BorgWarner Q4 2024 Earnings Report

BorgWarner EPS Results

• Actual EPS: $1.01
• Consensus EPS: $0.93
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

BorgWarner Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.47 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

BorgWarner Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 9:30AM ET

BorgWarner (NYSE:BWA), together with its subsidiaries, provides solutions for combustion, hybrid, and electric vehicles worldwide. It offers turbochargers, eBoosters, eTurbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, smart remote actuators, powertrain sensors, cabin heaters, battery modules and systems, battery heaters, and battery charging. The company provides power electronics, control modules, software, friction, and mechanical products for automatic transmissions and torque-management products. It sells its products to original equipment manufacturers of light vehicles, which comprise passenger cars, sport-utility vehicles, vans, and light trucks; commercial vehicles, including medium-duty and heavy-duty trucks, and buses; and off-highway vehicles, such as agricultural and construction machinery, and marine applications, as well as to tier one vehicle systems suppliers and the aftermarket for light, commercial, and off-highway vehicles. The company was formerly known as Borg-Warner Automotive, Inc. BorgWarner Inc. was incorporated in 1987 and is headquartered in Auburn Hills, Michigan.

BorgWarner Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. My name is Nick, and I will be your conference specialist.

[Operator]

At this time, I would like to welcome everyone to the BorgWarner twenty twenty four Fourth Quarter and Fulvia Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Patrick Nolan, Vice President of Investor Relations. Mr.

[Operator]

Nolan, you may begin your conference.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

Thank you, Nick, and good morning, everyone. Thank you all for joining us today. We shared our earnings release earlier this morning. It's posted on our website, borgoner.com, both on the homepage and on our Investor Relations homepage. With regard to our Investor Relations calendar, we will be attending multiple conferences between now and our next earnings release.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

Please see the Events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward looking statements, which involve risks and uncertainties are detailed in our 10 K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, net M and A and other non comparable items.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

When you hear us say adjusted, that means excluding non comparable items. When you hear us say organic, that means excluding the impact of FX and net M and A. We will also refer to our incremental margin performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. Our all in incremental margin includes our planned investment in R and D, any impact from inflationary impacts and other cost items.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

Lastly, we will refer to our growth compared to our market. When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Please note that we have posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Fred.

[Frédéric Lissalde, President and CEO at BorgWarner]

Thank you, Pat, and good day, everyone.

[Frédéric Lissalde, Retired CEO at BorgWarner]

We're pleased to share our results for 2024 and provide a company update starting on Slide five. We delivered approximately $14,000,000,000 in sales, which was relatively flat versus 2023. Our industry production for the full year was down approximately 3%. We saw a solid 2024 outgrowth of about two eighty basis points. I'm pleased that the outgrowth is both on the foundational and on the e product side of our portfolio.

[Frédéric Lissalde, Retired CEO at BorgWarner]

This demonstrates to me the resiliency of this portfolio and our ability to drive outgrowth in particularly challenging and volatile end markets. As Joe will detail, we've finished the year by securing multiple new product awards for both foundational and e products, which we believe further supports our long term profitable growth. Our adjusted operating margin performance was strong, coming in above 10% and above the high end of our guide. This strong underlying operational performance was once again driven by our focus on cost control across the businesses. As a result, our full year adjusted earnings per share grew by 15% year over year.

[Frédéric Lissalde, Retired CEO at BorgWarner]

We delivered $729,000,000 of free cash flow, which was up 29% year over year and also exceeded our full year guidance. As Craig will detail, we remain well positioned to continue to generate strong free cash flow in 2025. We will do this while also investing in our business to support our focus on long term profitable growth in efficient powertrain. Today is my final earnings call with Paul Gruner. Before I turn it over to Joe, I would like to share a few thoughts with you.

[Frédéric Lissalde, Retired CEO at BorgWarner]

I believe that BorgWarner is positioned to grow profitably regardless of the pace of the powertrain mix change. I also firmly believe that BorgWarner is well equipped, thanks to its decentralized operating model to excel in a more regionalized powertrain outlook. I have spent twenty six years at BorgWarner. I'm proud of the work that was done. I'm proud of our very special combustion portfolio and of the portfolio enhancements that we have executed over the past ten years.

