related cost, which are expected to decline in the second half of the year. As mentioned, we are on track to exit a number of transition service agreements with our former parent throughout the year, which will eliminate duplicate costs, particularly in the back half of the year. And second, improvement in our manufacturing and materials performance consistent with the cadence we have delivered in prior years, partially offset by higher depreciation expenses. In terms of the market and macro drivers, these include incremental volume including launch activity in GDi and power electronics, partially offset by the continued declines in passenger car diesel and the expected improvement in aftermarket margin in the second half of the year.

So in closing, and before we take your questions, we had a solid Q1 relative to our expectations. Given the continued macro and industry uncertainties, my focus, which is aligned with Rick, will remain on cost control and operating cash generation while continuing to invest to support our longer-term growth. With that, I'll turn the call back to the operator for your questions.

Questions & Answers:


[Operator Instructions] Our first question comes from John Murphy from Bank of America Merrill Lynch. Your line is open.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Good monring -- Good afternoon, guys. Just a first question. I mean, Rick, as you were talking about all the efforts that you have in sort of in your plan and your thought process, it seems like there's still a lot to come as far as execution in turnaround once we get into 2020. So I guess the question is when we look at the second half margin of 10% to 11%, as you work through everything you're focused on, how much more opportunity is there on margin? And where do you really ultimately think you need to go to justify we'll get a good return on invested capital? Because it seems like historically, it's been in the 12% to 13% range, but it seems like there might be a whole lot more room in another 100 to 200 basis points versus where you are in the second half based on everything you're talking about.

So how do you think about sort of where this ultimately can go?

Rick Dauch -- Chief Executive Officer

Great question, John. You know, as I went back and looked at where this business was in the past, and where we ended up end of year last year, where we are this year, we're kind of in that transitional stage right now. I'd say it's too early to commit to where we're going to be in 2020. I do think we can be better.

I think that as Vivid just covered, we're going to have a different run rate in the back half of this year than we have in the first half of this year and what we have in the fourth quarter last year. We are right in the middle. I didn't really quite understand this when I first got here. We are in launch mode at six or seven plants.

We're basically starting up three new greenfield sites: one in Poland, one in China, one in Mexico. Building them from the ground up, new equipment. In some places, we're rebadging people; some, we're hiring new people and train them how to make electronic components. So that's a big challenge for us.

And then I didn't realize we have five plants in GDi mode right now, right? Two are pretty stable, but they're getting their next round of capacity, and three are still in launch mode right now and these are very tight tolerance parts. So we have a lot of hard work to do on the operational standpoint. So that's one. And nothing I've seen in any of those plants makes me nervous or scared, it's just executions.

Hard, roll up your sleeves manufacturing, one-on-one supply chain, one-on-one work, and we will get there. And the second part is, I'm getting a better feel. I don't have 100% feel yet of the overhead costs in this company because we're kind of in this transition stage between standing up and being a publicly held company all by ourselves. So I've got to sit with Vivid, and go back and forth on that in terms of what's just pure transitional duplication, IT, some of the other stuff we're doing here, when does that go away and then when can we get 100% of control so I can take out some of the costs.

Vivid, do you want to say anything?

Vivid Sehgal -- Chief Financial Officer

Yeah. I think, John, it's great to have Rick on board with the focus of the company right now. It feels like we're getting our stuff together. We've really got to focus on the cost and that should give us some confidence as we go forward.

What I would say, just we're not going to lean into 2020 right now. There's still a lot of work to do for the second half of the year, but which we feel confident with. But what I would say is that the trends that we see, as Rick said, in the second half of this year primarily around the TSA and cost saving, as well as the margin expansion opportunities that we see in power electronics and GDi, those transitions and those movements that we see in the second half, we certainly do expect those to continue into 2020 and we do expect margin expansion coming into the 2020 time frame. But Rick and I have spent a lot of time.

We do have risks and we just got to put those on the table as well. We are conscious about some of the risks that are -- we're seeing some softness in Europe right now. We've got to look at sort of CV in North America. We're looking at launch profiles in China.

