BorgWarner at Global Automotive OEM Conference: Electrification Drives Growth

On Tuesday, 10 June 2025, BorgWarner Inc. (NYSE:BWA) presented at the Global Automotive OEM, Dealer & Supplier Conference, highlighting its strong Q1 performance and strategic positioning in the electrification trend. The company reported robust financial results but acknowledged challenges in managing customer demand and tariffs. BorgWarner remains focused on operational excellence and capital allocation to drive shareholder value.

Key Takeaways

• BorgWarner exceeded Q1 market growth expectations with strong margins and cash flow.
• The company is strategically positioned to capitalize on electrification trends, especially in China and Europe.
• Efforts to mitigate tariff impacts are ongoing, with a focus on passing costs to customers.
• Capital allocation priorities include maintaining a strong dividend and pursuing strategic M&A opportunities.
• BorgWarner exited the EV charging business due to lack of scale.

Financial Results

BorgWarner’s Q1 performance surpassed expectations, with margins at 10% despite tariffs. The company reported a 47% increase in light vehicle e-product sales. With $1.7 billion in cash at the end of Q1, BorgWarner projects $700 million in free cash flow for the year. Recent share repurchases totaled $400 million, reflecting a commitment to returning value to shareholders.

Operational Updates

BorgWarner is actively addressing tariff impacts through USMCA compliance and strategic sourcing. The company is restructuring and focusing on cost reductions to enhance operational efficiency. Despite exiting the EV charging business, BorgWarner is prioritizing supply chain savings and productivity improvements.

Future Outlook

BorgWarner aims to outgrow end markets in both its combustion-related and electrified product lines. The company sees significant growth potential in China and Europe, particularly in advanced hybrids. BorgWarner is also preparing for potential consolidation in the e-business sector and is confident in its competitive positioning.

Q&A Highlights

CEO Joe Fadul emphasized that tariffs are manageable, with ongoing dialogues to pass unmitigated costs to customers. The company is also exploring M&A opportunities that align with its strategic objectives, focusing on industrial logic and near-term accretion.

For a complete understanding of BorgWarner’s strategic initiatives and financial performance, refer to the full transcript.

Full transcript - Global Automotive OEM, Dealer & Supplier Conference:

Chris, Analyst: With powertrain dominant supplier BorgWarner. Today we have the pleasure of of basically three members of management, Joe Fadul, CEO of BorgWarner Craig Aaron, CFO and and obviously longtime industry friend Pat Nolan within Investor Relations. So maybe we kick it off. Joe, just a sixty second intro.

People know who Borg Warner is, but just a little bit of background and obviously your step into the new role.

Joe Fadul, CEO, BorgWarner: Yeah, thanks, Chris. Great to be at this conference. Yeah, I’ve been with the company about fifteen years, been through most of the business units and just recently taking over as a CEO. Maybe for some background, what has BorgWarner been up to since the beginning of the year? of all, we couldn’t be more pleased with our performance in the first quarter.

We outgrew our end market, strong margin performance and really good free cash flow. So for us, despite all the headwinds and turmoil that’s going on, our teams continue to navigate through some of these near term uncertainties. And I’m confident they’ll continue to be able to manage through it, including the tariff environment. So I know tariffs will come up quite a bit. It’s in the news every week.

You know, for BorgWarner, as of last week, we continue to look at all the news coming out of Washington. We’re actually tracking a little bit better than our prior estimate, which was a gross impact on sales of about 1.6%. So real pleased with where that direction is headed. You know, for us, the big takeaway is tariffs are a manageable issue. It really is more what is the uncertainty around customer demand and what does that mean for the production environment, especially in the half.

So in good BorgWarner nature, we’re focused on the things we do control and that’s driving financial performance and continue to outgrow the market, increment in the mid teens and then drive strong free cash flow, which is good for our shareholders.

Chris, Analyst: Yeah. Absolutely. I mean, one of the things we commented on on q one and and and both Joe and and Craig, I really do appreciate the the the detail you gave is I thought you gave one of the the highest levels of disclosure into look, it’s an uncertain world, but, you know, we’re gonna try to prepare somewhat for the the worst. I think even your North American production guidance is down, you know, seven to 12%. Hopefully, we’re gonna do a little bit better of that and then you also gave the the tariff number that you that you mentioned Joe so that’s that’s that’s really helpful.