[Frédéric Lissalde, Retired CEO at BorgWarner]

We created what I believe is one of the most powerful propulsion portfolios in the world, while still keeping at the same time our strong culture, maintaining a double digit margin and a free cash flow generation that is quite unique in our Tier one auto supplier world. I want to thank our Board of Directors who have been a key sounding board for me with unwavering support to the implementation of our strategies. I want to thank my team members and their stewardship to Boardwalkner, their resiliency and their leadership. I of course want to thank all the Boardwalkner employees around the world who are making a key difference each and every day. I have been working with Joe on the CEO transition over the past few months and I've collaborated with Joe over the past fifteen years.

[Frédéric Lissalde, Retired CEO at BorgWarner]

I have full confidence that Joe is the leader that BorgWarner needs. I also want to thank the analyst community. It has been a pleasure to interact with you over the past few years, interactions that have made me stronger and with which I have always learned. And finally, of course, I would like to thank the shareholders for their trust. With that, I'm excited to turn the call over to you, Joe.

[Joseph Fadool, President & CEO at BorgWarner]

Thank you, Fred. On behalf of the management team and all of our employees, I would just like to thank you for your leadership over the last twenty six years and especially the last seven as CEO. I also want to personally thank you for your mentorship and friendship over the years. You've been an inspirational leader to me, and I believe you've clearly positioned the company well for our next phase of profitable growth. We wish you nothing but success as you move on to the next chapter and hope you enjoy your well deserved retirement.

[Joseph Fadool, President & CEO at BorgWarner]

Now, let's turn to Slide six for what I view as the drivers of Boardwalkarner's value proposition. First and foremost, we have what I view as a strong product portfolio that is resilient to the very pace of propulsion mix changes that we see across the world. Second, we have strong market share positions across our foundational portfolio with several of our e products also improving their market share position. Third, I view BorgWarner's financial strength as a key driver of our success. It allows us to continue to invest in our business regardless of near term fluctuations in market volumes or mix.

[Joseph Fadool, President & CEO at BorgWarner]

Our financial strength is also a differentiator when our customers award us new business. And our financial strength is a direct end result of the financial discipline ingrained into the company's culture. Fourth, the long term relationships that we've established with our light vehicle and commercial vehicle customers around the world is also a very important driver of our success. These relationships allow us to partner with our consumers to meet their efficiency and value needs beyond just pursuing individual program awards. Lastly, I firmly believe that our decentralized operating model creates speed, accountability and agility.

[Joseph Fadool, President & CEO at BorgWarner]

The agility afforded by our operating model allows us to navigate these times of industry turmoil like we are currently experiencing. With that said, Craig is going to review our detailed 2025 outlook in a few moments. But from a market perspective, we expect another year of declining industry volumes combined with the uncertainty of tariff implications. As such, let's turn to Slide seven, which outlines our strategic focus areas for 2025 and beyond. First, we aim to outgrow industry production by leveraging our core competencies.

[Joseph Fadool, President & CEO at BorgWarner]

Boardwalkner's DNA remains focused on efficiency, which includes both fuel efficiency for combustion vehicles and electron efficiency for hybrids and BEVs. Our anticipated outgrowth reflects our customers' demand for efficient propulsion products around the world. In combination with our strong product portfolio and deep customer relationships, we plan to continue to help the world deliver innovative and sustainable mobility solutions for a clean energy efficient world, which we believe will drive industry outgrowth for years to come. Second, we must continue to build upon our existing product portfolio. We plan to achieve this by continuing to make thoughtful organic and inorganic investments where we see a strong business case that delivers value to shareholders.

[Joseph Fadool, President & CEO at BorgWarner]

Organically, our focus will be to accelerate our scale and gain additional market share across our entire portfolio. And we need to stay focused on driving a product culture that nurtures innovation. Inorganically, we intend to explore opportunities to improve our current market share position or product adjacencies where we can apply Boardwalkner's core competencies. We believe there will be high quality opportunities in front of us, and we are in a strong position to take advantage of the turbulence in our industry. Lastly, we must continue to drive enhanced financial performance.