They don't worry us at all, but we just got to be very cautious, and that's why we're just going to hold off a little longer before we provide any further color. 

Rick Dauch -- Chief Executive Officer

And John, let me go back a little. On the powertrain side of the business, on the GDi side, this is an industrywide [Inaudible] going from diesel to gasoline. None of us in the area have enough capacity in place, and yet the demand for this is extensive as the European OEMs try to get ahead of the new regulations that are coming their way. So that's an interesting situation where we have to run as hard as we can to get as much equipment in place to get ahead of the launch curve.

And quite honestly, when I got here, we were behind the launch curve. We're getting buried. And so now I think we're getting back on top of it. On the E&E side of the business, it's a combination of we're basically standing up our own footprint, we're almost a start-up company with a lot of heritage.

And it's kind of start and stop based on government regulations, how fast electrification is going to go, all right? When does CN6 go in place, how are they going to deal the Chinese different incentives on what type of vehicles? And in Europe, what about the European regulations? So there's a lot of moving pieces here. And that's why, at least, I'm not ready and Vivid's made sure I'm sure not really for sure to get too far ahead of my ski tips here and go up to 2020. Let's just knock it out one quarter at a time and make sure we deliver our 2019 results.

John Murphy -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. Then a second question. I mean, the aftermarket, it sounds like there's a dedication to your word that the first quarter was weak because of some order timing, something like that.

What's going on there? And why do you -- why are you so confident it sort of infects through the rest of the year?

Rick Dauch -- Chief Executive Officer

First of all, let me tell you, I only had to spend a few days so far with the aftermarket team, probably less than 5. We have a very confident leadership team that's come together. They have deep experience, 20 to 25 years. That's a great combination out there.

We've got a great brand in Delphi. We've got an excellent product mix there. I think that business can run. And as long as we are able to feed it with the right working capital to put the right inventory in place, we can grow that business.

That's a big upside for us. Longer term, first quarter, there were a couple of specific customer issues in North America that are to going shift over. Their decision, not ours. And so we're ready to go and you should see better results in the second quarter.

John Murphy -- Bank of America Merrill Lynch -- Analyst

OK. And then just lastly on the China customer mix. I mean, how should we think about the timing of that kind of maybe anniversarying or you being able to diversify some of the international players that might help offset that mix or maybe the domestics actually get stronger through the course of the year? What's -- when should we expect an inflection there?

Rick Dauch -- Chief Executive Officer

Yeah. I'll start with that. I spent about 14 days over in Asia and got to meet with all the big Chinese suppliers. I did not -- or customers.

I did not meet with all the smaller Chinese customers. There's definitely a trend where the big guys are going to win and take more market share. Some of that is because of what they have to offer in their product portfolio and their footprint. Part of that is government putting their thumb on the scale a little bit to choose winners and losers, and try to streamline.

As you know, there's a lot of players over there. It's got to go through a shakeout or consolidation and one of the ways you do that is through the government incentive program regulations. And so we're winning more than our fair share with the big guys. Unfortunately, right now, it's impacting us as the smaller guys where we've had a really strong position doing complete systems there are losing some share, and we're monitoring that very closely.

Timing wise, I think it's going to play out over the next 18 to 24 months. Is that fair? Any comments, Vivid?

Vivid Sehgal -- Chief Financial Officer

No, I think that's exactly right. If you look at we said at the beginning of the year, we said that our sort of revenue in China for the year is in that minus mid-single-digit range. And that meant our local OEM customers were going down around about the 30% range and we were sort of driving launch profiles to drive that. We haven't seen much change right now in that cadence that we're looking at.

So I think Rick is spot on when he says that the impact of the transition will continue for the next 12 to 18 months, at which point we should start to see normalized levels.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much guys.

Rick Dauch -- Chief Executive Officer

John, thanks for all those questions.


And next question comes from Colin Langan from UBS. Your line is open.

Unknown Analyst

Hey, guys. Good morning. This is Gene Vladimiroff on for Colin. 

Rick Dauch -- Chief Executive Officer

Hey, how you doin'?