You know maybe one of the ways that we can we can start off with the the tariff discussion. So last year I spent a lot of time with you and I love the idea of this BorgWarner back back to basics, right? You’re talking about essentially a well positioned regional e powertrain mix regardless of what ICE or EV speed we’ve seen. And so I think really tariffs is more about North America. Can you talk a little bit about some of the trends outside North America where it’s probably a little bit less impacted, right?

If we think about China, you saw growth in Q1. We think about Europe where we’re starting to get an EV year. Maybe we could talk a little bit about regional trends before we have to get into sort of the uncertainty of North America.

Joe Fadul, CEO, BorgWarner: Sure. No, happy to. And you’re absolutely right. BorgWarner being a global propulsion player, sometimes we get, you know, more defined by what’s going on in North America. But when you think about electrification, is playing out more regional.

And I think it really speaks to our resilient portfolio we’ve built, especially over the last five or six years. You know, whether our customers want a pure combustion product or a hybrid or a bev, we’ve got the right portfolio to serve them. So if you think about specifically China, where electrification is playing out at a fairly rapid rate, know, NEVs are reaching 50% of that market, which is both hybrid and and electric. We’re performing quite well. I mean, just for some context, 20 of BorgWarner’s revenue comes from China.

And when you break that down further, 75% of that revenue is with OEMs, which is slightly overweight. You know, we’ve been in China for over thirty years. We have great customer intimacy there. And, you know, when we look at that market, it’s really leveraging our entire portfolio. In Europe, electrification is playing out a little bit more slowly, it is still growing there.

And if you look at some of our wins across our portfolio, you can see we’re winning across the entire portfolio. And a lot of our launches are in Europe and in China. Here in this market, it’s playing out more slowly, And we expect that slow growth to continue. The good news is we’ve got a great combustion portfolio. And we’re number one or number two in nearly every one of those products.

So whether customers or the market is demanding C, H or E, we think we’re in a great position. And I think some of the announcements of new business that we shared in the first quarter are

Chris, Analyst: a great example of that. Just to remind people who are less familiar, even though you have balanced growth in a know, look at Europe for example in a strong NEV year, it could be up, you know, 25 or maybe even 30% this year to hit to hit regulations. You do see a a top line pickup, meaning you have a commitment to do margin incremental margins regardless of where it comes from ICE or EV. But you do see a top line pickup on the growth over market in a good EV or like like in Europe. Right?

So is that a great example of this will be a probably a strong contributor

Joe Fadul, CEO, BorgWarner: No, you’re right. So first quarter, you know, our light vehicle e product sales were up 47%.

Chris, Analyst: Yeah.

Joe Fadul, CEO, BorgWarner: Which I think is is proof that we’re participating across the globe. And especially in China, you know, you mentioned Shanghai or what’s playing out in the I was recently in Shanghai and I’m really pleased with how our teams are performing there and how we’re participating in that growth.

Chris, Analyst: Yeah. And then my follow-up on on China is the exact one. If if you read my the the China pondering, we talked a lot about I know you can’t talk about specific OEMs, but I I wanted to sort of a backdoor kind of a calculation that you do have one of the best exposures to a a a mega giant like BYD. And that’s obviously evident in your 75% exposure. Can you talk about some of the the the products that are driving China both from on the ice business?

I mean, have a a good, you know, kind of a powertrain business to BYD through sort of the the PHEV and and some of the products that you’re driving on pure bev as well?

Joe Fadul, CEO, BorgWarner: Yeah. We don’t comment generally on any specific customer, but let’s just say BYD is a very good customer, BorgWarner. And we serve them on both the foundational side and the e side. That market, just as a reminder, is the largest automotive market in the world, 30,000,000 vehicles. And as we mentioned, you know, it’s 20% of our total sales.

Yeah. So our customer diversification is actually one of our strengths. Yep. You know, we’re not we’re not too weighted or under weighted on any particular customer. So, you know, as those customers succeed or or maybe slow down in the market, it doesn’t really affect us, like maybe some of our competitors.

Exactly. So we think it’s a great strength of the company.

Chris, Analyst: And and particularly when I think of of of China less so because it’s not really a thing yet in North America, but extended range EVs, plug ins kind of place the BorgWarner strength because you can kind of give the broad portfolio of the of the BorgWarner, you know, product exposure.

Joe Fadul, CEO, BorgWarner: That’s right. So we call those advanced hybrids. Mhmm. So when you think about plug in hybrids or even range extenders Yep. You know, we announced in the past year our wins on the range extenders, which is a, you know, new and I would say even emerging style of hybrids.