[Joseph Fadool, President & CEO at BorgWarner]

To me, this means striving to expand margins and generating strong cash flow. We will do this through business excellence. We'll achieve this by continuing to actively manage our cost structure as we navigate volatile industry volumes, changing regional propotional mix and launching new businesses across the globe. We believe it will be important to balance all these factors in order to preserve Boardwalk and our strong financial foundation and enhance our margin and cash flow generation as we grow profitably. Now, let's look at some new product awards on Slide eight, which I believe are strong indicators of our future profitable growth.

[Joseph Fadool, President & CEO at BorgWarner]

First, Boardrunner has secured an award to supply a state of the art variable cam timing system to a major East Asian OEM for their next generation hybrid and gasoline engines. Optimizes the timing of intake and exhaust valve events, improving combustion efficiency and reducing emissions. These advanced engines will power a range of the customers' hybrid and combustion vehicles, delivering improved fuel economy and reducing environmental impacts. Production of these engines are scheduled to commence in the first quarter of twenty twenty six.

[Joseph Fadool, President & CEO at BorgWarner]

Second, BorgWarner

[Joseph Fadool, President & CEO at BorgWarner]

is expanding our partnership with a major North American based OEM by extending four wastegate turbocharger programs for I4 and V six engine platforms. These turbocharger extensions will be deployed on several of the automaker's mid size and large SUVs, as well as truck applications with the start of production set to begin in 2026. Fort Werner has a long standing relationship with this OEM, having supplied them with our turbochargers over the last twenty years. We believe these platform extensions are a testament to the strong collaboration between our engineering teams and we look forward to continuing our work together through the rest of this decade and beyond. Third, BorgWarner secured an award to supply two types of transfer cases to SAIC Maxis for use in export vehicles.

[Joseph Fadool, President & CEO at BorgWarner]

Both products are designed by BorgWarner's China R and D team and will be manufactured in China with mass production expected to begin in 2026. Fort Warner's relationship with Saikmaxis spans more than a decade. Our transfer case technology not only supports Saikmaxis in strengthening its position in the Chinese market, but also empowers its expansion into overseas markets. Finally, Ford Warner has secured four e motor awards with three major Chinese OEMs used on plug in hybrids, range extended hybrids and electric vehicle platforms. These programs are expected to launch in 2025 and 2026.

[Joseph Fadool, President & CEO at BorgWarner]

We are pleased to secure this business in the Chinese market. We believe these awards further validate our innovative technology and manufacturing processes, delivering high quality products and services to meet the evolving needs of the Chinese new energy vehicle market. To summarize, the takeaways from today are: Boardwalk Warner ended 2024 with strong results. We delivered 2024 outgrowth of just under 3%. Our adjusted operating margin was over 10% and our free cash flow generation was very strong.

[Joseph Fadool, President & CEO at BorgWarner]

Over the course of the year, we secured new foundational and e product business awards, which we believe once again demonstrates our product leadership on both sides of our portfolio. As we look forward, we are expecting to deliver another solid year in 2025 as we focus on what we can control. As Craig will detail, our guidance includes that we expect to outgrow industry production, deliver an adjusted operating margin above 10% and continue to generate strong free cash flow. And my priorities align with our 2025 outlook as we will strive to secure new business awards that will allow us to continue to outgrow industry production. We will build upon our existing product portfolio by increasing our e product scale and gaining market share.

[Joseph Fadool, President & CEO at BorgWarner]

We plan to do this through fostering a culture of innovation, customer intimacy and thoughtful portfolio investments that drive shareholder value. And finally, we continue to drive enhanced financial performance. It's this financial strength and discipline of this company that that help differentiate us from our peers and we intend to continue to focus on that strength as I take over as CEO. If we effectively execute these priorities, I believe we will be well positioned to continue to grow the earnings power of Boardwalkner, which we believe will drive long term value for our shareholders for years to come. With that, I'll turn the call over to Craig.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Thank you, Joe, and good morning, everyone. Before I dive into the financials, I'd like to provide a quick overview of our fourth quarter results. First, we reported just over $3,400,000,000 in sales, which was down approximately 2% versus prior year, excluding FX and M and A. Market production in the quarter was down approximately 4%. So we saw sales outgrowth in the quarter of approximately two twenty basis points, which was slightly below our full year outgrowth of two eighty basis points.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Second, we had strong adjusted operating margin and performance in the quarter at 10.2%. This was driven by solid operational performance, a continued focus on cost controls across the business and restructuring actions. This strong fourth quarter performance allowed us to deliver a full year adjusted operating margin above 10%, which was up 50 basis points from 2023. Third, we had strong free cash flow in the quarter of $539,000,000 which allowed us to outperform our 2024 free cash flow guidance and deliver $729,000,000 in free cash flow for the full year. Now, let's turn to Slide nine for a look at our year over year sales walk for Q4.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Last year's Q4 sales from continuing operations were just over $3,500,000,000 You can see that the weakening U. S. Dollar drove a year over year decrease in sales of 32,000,000 Then you can see a decrease in organic sales of about 1.5%, which was two twenty basis points above market production. This outgrowth was primarily due to a strong e product growth in Europe and Asia, as well as strong foundational growth in Europe, North America and the rest of the world. In China, we saw challenges in the quarter due to lower volumes on an existing EV program, which we previously highlighted and declining foundational sales.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