Gene Vladimiroff -- UBS -- Analyst

You mentioned the power electronics plant buildout. I was wondering if you could talk about the margin impact you expect, and then what that looks like this year and maybe anything beyond that as well?

Rick Dauch -- Chief Executive Officer

Can you repeat that question for a second?

Gene Vladimiroff -- UBS -- Analyst

Sorry. The power electronics plant buildout that you guys are doing, just wondering about the margin impact for this year and anything beyond that as well.

Vivid Sehgal -- Chief Financial Officer

Yes. Certainly. It's Vivid here. The plan for power electronics, if I go forward, when we first -- first of all, power electronics is exactly in line with our expectations from what we said previously last year and at our outlook range, that then we would get to a breakeven run rate by the end of 2020 and the revenue profile of the company would be in that sort of $500 million range.

So we are in exactly the right place that we need to be. And we did talk and Rick talked about the capex that we're putting into place, which has impacted higher-than-expected capex that we had for this year. We're running at pace to put that into -- to make us successful. For this year, we are definitely still, as expected to be, in the negative operating income margin range.

We've not quite specified what that is, but what I would say is we are going to be in a position where the second half power electronics margin will incrementally improve and we will see that improvement right through H2 '19 right through till '20 to a run rate breakeven position at the end of 2020. So we're perfectly on track right now.

Rick Dauch -- Chief Executive Officer

Yeah. So I'll make a couple of comments. I've been to all four -- I've been three -- I've been to four of our five electronics plants, right? Kokomo is our original plant. It's an OK plant.

It's not anywhere near lean and we've already talked about that. Suzhou is a world-class plant, world-class leadership team there and growing like crazy, all right? It's going to be one of our biggest plants in the next three to four years. They are further down the pipe in terms of moving from the start-up to production. Bologna, over in Poland, the building just got finished.

We got our first wave of equipment in the last 45 days. We've got about 50 people who've been spending the balance of the year being trained off-site in Hungary and other places. They just got qualified. They built their first validated parts just less than 2 weeks ago.

We had a congratulatory talk with them last week. And then our Reynosa plant has just got the walls up and the floor port and is starting to get their equipment, and we're starting to get people transitioned. So we're spending a hell of a lot of money to build these new factories, whether that's running off equipment at suppliers, then transporting into our sites, qualifying them, launching them, training our people, hiring the management team. In Poland alone, we had to hire 300 people between now and the end of the year to launch that plant.

So that's a lot of expense. Just trust me, I've launched double plants around the world. There's a lot of money upfront and then finally get it. So -- but I'm confident that we're on track to get to the breakeven point, as Vivid said, in 2020.

And based on my conversations and meetings with customers and the number of RFQs we have right now and the awards we're winning as a percentage of those quotes, I'm very confident this will be a very big part of our business in the future and a profitable one.

Gene Vladimiroff -- UBS -- Analyst

Great. Thank you. And then could you just talk a little bit about the trends you're seeing in South America?

Rick Dauch -- Chief Executive Officer

South America, that's one place I haven't been yet. I had somebody go down and represent us down there. I think our sales were up down in South America.

Vivid Sehgal -- Chief Financial Officer

Yeah. I mean, look, we're pretty much in line with the market right now. So South America is relatively, out of our regions, it's actually the smallest part of our region. We do have a good business there.

But right now, we are tracking to the market. So right now, in quarter 1, the market was around about sort of 6%, and we were sort of in that same region at this point of time. So nothing unusual there. We're tracking the market.

Rick Dauch -- Chief Executive Officer

Yeah. I had one of my previous bosses from American Axle that I worked for, for several years go down and looked at that plant. He sent me a very strong positive feedback on that plant, the workforce down there, the products. We have some older equipment there and I hope to get down to Pier Sacava here in the second quarter, early third quarter.

So --


Our next question comes from Armintas Sinkevicius from Morgan Stanley. Your line is open.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Good morning. Thank you for taking the question. When I look at the margins here of 7.6% in the first quarter, and then moving to 10%, 11% in the second half, are there any reasons why we can't just roll over the 10%, 11% margins from the second half into 2020?