But it leverages the same great products we have. You know, all of these advanced hybrids, they need an inverter, they need a boost function, they need a motor and a drivetrain. So for us, you know, are those are great market products that, you know, we continue to win with.

Chris, Analyst: Excellent. Just because we have to, could we do the tariff 101 sort of the review? Because I think it’s it’s still confusing for everyone. What we learned from most suppliers is, you know, we’re getting coverage on where we’re not compliant. But my quick review and tell me if I’m wrong, Craig, is basically 1.6% in revenue is basically your recoveries that you’re going to pass through from companies, from your customers.

You think you’re going to get most of that. It’s dilutive right to the tune of 20 beeps simply because it’s a pass through. But sort of the math, what percentage of your content is USMCA compliant and are there any tariffs that you’re not getting recoveries for or that may be difficult? Meaning it’s a negotiation or it’s a to be determined. Yeah.

I know there’s a lot there but it’s it’s the one that everyone always asks about.

Craig Aaron, CFO, BorgWarner: Sure. I just want to reemphasize a couple of the points that you know Joe brought up which is you’re right, 1.6% of sales was our original estimate that we shared with analysts in our April call. We do see that number coming down for a couple reasons. One is our teams are doing a fantastic job coming up with great solutions to mitigate tariffs. Yep.

So, job by our team.

Chris, Analyst: Win win for everyone in the chain.

Craig Aaron, CFO, BorgWarner: Everybody. And also, executive orders have changed. And so, we’re incorporating that into our estimates. And we’ll provide a much more robust view as we get into our next earnings call. As you think about pass through, you know, our goal is to pass through that any impact that we can’t mitigate to our customers and we’re having active dialogues with all of our customers.

So we’re working through that process. Some working, some of those dialogues are moving faster than others, but that’s okay. We know how to navigate this. We’ve done it before with inflation and other other, headwinds. So I think we’re doing a fantastic job from a management perspective.

When you think about USMCA compliance, just a couple numbers. When we import material from Canada, we’re 100% compliant. From Mexico, about 70% compliant. I think for the audience here, the key takeaway, and Joe already emphasized that this is a manageable issue for us. We’re gonna navigate it quite well.

It’s really industry production in the half of the year that we’re most worried about that’s the seven to 12% in North America, Chris, that you mentioned earlier. So we’re watching that really closely. The good news is our production schedules have held up quite nicely in the second quarter. So we haven’t seen that headwind yet, but again, we got to watch Q3 and Q4 pretty closely.

Chris, Analyst: No, that’s perfect. It actually leads into my next production question. Yeah we’re going have our forecasting partner here Global Data. We’ve all seen that the schedules haven’t changed too much over the last couple months. We saw that initial sort of weakness where everyone’s being a little bit more cautious simply because of the uncertainty.

But one of the things that we’ve heard anecdotally is that the visibility particularly from OEMs is shortened meaning no one wants to go out eight weeks it’s more four to six weeks because of the obvious uncertainty. Can you talk about call off volatility or anything that could be a detriment? Because we we do see the numbers, which aren’t that bad. But I’m I’m more worried, you know, behind the scenes. Is it is it more volatile or more uncertain than we can see.

Craig Aaron, CFO, BorgWarner: You want to take that or you want to take it?

Joe Fadul, CEO, BorgWarner: Well, would just say when you look at second quarter, we’re performing exactly as we thought. The call offs are there, the sales are there. You know, the back half is what you’re talking about is less certain. And we need a few more months to, you know, see what that looks like. Yep.

And you’re right. OEMs have gotten a little more careful. Yeah. Because they’re trying to

Chris, Analyst: manage And they’re waiting to see what the end result and end rules are gonna be like in the summer.

Joe Fadul, CEO, BorgWarner: Right. But I’m confident regardless of what the environment is. Yep. Our teams are, you know, very experienced at navigating through those ups and downs, whether it’s headwinds like tariffs, some other crisis that pops up, or it’s lower production volume.

Chris, Analyst: Okay.

Craig Aaron, CFO, BorgWarner: We like to talk about the resilience of our business and our teams are pretty resilient. Know, we’ve we’ve navigated into a lot of difficult situations over the last handful of years. And as as Joe mentioned, we know how to navigate different environments. So whether it’s up a little bit or down a little bit, we’ll execute quite well. I think we’re both confident of that.