And finally, the acquisition of Eldor added $6,000,000 of sales year over year. Some of all this was just over $3,400,000,000 of sales in Q4. Turning to Slide 10, you can see our earnings and cash flow performance for the quarter. Our fourth quarter adjusted operating income was $352,000,000 equating to a strong 10.2% adjusted operating margin. That compares to adjusted operating income from continuing operations of $332,000,000 or a 9.4% adjusted operating margin from a year ago.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

On a comparable basis, excluding the impact of foreign exchange and M and A, adjusted operating income increased 37,000,000 on $57,000,000 of lower sales. This is a great result and reflects our ability to deliver profitability despite a declining production environment. This performance was driven by the benefit of our PowerDrive systems restructuring that we announced in July, as well as our continued focus on cost controls across our business. The net impact of Eldor was a $12,000,000 drag on operating income year over year. Our adjusted EPS from continuing operations was up $0.11 compared to a year ago as a result of strong adjusted operating income, lower net interest expense and the impact of our share repurchases during 2024.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

This was partially offset by a higher effective tax rate due to various tax restructuring initiatives that we executed in the quarter. Free cash flow from continuing operations was $539,000,000 during the fourth quarter, which was down $140,000,000 from a year ago as a result of lower business activity compared to 2023 and the timing of customer payments. Our free cash flow for the full year was strong at $729,000,000 And finally, I'd like to briefly address the $646,000,000 of goodwill and fixed asset impairment charges that we recorded during the fourth quarter. In the fourth quarter of each year, we performed an impairment test of our tangible and intangible assets. The discounted cash flow analysis we perform requires us to make long term estimates of our sales and operating income and compare that to the carrying value of each business unit.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Due to the

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

world, our discounted cash flow estimates for our PowerDrive systems and Battery and Charging Systems business units from prior years had to be reduced and pushed out. As a result, the company recorded a goodwill impairment charge of $577,000,000 in the fourth quarter. We also recorded a charge of $69,000,000 primarily related to the certain property, plant and equipment. It's important to note that these items are non cash and have a minimal impact on the future earnings or margin profile of the company. In our opinion, the delay of BEV adoption in parts of the Western world is exactly why we have built a resilient technology focused portfolio that we believe will provide strong results no matter the pace of regional propulsion adoption.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

If regional BEV adoption continues to be delayed, then we believe our foundational portfolio will compensate with significant margin and free cash flow generation. Next, on Slide 11, I would like to review our perspective on global industry production for 2025. We expect our global weighted and light commercial vehicle markets to be down 1% to 3% this year, following a 3% decrease in 2024. This forecast includes potential industry volume headwinds of global tariffs. Looking at this by region from a light vehicle perspective, we're planning for our weighted North American market to be down approximately 3% to 4%, primarily driven by inventory headwinds and potential inflation due to tariffs.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

In Europe, we expect our weighted market to be down approximately 4% to 6% year over year as we see signs of a lower backlog economic headwinds. And in China, we expect the overall market to be flat to down 1%. This is due to a tough comparison following last year's growth and the possible economic impact of tariffs. With that in mind, now let's take a look at our full year outlook on Slide 12. First, as I just highlighted, we have included some level of industry volume headwinds from tariffs in our market volume assumptions.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