Vivid Sehgal -- Chief Financial Officer

So again, I think I might just -- what I did say before was clearly that we believe that the trends are the right trends to be taking us into 2020. We're not at a position right now. Obviously, Rick is still -- and the rest of the management team is still looking through all the opportunities that we have right now. But what I would say is that we certainly expect margin expansion in 2020 and the trends that we see in the second half of 2019 would be a good proxy for what we see happening in the sort of 2020 time frame.

I just -- I think at the moment, we just have to be cautious because there is some macroeconomic headwinds like we said. You know, we're watching North America pretty carefully with desal. We're watching all the regulatory issues in Europe with Brexit, RDE and WLTP and some of the tariff noise. And obviously, in China, we're watching the incentive programs pretty carefully right now, particularly on the VAT cuts and see what that does.

But let me give you some comfort. We're tracking to be successful in 2019 H2 and that should form the good trends going into 2020.

Rick Dauch -- Chief Executive Officer

Yeah. A couple of things here, you know. I just came out of the CV industry for the eight years, and all the projections I've read and what I saw before I even got to those companies, there's going to be a downturn likely in North American in CV. That could look way honest a little bit.

That's a good part of our business right now. We do expect to have improved margins on GDi and E&E next year as we get to the launches. And then we should be able to address some of our overhead costs once we get to the spin. So those are all a combination of some plus, some minus.

The wildcards are really some of the trade and macroeconomic issues in terms of Brexit, U.S. trade issues and China market, right? So those are the kind of things we're a little bit leery of or vary. And we -- let's get to the quarter and kind of feel where we are with some of those things. And those last things I talked are out of our control, but we have to adjust to them.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Got it. So it sounds more macro based and sort of operational, what you -- what's in your control. So what are sort of the incremental, decremental margins we should be thinking of for businesses like GDi and power electronics?

Vivid Sehgal -- Chief Financial Officer

So in terms of the decremental margins, they're pretty in line with what we've been saying. I mean I've given sort of data from the company as a whole right now. So our decremental margins at the moment, given some of the higher-margin diesel and some of the ICE component business is in that 25% to 30% right now is the decrementals. And from an incremental margin perspective, it's relatively low this year and we expect that to improve next year.

Primarily, the growth is coming from the three major areas of the business, which is power electronics, GDi and commercial vehicle. Commercial vehicle is good operating income and gross margins. So obviously, that's slightly above our company average. While GDi and power electronics, as we've said, are slightly below the company.

Well, they're below breakeven at this point. So the incrementals right now are low single digit while the decremental is in that 25% to 30% range.

Rick Dauch -- Chief Executive Officer

Yes. On commercial vehicle right now, the volumes are so strong in North America that it's pushing us into a six and a half, 7-day a week work week. Those aren't the best ways to run the business. I'd like to run the plants five and a half, six days, about every other Saturday.

So when you're running double time on Sunday, and you get some absentees and you're getting some premium freights and that kind of stuff, so we could do better. So it would be actually nice for us if the commercial vehicle market backed off just a little bit, but my experience in North America, it swings 50,000 to 100,000 trucks, and that's 25% or 30%. So we'll have to deal with that next year.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

OK. And your evaluation of the plants, it sounds like things are in relatively good shape here. Any sort of areas where you think there might need to be incremental spend to get the plants up to the standard you like to be at or operations at the level you'd like to be at?

Rick Dauch -- Chief Executive Officer

I would say with very few exceptions, I was pleasantly surprised by the quality of our plants and the conditions of our plants. In the last two or three jobs I've been in, I've walked into situations where it was massive capital required to clean up old junky equipment. I only found one site, one part of a site in Mexico where we have some 30 or 40-year-old equipment that probably isn't the best we have in the world. I've heard that some of the equipment we have in Brazil is that way.

But I don't see any major capital spend to go fix things. Customers have told me, the data suggests, we have world-class quality. We're in the parts per billion, not parts per million. We have three or four plants, as I said, in premium freight mode because we lack capacity.