And

Chris, Analyst: just that, you know, that that same sort of question, the the one that the region I feel like that is not getting the same potential is like Europe is see the sales are a little bit better, productions holding up. I think it’s the surprise. I think we always are fearful that Europe’s always gonna have another another down year. Anything that is that the same comment that it’s sort of as planned or?

Joe Fadul, CEO, BorgWarner: Yeah. Europe’s performing well. You know, we don’t see any dip there in the second quarter that’s unmanageable. You know, I think again, this is a global business. So the uncertainty that exists in the half isn’t just related to North America, it also applies to Europe.

But we’re we’re really pleased with how the second quarter is playing out. It really comes down to the half of the year.

Chris, Analyst: Okay. Perfect. I wanted to take a step back now almost to that that back to BorgWarner basics kind of, thesis. You used to talk about, and you still do, your business as sort of two parts, foundational and and everything, electrified. When I look at the the numbers high level and they can kind of move around, you know the ice volumes globally will come down, I don’t know, low to mid single digits depending upon the year.

And your goal is to sort of offset that by a couple of points. Which ultimately means that foundation could kind of be a flattish business give or take and then you grow your top line with the electrified business and hope to I think always outgrow each of those foundational and electrified. Can you is that a fair way to think about the business? Because I try to sometimes summarize it to generalist where it seems like there’s multiple moving parts. But ultimately you could have a flat foundation business and then, you know, pretty strong growth as the world at whatever pace by region grows, you know, with, you know, a plug in and electrified future.

Joe Fadul, CEO, BorgWarner: That that is the right way to view it. You know, for us what’s important is that we outgrow our end markets. So for the combustion businesses or what we call foundational businesses where we’re number one or number two, we want to see them outgrow the C plus H side of that. Okay? When it comes to the e products, same thing.

We take the H plus E end market and we want to see outgrowth there. And, you know, fortunately, continue to see outgrowth across both sides of the portfolio. And this was a change we made nearly a year ago in our strategy that we want to leverage growth across the entire portfolio. So we still see great opportunities. I think the announcements we made in the first quarter across

Chris, Analyst: Yeah.

Joe Fadul, CEO, BorgWarner: The portfolio and some of the wins kind of speaks to that.

Chris, Analyst: Yeah. Because I think sometimes, like, the the mind share for investors investors, we’re gonna go back to remembering the growth in in the ice business, the turbocharger and and basic fuel efficiency if we have a, you know, a longer ice kind of road map in North America, for example.

Joe Fadul, CEO, BorgWarner: That’s right. In fact, some of our, you know, penetration rates, which is something we look at for some of our technologies, is actually quite below Europe and China. So if you take turbochargers, which runs a little bit under 50% penetration, we expect to continue to see outgrowth of turbochargers. When it comes to variable cam timing, same thing. So there’s still a need for fuel efficiency.

Customers also, you know, pocketbooks are tight and that’s one of the things they look at when they buy a vehicle is, okay, what kind of fuel economy do I get? So we still think there’s good futures for some of those combustion products.

Chris, Analyst: And maybe since we’re on the topic of electrification, we could talk about portfolio review, some of the actions you took in Q1. So you made the decision to exit EV charging, which wasn’t really getting up to scale. As you discussed, you also consolidated some of the North American battery systems where business has been maybe a little bit weak, where you have obviously the change in regulations in The US. But I think when people think of Board one, they think of execution. So you already talked about, I think it’s a $30,000,000 tailwind to EBIT on a full run rate basis by next year.

Could you just talk about the logic of continual review? How you thought about taking some of the actions and how quickly you move when maybe a business is underperforming like charging?

Joe Fadul, CEO, BorgWarner: When we think about that charging business, I think it’s a good example of the discipline we’re bringing to the portfolio. So, you know, the market assumptions, especially in Europe and North America changed around charging. We weren’t getting to scale that we expected. And the bottom line is, you know, we want to see these businesses become profitable in the midterm. We’re not willing to wait long, long periods of time.

So we took the difficult decision to exit that business. I think it is a great example of the discipline we bring and what you can expect when we look at future investments to strengthen the portfolio.

Chris, Analyst: Doug, do want ask?

Doug, Analyst: Yeah, definitely. So maybe outside of the self help coming from charging, and I know you said the 1.6 in recoveries is now lower due to some of your internal solutions. What are some of those solutions? What are buckets? What have actually been the levers that you’ve been able to pull to maybe have more success than your peers on getting those recoveries on your own?