However, we have not incorporated the net cost of tariffs in our financial guidance at this time since the impact to Boardwalk Werner is influenced by multiple factors. These include, but are not limited to, the timing of implementation, any exception on imported materials, and our ability to share the impact with our customers and suppliers. Now, let's move to our outlook. We are projecting total 2025 sales in the range of $13,400,000,000 to $14,000,000,000 Starting with foreign currencies, our guidance assumes an expected full year sales headwind from weaker foreign currencies of $410,000,000 compared to 2024. As I just highlighted, we expect our end markets to be down 1% to 3% for the year.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

However, we expect the company to outperform market production by 100 to 300 basis points, which once again demonstrates the resiliency of our portfolio that we believe is positioned to outgrow market production. It's important to note that our guidance includes a 30 basis point outgrowth headwind from lower battery cell prices, which we directly pass through to our customers. Based on our updated outlook, we expect our organic sales change to be down 2% to up 2% year over year. Now, let's switch to margin. We expect our full year adjusted operating margin to be in the range of 10% to 10.2% compared to our 2024 adjusted operating margin of 10.1%.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

The low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits, while the high end of our outlook assumes an incremental conversion in the high teens. We view this as strong underlying performance building off of 2024 that well exceeded our expectations. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $4.05 to $4.4 per diluted share. We expect full year free cash flow to be in the range of $650,000,000 to $750,000,000 with the 2025 midpoint being a decline versus 2024 strong result due to FX headwinds. With that, that's our 2025 outlook.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

So let me summarize my financial remarks. Overall, we delivered solid 2024 results despite a difficult production environment. We delivered a very strong 10.1% margin, which was 50 basis points higher than 2023 and well ahead of the 9.2% to 9.6% margin reflected in our initial 2024 guidance. This great performance is a result of our focus on appropriately managing our costs across our business. We generated strong free cash flow of $729,000,000 Now, as we look ahead to 2025, our outlook aligns with the priorities Joe highlighted earlier.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

First, we expect to continue to outperform market production with an expected full year outgrowth of 100 to 300 basis points despite headwinds from battery cell pricing and BEV program delays. Second, we expect to once again deliver an adjusted operating margin above 10%. We believe this shows our ability to manage our cost structure effectively even in light of a declining production environment. Finally, we expect to have another year of strong free cash flow, which we believe in combination with our investment grade balance sheet will allow us to continue to invest in our business, while navigating a challenging and uncertain market backdrop. As I look back on our 2024 results and our 2025 outlook, I'm extremely proud of the BorgWarner team around the globe and their ability to deliver strong financial results during a challenging and volatile market backdrop.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

With that, I'd like to turn the call back over to Pat.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

Thank you, Craig. Nick, we're ready to open it up for questions.

[Operator]

And your first question today will come from John Murphy with Bank of America ML. Please go ahead.

[John Murphy, Analyst at Bank of America]

Good morning, everybody. And Fred, congratulations. Look forward to visiting you in Burgundy. It will be a lot of fun, hopefully. Joe, I apologize, you have to deal with us now.

[John Murphy, Analyst at Bank of America]

Thank you. First question, the portfolio that is well balanced almost in whichever direction powertrains go, seems like a very good way to be positioned and you're set there. I'm just curious as you look at sort of the short term swings that we're seeing in programs, stuff like Ford canceling the three row EV last year. When those shifts happen very quickly, how well do you think the portfolio is hedged? And do you think you pick up those lost sales with something like the Explorer, the ICE version or something like that?

[John Murphy, Analyst at Bank of America]

I mean how quickly does that get balanced out? And maybe sort of with that, is that one of the key drivers of why we're seeing the $600,000,000 variance in organic sales or what else is driving that $600,000,000 organic variance?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. Hi, John. So you look at the ERFQs outside of China, they they have been slowing a little bit and we've seen some delays or cancellations. On the other side, we see more RFQs for foundational products and those usually result in higher volumes of our existing products we're serving a customer with or it might be extensions because they've delayed an EV truck or SUV. So we're in a great position to take advantage of that and also be ready when they launch those new programs on EVs and the markets ready.

[John Murphy, Analyst at Bank of America]

Okay. And that $600,000,000 organic variance in the twenty five million dollars outlook, is that being driven by deltas in volume or program shifts? What's the key driver of that variance?

[Joseph Fadool, President & CEO at BorgWarner]

So for the outlook or let's say the 2024 results, as you know, we outgrew those markets in that 2% to 3% range. As we look forward, we continue to expect that outgrowth, as Craig had mentioned, in 2025.