And the real opportunity -- so the great news is, I think I can expedite the lean journey because it's not replace a bunch of equipment, it's teach the people how to use the tools as a system rather than individual tools. And I don't want to bore you with the lean jargon, but 5S KAIZEN, Ishikawa diagrams. I have a system that I've used and I was trained by an ex-Toyota person, it's 12-step process.As I said, we're going to have 16 of our plants start that training process in July. I actually had the contract at my desk with this person and he's lined up for practitioners who are Toyota veterans in North America primarily, who are going to roll through our Chinese, our European and our North American plants on about an every four-to-six-week cadence.

And my experience in that is it takes about six months for the people to acquire that, do the hard work in math and they start seeing the results, and then also they take off on flyer. Those who don't want to, they won't be on the team. So I don't make options. You either get on the bus in terms of lean manufacturing or you get off the Delphi Technologies bus.

There's no choice there. That's my direction. How's that?

Armintas Sinkevicius -- Morgan Stanley -- Analyst

OK. That's great.

Rick Dauch -- Chief Executive Officer

I've taken a look -- I took a look with Vivid about how we benchmark our cash conversion cycle versus people like American Axle or BorgWarner and some of the guys, we're -- we have a lot of opportunity here. How's that?

Armintas Sinkevicius -- Morgan Stanley -- Analyst

That's great. Appreciate it.

Rick Dauch -- Chief Executive Officer



Our next question comes from Noah Kaye from Oppenheimer. Your line is open.

Noah Kaye -- Oppenheimer and Company -- Analyst

Hey, good morning. Thanks for taking the questions. Just following up on power electronics. You commented that there was a slower unexpected China launch in 1Q that dragged the growth down a little bit.

I guess I was just want to sort of square that, and obviously, the changes to the subsidies that were expected there with kind of how you're thinking about the medium-term outlook. Again, saying $500 million of revs gets to kind of breakeven end 2020. Just help me understand, what kind of growth do you need to see from the industry to kind of get to there? And how much of that has to be the high-end plug-in and battery EVs versus mild hybrid? It seems like there's a lot of different ways to get there, but I just want to understand how you're thinking about it.

Vivid Sehgal -- Chief Financial Officer

Sure. I mean, look, from our perspective, this one quarter that we have, we expect lumpiness in launches are happen. We are very confident about our power electronics revenue growth right now. We are confident in the Viper technology that we have.

We believe it's one of the best technologies that out there in the market today. And we've always said that our compound annual growth rates will range somewhere up to 50% and we're not coming off those numbers. From an NEV subsidy perspective, we actually think in the longer run, this will actually support our growth potential, largely because we actually believe that the NEV credits is going to effectively improve and sort of recognize those OEMs that have higher range. And our strategy, as you know, is being actually moving toward some of the top OEMs where range has been an important factor.

So right now, our technology is both in the BEVs. And we believe that the NEV credit situation in China is that's going to actually push even harder toward high-voltage solutions as OEMs look for the increased range to maximize the NEV credits that are there. So from our perspective with our Viper technology, we believe that the BEVs right now are the one that are actually generating the most action for us and we actually think as the PHEVs actually move forward to higher range with battery in the next few years, that actually plays to our strengths as well. So actually, the NEV situation for us, particularly in China, is actually, we think, a positive step in the right direction.

Because our Chinese local OEs, the smaller range, lower tier groups, we've been moving away from them. And I think the best thing for us right now is if you look in our bookings over the last year or so, they are in that high-voltage range, which we think the NEV credits will actually support. So this is a positive for us and there -- we look at this with optimism. In terms of the revenue growth right now, I think we have enough in the tank to be relatively confident, that the range of getting to breakeven power electronics at the $500 million-plus range, we're on track right now and we don't see any changes to that cadence at this stage.

Rick Dauch -- Chief Executive Officer

It was Noah, right, is that you said?

Noah Kaye -- Oppenheimer and Company -- Analyst

Yup. Yeah, Rick.

Rick Dauch -- Chief Executive Officer

This area is interesting to me because I didn't play in it the last eight to 10 years, right? So I'm getting educated by the team, and by the customers, right? First, it started with CES. There were several Chinese OEMs there that I have never heard of in my entire life that were showing all these high-end vehicles and they're really good-looking vehicles, but I don't know how much backing is behind those. Are they going to the next Tesla or what, right? Second thing I'd say is almost all the big European OEMs are in a race on their high-end cars to catch up to Tesla and they're driving pretty hard, right? So I don't know the answer to your question. That's one of the areas I've got to dig in with my team over the next 90 days.