Joe Fadul, CEO, BorgWarner: Yeah, so of all, some of it has to do with the executive orders that soften the requirements a little bit. But when it comes to mitigation, the thing is getting to USMCA compliance. That’s the biggest lever any supplier is using. As you get compliant, you know, those tariffs get reduced dramatically. There’s other mitigation efforts, you know, where we are sourcing components to mitigate some of the tariffs.

I would say the one is working through the tariff requirements themselves. Know, the devil is in the detail and you have to really get down to a part level and work through to make sure, you know, you’re using the extent of the law to every way you can to make sure you’re only paying what is due on the tariff. So our teams are really focused on going through those details, finding those ways to mitigate. And in the event that we can’t mitigate those in the short term, that’s where we’re having discussions with our customers, which are moving quite well. All of our customers are participating in those discussions.

Some of some of the customers we’ve closed deals with, we’re very happy with that, and others are taking a little bit longer due to their process.

Craig Aaron, CFO, BorgWarner: Maybe just a couple items to add. When you think about what are we focused on at BorgWarner, it’s what we can control and driving operational excellence through our business units. And you see that in our numbers. When we exited the first quarter, our margin was at 10% including tariffs, 10.2% excluding tariffs. And when you look at our performance over the last year, we’ve been at 10% or above for every quarter.

And there’s a few levers that we are really focused We’ve continued to restructure our business, take cost out, become more competitive when customers look for our solutions, really important. Supply chain savings, productivity, all of those items are critically important. We have to continue to focus on taking costs out of our business to stay competitive, but also to drive incremental conversion in the mid teens, which is our ultimate goal.

Chris, Analyst: Yeah. Craig, if I could follow through because I think in that board Warner basics framework, which is so compelling is is growth from from either side, you know, gets you into the mid single digits and then, you know, compounding that incrementals in the mid teens. When we look at the segmentation for the divisions though, it seems like the foundation of this, if you can keep it flattish, is to keep those margins where they are. I think years ago everyone looked into great margins. We were worried if they were to come down that does not seem to be the case.

That would be sort of question number one. And is it fair that the because you’re coming from a lower base and you have more restructuring that some of the more e businesses will actually maybe see incrementals in certain years when revenue is better above mid teens. And obviously that averages out to incrementals in the mid teens across all four divisions.

Craig Aaron, CFO, BorgWarner: Yeah. I mean, think about each of our divisions in the same way. You know, we have two primarily focused foundational business units, two primarily focused e product business units. And the goal is increment in the mid teens. Increment in the mid teens.

And they’re going to use those various cost drivers to get there. So I think that’s the right way to think about it. We’ve seen really great performance on the foundational side of the business, taking costs out, productivity, restructuring. And we’re seeing the benefits of that through our merchant profiles in those businesses. When you look at the first quarter, a lot of our growth came from power drive systems.

Yeah. E product business. 47% growth is what Joe mentioned and they incremented in the mid teens, which is exactly what we want to see. Yep. We did announce a restructuring of that business last year.

That was a great evidence point for us that we got that cost structure right. And as we continue to grow in that business which we 100% expect, we have the right cost structure to make sure we increment in the teens. So that’s how we’re thinking about it.

Chris, Analyst: And I mean if I read that answer literally is the foundational business because we get this question all the time. So it’s my sneaky way of of sort

Craig Aaron, CFO, BorgWarner: of Yeah.

Chris, Analyst: You know, jumping into a question is that those elevated margins aren’t going to come down because it’s an older portfolio product. The pricing we always get, oh, shouldn’t pricing then get worse 2% to 3% per year? If growth is flat, margins are going to stay high in the foundational divisions. Is that a fair assumption?

Craig Aaron, CFO, BorgWarner: Volumes are critically important, Yeah, exactly. Of course, for any business. So if volumes stay reasonably flat, expect to maintain our margin profile.

Joe Fadul, CEO, BorgWarner: And I think it’s important to maybe step back and look at how we’re running the company. Yeah. You know, it’s to outgrow those end markets. It’s to expand margins and it’s to drive strong free cash flow. So, you know, businesses are gonna ebb and flow, but when you think about how Craig and I are leading the business overall, we wanna drive outgrow then we wanna expand margins at the same time.

So that’s what we’re focused on and different businesses have different levers at any particular time to do that. Perfect.