[John Murphy, Analyst at Bank of America]

Okay. And then just maybe one quick follow-up. Can you just remind us what your China exposure is right now with domestics versus international players and where you think that's going to land in 2025 and how much it might shift towards the domestics in the next few years?

[Joseph Fadool, President & CEO at BorgWarner]

Specifically in China or?

[John Murphy, Analyst at Bank of America]

In China specifically, yes.

[Joseph Fadool, President & CEO at BorgWarner]

Yes. So as you know, China is about 20% of our global sales and in China, Seventy Five Percent of our total sales are with the Chinese OEMs. So we're very well positioned with them as they grow in their domestic market and in support of their strong export. One other thing to mention, 90% of that business is on NEB with those domestic, so we're in a great position.

[John Murphy, Analyst at Bank of America]

That's very helpful. Thank you very much.

[Operator]

Your next question today will come from Colin Langan with Wells Fargo. Please go ahead.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Oh, great.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Thanks for taking my questions and congrats Brad on your retirement. It's been a pretty impressive pivot for e Powertrain and your leadership. On e Powertrades, any color on how e Products should perform this year? I noticed the battery side was a bit weaker sequentially and I think there's some slowing in North America you've indicated. And should we start seeing help?

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

I know Europe with regulations, there should be a light vehicle bounce there, likely some increase in The U. S. Is that start showing up in maybe the second half or how should

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

we think of that?

[Joseph Fadool, President & CEO at BorgWarner]

So, Colin, we are growing year over year in the e product business. It is softened a little bit mainly due to the battery business, which you referenced. The way I guess you want to think about it is we are flat year over year in battery sales when it comes to units. The revenue was down a little bit mainly due to cell pricing, which is bringing the overall revenue down. But overall, it's greater than a $600,000,000 business.

[Joseph Fadool, President & CEO at BorgWarner]

We really like that AgAssol business we bought and it's ahead of where we purchased it despite a lot of the turmoil and despite the lower cell pricing.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Got it. And then the guide for this year has 200 basis points growth over market. In the past, you've kind of talked about 4%. I think you called out a couple of things. I mean, should we think about eventually getting back to something like a 4%?

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Or is this lower EV adoption just kind of holding that back for several years from now?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. The past few years, our outgrowth has been in that 2% to 3% range. So 2025 is close to this range. My focus is really on outgrowing our markets. We think the portfolio is the right one.

[Joseph Fadool, President & CEO at BorgWarner]

In the short term, the biggest driver in 2025 of the lower outgrowth is the delay of a North American EV program, which we previously disclosed. And as I mentioned, the cell pricing on the battery pack business. My focus is really to outgrow on both sides of the portfolio. So we want our foundational products to do what they can to expand market share and we're in a great position because as you know on our foundational products we're number one or number two in that side of the business. And then on the East Side as new launches and RFQs start to come out, we're in a good position to also outgrow those markets.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Got it. All right. Thanks for taking my questions.

[Operator]

And your next question today will come from Ryan Brinkman with JPMorgan. Please go ahead.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Hi. Thanks for taking my question. Just curious with regard to the products that you manufacture in Mexico, the extent to which they are installed on products in Mexico versus brought across The U. S. Border?

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

And then what any preliminary conversations with automakers might look like in terms of the pass through of any potential tariff costs? Thank you.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Yes, Ryan, let me take that one. So, I'll start by saying we generally produce in the same regions as our customers produce. But when we look at 2024 and the amount of imported material and value to The U.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

S, it was about $875,000,000 When you break that down, about half of it originated in Mexico, Ten Percent of it originated in Canada, Five Percent originated in China. Ultimately, there's a lot of news going on right now. We're going to continue to watch that, but ultimately, if there's an impact to BorgWarner, we're going to need to find a way to share that with our customers and our suppliers. That's how we're thinking about it.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Great. Thanks much.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Thank you.

[Operator]

And your next question today will come from Luke Young with Baird. Please go ahead.