What I do know is this, electrification is real. It's coming fast it's going to be a little choppy in terms of -- based on the government regulations. There's going to be some clear winners and there's going to be some losers, right? And we're trying to make sure we're focused on partnering with the winners who've got the deep pockets, the technical know-how that we can support. So -- and for us, that's much better content than on our ICE business.

And so our real focus right now is to build, like I said, build the foundation that starts with we have -- do we have the right engineers? We have one of the best technical centers in the world for electrification in our Kokomo site. We have the right people. We have the right test equipment. We can do all the vehicle tests.

We're now expanding that into other places in China, Singapore and over here in Europe. So we're building a network for engineering. Second, we've already covered a few times, we're building the manufacturing footprint we need. We have enough booked business right now.

We're already starting to think about, ah, we actually in the future, two or three years out, are we going to need another plant? We're not sure yet. We'll assess that, OK? So it's going to come. As I said before, I have a Tesla sitting in my house back in Indiana, I love it, right? So got to become more affordable though to be -- get the high volumes. And everything I've learned in the last 90 days is that China has made a decision at the highest levels to be the leaders in electrification, followed by Europeans by regulations.

North America guys are kind of laggards right now, to be quite honest. And when I met with those customers, they're a little behind what I met within China and Europe. So how's that?

Noah Kaye -- Oppenheimer and Company -- Analyst

Yeah. Yeah, I hear you.  If I could just ask one more. Rick, this is great color on kind of your orientation findings so far. We didn't expect kind of an updated medium-term profitability target this quarter, but it sounds like you're getting down the road here.

So when is the reasonable time frame to kind of hear an update? Is it the July call? What would make sense?

Rick Dauch -- Chief Executive Officer

Yeah. I think we got a lot of hard work to do. We just gave our Board an update of some of my initial findings with the team. Just last week, we give them some kind of directional things we think we're going to go dig into.

They gave us clear direction, go do your analytical work, come back to us, let's talk about costs, where you can save money, where you need to spend money. And so I think we'll have a very frank discussion with the Board in July. And I think as we make decisions, we'll be able to come up probably in the piecemeal fashion. I'll tell you, we're going to have some decisions by July for sure on org structure and where we think we can get.

A lot of that will be determined by, are we still on track for our TSA? I think we will be. Are we on track on GDi? I think we'll be on schedule. Are we on track on E&E? We are on schedule. There's no reason to think we're not going to be.

So we're kind of balancing, juggling a lot of balls right now is what I'd say. What I'd say is this, too. One thing for sure I confirmed, this company, long before I got here, set itself forward on a strategic path and a product portfolio and they are directionally correct. We may make a few degree changes, but we're not making any wholesale changes.

We're not in the business of going out and doing some big M&A deals right now. We're going to fix what we have, stand this company up, get it back to the profitability levels we think it can get to, generate the cash and then we can be a much bigger player if we need to in the future. Does that help?

Noah Kaye -- Oppenheimer and Company -- Analyst

It does. Thanks.

Rick Dauch -- Chief Executive Officer

All right. Good. Thanks.


Our next question is from Brian Johnson from Barclays. Your line is open.

Brian Johnson -- Barclays -- Analyst

I've got some questions on the cadence, but I'll save those for later on with IR. My question to you is understand in detail your improvement plan for GDi and the close weekly operational monitoring you're having. I understand as well the TSA and the cost reduction. All of those echo the famous prayer, kind of things that you can control.

Haven't heard as much on China. Are you kind of saying that you're taking some serenity around the things you can't control, e.g. Chinese production volumes, cuts and rates? But frankly, I'd be surprised if there aren't more aggressive either plant-level issues, customer, recovery issues, cost reduction, whatever that can help offset some of that pressure given where you are in the market there, that significant underperformance on the revenue side in an already weak market.