Chris, Analyst: I have my China question penciled in here and we discussed a bit on your mix to start. Joe given the what could be now an increasingly China domestic starting to move into export margins, so BYD for example discussed going from 700,000 units to 4,000,000 of of non non China. From a high level strategy, do you think your portfolio is in the right place for that? Meaning that the relationships of Borgwana to the Chinese domestics will maybe be even better in some of these export markets? Or is there anything that you have to do about your business if China becomes a bigger player outside of China that you may have to sort of move your feet on more?

Joe Fadul, CEO, BorgWarner: So we love this question. As I said, you know, we’ve been in China for over thirty years and the domestics are a big part of our business there. We are focused on winning in China because as we win in China, we’re in a great position to support them. Whether they’re exporting products, which, you know, we got a tailwind last year on our four wheel drive business due to the export business from some of those OEMs, or as they begin to localize. And we’ve got the footprint, we’ve got the knowledge of the local markets and the regulations and the workforce to help them localize.

Chris, Analyst: And they tend to up content as well when they when they localize outside

Joe Fadul, CEO, BorgWarner: of China. Yeah. If you think about OEMs when they localize, you know, they start to do it with kits some sort of knockdown kit, and then eventually they start to localize the systems and then the components. So it’s going take some time for that localization to play out. But fortunately, since we’re so strong inside of China, we’re participating in a meaningful way on their export business.

So we think it’s less of a threat, it’s more of an opportunity for us to continue to support them as they grow.

Chris, Analyst: And then maybe we can end for me capital allocation where you’ve also been disciplined, but it does seem like there’s more of a commitment to a repurchase. So one, how would you characterize if there was a summary statement to basically how you’re thinking about capital allocation over the next couple of years and then maybe I could do a quick follow-up.

Joe Fadul, CEO, BorgWarner: Yeah. Maybe you want to start

Craig Aaron, CFO, BorgWarner: and

Joe Fadul, CEO, BorgWarner: I’ll elaborate.

Craig Aaron, CFO, BorgWarner: Sure. Yeah. So Joe mentioned it right from the beginning. Balanced out capital allocation approach. That’s that’s one of our our major goals.

When you think about where is BorgWarner from a balance sheet perspective, we’re in a great position. You know, we look at our liquidity, specifically our cash balance. We had $2,000,000,000 of cash at the end of the year, 1,700,000,000.0 at the end of the first quarter. And we’re projecting at the midpoint of our guide to generate another $700,000,000 in free cash flow. The goal with our liquidity and our free cash flow is create shareholder value.

And we’re going to do that through a balanced capital allocation approach. You know, we’re in a great position to continue to have a strong dividend that we sustain. We don’t turn it on, we don’t turn it off. So that’s a fixed obligation. That’s how we think about it.

We’re going to continue to look at opportunistic share repurchases. You mentioned it last We repurchased 400,000,000 and we’re not afraid to use that as an option to generate shareholder value. And then we’ll look at M and A and I’ll turn it over to Joe to talk about what are our M and A priorities? How do we think about M and A as we look at each individual targets?

Joe Fadul, CEO, BorgWarner: So M and A continues to be an important tool in our toolbox. You know, when we think about M and A on a go forward basis, you know, there’s really three criteria we’re using to evaluate each of these targets. is it has to make industrial logic sense. It has to leverage our core competence. We’re always asking the question, how can we strengthen our existing portfolio?

The is we want to see near term accretion. So, you know, we had to do some heavy lifting in the last five or six years, but our portfolio is in a lot better position now. So near term profitability and accretion is really important. And then finally, how do we value that business? So it’s important that we run a lot of different scenarios, But at the end of the day, we don’t want to overpay on an So if you want to think about it, we’ve we’ve really opened up the aperture Yep.

Of what’s possible, especially with all the turmoil. You know, we’re in a unique position Yep.

Chris, Analyst: To

Joe Fadul, CEO, BorgWarner: execute upon something very attractive. But when it comes to the decision itself, we’ve raised the bar and we’re really looking to value those assets properly. And in fact, you know, since we’ve been doing this the last few months, Craig and I together and our team, there’s a number of assets we looked at and they didn’t meet the criteria and we moved on from them. So, you know, I’m really pleased with our process to date.

Chris, Analyst: Joe and Craig, that’s a great overview because I think Pat and I have discussed. I felt in the market there’s been, you know, some confusion about the type of deals you you do. And when I think about an accretive deal immediately that sort of gets a very specific type of deal. It doesn’t have to necessarily be bolt on. It could theoretically be a larger deal, but that’s a very that’s a tight limiter on on on a deal.

And and I think the the view is from investors is that M and A has been somewhat problematic for the industry over the last decade because of some of the growth stumbles. Whereas, you know, the M and A that was the decade before, bolt on accretive, tends to be great. It tends to work out. So I think that I’m glad you’re able to add the accretion as the number two because I think that sort of gets a very concise type of deal. And so you’re saying there’s no size limiter, but that’s a very important sort of classification.

Craig Aaron, CFO, BorgWarner: I think when you think about BorgWarner and what our goal is, is drive operating income higher. So whether it’s an inorganic investment or organic investment, we’re always looking at return on invested capital and making sure that our operating income is growing over time because ultimately, the value of our company is is only as good as the operating income that we generate and the free cash flow that we generate. Absolutely. And so those are main metrics that we have to keep our eye on to make sure that we’re fundamentally growing those metrics that we believe will drive long term shareholder value as we move forward.

Pat Nolan, Investor Relations, BorgWarner: The only thing I’d add is just when you think about the cash flow, you talked about capital allocation. Yeah. Fundamentally, what are we trying to achieve with our cash flow generation? We wanna create additional shareholder value. So whether or it is forms of return on capital Mhmm.

Going back to our shareholders or inorganic investments would bring accretion I e more earnings power to the company. You’re trying to additional to growing the earnings power of the company organically, use that cash flow to through means that are gonna create additional value for shareholders. That’s the goal.

Chris, Analyst: I have a follow-up on on on free cash flow. I wanna open it up to the the audience for for questions to start. Yeah.

Joe Fadul, CEO, BorgWarner: So we saw the announcement and, you know, a few OEMs have started to, you know, question where can they bring the most value and usually the answer comes back to the areas where the customer, you know, cares and pays for at the end. So, yes, it is an opportunity for us. You know, we we do a lot of great components like turbos and friction material, but we’ve also stepped into systems. You know, we do complete drive lines, complete integrated drive modules, especially for hybrids and EVs. So, this question about insourcing, if you go back a few years, has always been a question on the East Side.

We’ve always felt strongly that we’re going to be able to build scale more than any one particular OEM. And so for us, we’re starting to see that some of the OEMs are also wanting to leverage that. So we think we think that is a long term opportunity.

Craig Aaron, CFO, BorgWarner: Anyone else?

Chris, Analyst: Maybe on consolidation which typically comes as a question on the East Side. Are you seeing any of the smaller players, fall out, struggle, and do you think you know, in medium term, five years from now, that we need to see some consolidation given that, you know, obviously foundational, your your share I think is in in the thirties in in a lot of the products, whereas it’s maybe half that, just given the fragmented nature of of of the e business right now?

Joe Fadul, CEO, BorgWarner: I mean, in most industries, what tends to happen, especially as, you know, you reach peak on a segment and then it starts to decline, the strong players survive. You know, we’re number one or number two in all those foundational products. So we expect, you know, you’re gonna see some weakening of some of the smaller players. Those are great opportunities for us, not just from an m and a standpoint, from an organic standpoint. Absolutely.

You know, our when our teams smell blood in the water, they’re on it. And, you know, we’ve won a number of conquest businesses, which will eventually come to production. So the market will require some consolidation. Also on the East Side, you know, very few people are making money on the e product side. So it’s inevitable that over time there will be some consolidation.

Chris, Analyst: And and just high level, do you have a a sense for typically on the East Side where you mostly see in in bids? Like the the two or three players that you the largest players that you typically go up against in the on on for e products?

Joe Fadul, CEO, BorgWarner: Yeah. I mean it’s different by product. Sure. So, you know, being a large company, we play in a lot of different segments. So for any particular product, you know, there’s always a couple of usual suspects Okay.

That show up around the globe, that’s independent of f or e. So, you know, our teams know how to compete. We know how to reduce costs, bring competitive technology. And at the end, what we’re focused on is really outgrowing those end markets and our teams are well aware of that.

Chris, Analyst: Okay, great. Well, if not, any more questions? Thank you gentlemen so much. Thank you BorgWarner for We’ll be back in a couple minutes with our friend Matt Axe from our policy team to talk about that little thing called tariffs.

Joe Fadul, CEO, BorgWarner: All right, thank you.

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