Rick Dauch -- Chief Executive Officer

Yeah. Let me -- I'll start with GDi. I thank you for you heard our message loud and clear. There's nothing I've seen at any of the GDi plants or at our supplier plants that can't be fixed with the right timing and the right resources.

What I do think, and I'm pretty strong in this opinion, is that we are off-track on GDi about two years ago because we didn't launch it property in terms of designs being done on time, make buy decisions being done on time, sourcing of equipment and tooling being done on time. And what you get then is a plant that's not quite ready to launch. And then they got exacerbated because the customers were, oh my gosh, we got to switch from diesel to gasoline and we want even more. Well, we didn't launch correctly, right, so now we got buried by that.

So that's on us to fix and we will do that. And I've told the team under my watch we won't have late launches. We'll do things on time, starting with engineering, sourcing, tracking equipment, installing equipment, and then running the hell out of the business. And so trust me when I'd say I'm deep into the shorts on how we're going to make that business better and faster.

In China, you're right. I've to go back and dig -- I've got to -- it took me all 10 days just to get to all of our facilities and see the customers there, right? So we have some work to do there. I think we're under-representative in Asia on the CV side of the business that's an opportunity for us. That's the largest CV market in the world.

One of our competitors has a near monopoly in a couple of areas and some of our customers would like us to come there, so there's an opportunity. I've got to dig in a little bit more with the sales team and the engineering team on the customers and where we're winning, where we're losing. So you got three or four big winners there: VW, GM Shanghai, Geely,and a couple of others. We got to make sure we're winning our fair share and what can we do there.

So that's kind of where we are right now. Give me another 90 to 120 days and I'll be back to China and I'll be able to dig a little deeper, I think. So Vivid, do you want to say anything?

Vivid Sehgal -- Chief Financial Officer

Yeah. I think just, Brian, the only thing I would add is for the second half of the year. I mean, for full year China, we've called the market down. We think appropriately at about minus eight in terms of production volumes.

And we are not assuming any stimulus that comes through in the second half right now. So our cadence of events is we're cautious. We're looking at inventory levels right now, making sure that none of the VAT changes is creating any sort of inventory, this balance like we saw last year. But our second half performance doesn't rely on a great market uptake or any stimulus program right now.

Brian Johnson -- Barclays -- Analyst

And just a follow-on. I mean, my understanding is you were really exposed to the smaller locals who needed the global expertise from our training, and Delphi Tech brought. Is the falloff in their market share and you hit your sales would then imply that there's a cost reduction opportunity at the factory level? Can you consolidate factories? Or there is some way to offset what you can't control that is your end customers' sales through actions in China?

Rick Dauch -- Chief Executive Officer

Yeah. We have four large plants in China, right? One is brand new, Suzhou, and it's launching at 100% pure electrification. You will see that plant quintuple in sales over the next four to five years. So that's going to be one of our fastest-growing plants.

We have two fuel injection plants, one for automotive and one for medium duty. Those plants are pretty good. The layouts are good. Equipment is good.

The people are good. We're going to go back and drill down, the margins are OK. It's just volumes are down across fixed assets. And there is not -- these are two separate plants in two different regions, you don't consolidate them there.

We got to go basically fill up those plants up and their capacity up. The fourth plant is actually a joint venture. It's got some of our non-fuel injection system programs there. That plant's running at 55% to 60% capacity right now.

And so that's one of the plants that's dragging us down a little bit. There's an opportunity to reduce -- we could go fill some of that capacity up. Let's go find the customers. At what price can we make money doing that? And the second thing is we have two large technical centers, one in Beijing, and one in Shanghai.

We have to take a look at some of the cost structures there, right? So that's the area we'll probably take a look at. So first is to grow with the open capacity and be competitive and profitable. And two, to make sure that launch of the E&E plants there. And three, then we have to do some cost structure changes.

Does that help?

Brian Johnson -- Barclays -- Analyst

OK. Thanks. Yes, very much.


And our final question comes from Emmanuel Rosner from Deutsche Bank. Your line is open.

Unknown Analyst

It's Edison on for Emmanuel. Just two questions. First on the bookings, and I apologize if I missed this earlier, can you provide any sort of breakdown on how that kind of shaped up during the quarter?

Rick Dauch -- Chief Executive Officer


Vivid Sehgal -- Chief Financial Officer

Yeah, sure. So yeah, thanks for your question, Edison. The bookings are really in line with our expectations. We're pretty pleased with the way they're going because they've been sort of the main areas of our focus.

So as Rick said, we had a pretty large follow-on in commercial vehicle, which is certainly a momentum for us. It's a 4-year extension to a program in heavy duty right now. We had a very important win in a European customer in GDi, which is going to provide us with some very good strong momentum going forward. And also of equal importance, a very material area on power electronics within the HV battery management system, which is also a very important driver in terms of our cadence.

So we're exactly on track. And I think what you're going to see for the rest of the year is a continuation in our bookings momentum. So geographically, very diversified, and three categories across the organization at this stage. So we're in pretty good terms right now.

Unknown Analyst

Do you have a number, like a breakdown for the power electronics portion or the Electronics portion?

Vivid Sehgal -- Chief Financial Officer

We don't normally give that. I mean, I think if you look at it pretty relatively, we talked about sort of $1.6 billion. power electronics was a -- let me leave it at this, it's a material number within that.

Rick Dauch -- Chief Executive Officer

Yeah. I think last year, we were, what, 50-50 power electronics in there?

Vivid Sehgal -- Chief Financial Officer

Yeah. I think you can look at it right now with commercial vehicle. They are of relatively equal importance this quarter.

Rick Dauch -- Chief Executive Officer


Unknown Analyst

OK. Great. And on the margin, so appreciate the disclosure about the 200 to 250 basis points from the Delphi initiatives. Is there any way you can kind of break down the split among the various pieces of that, for example, the TSAs versus kind of the more manufacturing efficiencies?

Vivid Sehgal -- Chief Financial Officer

Yes, certainly. Let me give it to you in maybe magnitude. I won't sort of give you the full number range, but let me give you in size buckets. By far, the biggest element of that is our own cost control.

No.1, it is the cost control that is coming from the phasing of our engineering, which is very heavily front loaded into H1 and the spin-related cost. So cost control, which we've spoken about and is a big focus of Rick and myself right now, is going to be the No.1 driver. And we're already seeing improvements that are beginning to happen in Q2 and we'll see that continue for the rest of this year. That is fully within our control.

The second part of that one is manufacturing and material performance. We have a cadence that we do see in the second half of the year, improvements in both of those. And again, we're seeing an improvement in Q2 and we're very confident that, that will be running through till the end of the year. And they're really being offset by some incremental depreciation cost that we've got that we feel we got those covered in relation to the cost savings and the operational improvements that we have on those sides.

The smaller portion, and I want to be clear on that, is actually coming from the power electronics and GDi and margin expansion areas. They're going to be important, but they're going to be probably more important in 2020 than they are actually in the second half of 2019. So that's how we'll bucket it. Cost control, number one; operational performance, number two; margin expansion, number three, through our advanced technologies.

Unknown Analyst

Great. Thanks a lot.


I'm showing no further questions at this time. I would now like to turn the call back over to Rick Dauch, chief executive officer for Delphi Technologies.

Rick Dauch -- Chief Executive Officer

Thanks, Darinda. So -- well, I appreciate everybody being on the call. I know you had a busy day with a couple of people reporting today. We appreciate your interest in Delphi Technologies, and we'll continue to go out and drive this business forward in the right direction, and we'll see you out in the road or talk to you later this afternoon on some one-on-one calls.

Thanks, and have a great day. Bye.


[Operator signoff]

Duration: 73 minutes

Call participants:

Sherief Bakr -- Vice President of Investor Relations

Rick Dauch -- Chief Executive Officer

Vivid Sehgal -- Chief Financial Officer

John Murphy -- Bank of America Merrill Lynch -- Analyst

Unknown Analyst

Gene Vladimiroff -- UBS -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Noah Kaye -- Oppenheimer and Company -- Analyst

Brian Johnson -- Barclays -- Analyst

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