[Luke Junk, Senior Research Analyst at Robert W. Baird & Co]

Good morning. Thanks for taking my questions and my congratulations to you as well, Fred. Maybe starting with the outgrowth, hoping you could just help us understand at least directionally what that assumes for e products and PowerDrive. I guess I'm looking specifically in Europe where you had a big launch here in 2024 and in China relative to what are of course continued tailwinds around and UV adoption overall? And I guess, any offsets we should be thinking beyond what you've already mentioned in any existing book of business in either Geo as well?

[Luke Junk, Senior Research Analyst at Robert W. Baird & Co]

Thank you.

[Joseph Fadool, President & CEO at BorgWarner]

Yes. Hi, Luke. So we see EV adoption increasing year over year in all the markets. When we think about our segments, one of the things we did last July, as you recall, we organized into four operating segments to give better transparency in how each of those businesses are performing. So we think that's going to be a good indicator of how the businesses are performing in terms of outgrowth.

[Luke Junk, Senior Research Analyst at Robert W. Baird & Co]

Got it. And then for my follow-up, I'm hoping you could just maybe expand on your comments around foundational awards. It's now been a couple of quarters in a row you've highlighted a good number of foundational awards. As you mentioned, you're seeing a reacceleration in RFQs. I guess what I'm trying to square is how that might translate to outgrowth, not this year, but looking out 2627?

[Luke Junk, Senior Research Analyst at Robert W. Baird & Co]

And especially, it seems like there may have been a lull, just given where the industry's focus was a few years ago in those awards and how that might translate to some pickup in 2026 plus Thank you.

[Joseph Fadool, President & CEO at BorgWarner]

Yes. As you mentioned, we have highlighted awards on both sides of our portfolio and an increasing number on the foundational side. I think that speaks to the strength of our portfolio. And as customers are evolving their cycle plans, they're looking toward us since we're number one or number two in those foundational products to support them. Those often look like program extensions.

[Joseph Fadool, President & CEO at BorgWarner]

In some cases, it may be some new programs that they're putting out for bid. But I think what's important here is we want to help growth across our entire portfolio. And those are great examples that we highlighted. You see wins in both the foundational and on the E side.

[Luke Junk, Senior Research Analyst at Robert W. Baird & Co]

Understood. Thank you.

[Operator]

And your next question today will come from Joe Spak with UBS. Please go ahead.

[Joseph Spak, Managing Director at UBS Group]

Thanks. And Fred, again, my congrats as well and Enjoy. Just maybe just one on the guidance, just a little bit more color. I just want to understand like that is what you're saying that North America weighted down 3% to 4%? And I think if we look at some third parties, it's closer to down 2%.

[Joseph Spak, Managing Director at UBS Group]

Is that delta sort of the, I guess, conservatism you're sort of putting in for maybe some disruption as to what could happen if tariffs come in? I just want to be clear on that. And then I don't think I heard I joined a little bit late. I don't think I heard sort of any e products overall. I know you have the new segments, but any sort of e products sort of expectations for this year?

[Joseph Spak, Managing Director at UBS Group]

Is there any color you can provide there just so we can sort of track, I guess, performance relative to some of the underlying market dynamics?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. So starting with some color on the market, we formulate our industry forecast internally. And directionally for the last few years, we've been fairly accurate. When we think about the global markets, maybe we can break it down a little bit. So that minus 1% to minus 3% starting with North America, down 3% to 4%.

[Joseph Fadool, President & CEO at BorgWarner]

As you know, there's a lot of inventory in the system. We've also baked in a little bit of headwinds pending tariffs that may come. In Europe, 4 Percent to 6% down due to signs of both the backlog and economic headwinds that they're seeing. China is a brighter spot. They're flat to down 1%.

[Joseph Fadool, President & CEO at BorgWarner]

So that's a little bit of color on your first question.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Yes, I'll jump in with sales. So, reported 2024 sales a little over $2,300,000,000 for e products. As we move forward, you'll see disclosure in our 10 Qs breaking out e products from foundational. And so you'll see that as we move forward.

[Joseph Spak, Managing Director at UBS Group]

Anything on e products in relation to the overall guidance?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

We're not providing that outlook. As Joe indicated, our focus is outgrowth

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

on both sides of our portfolio.

[Joseph Spak, Managing Director at UBS Group]

Okay. Jerry, the second question is, I think in some of your prepared remarks, you talked about building on your portfolio organically and inorganically. And I don't think that's a change from what you've talked about in the past as an organization, but there had been some messaging or communication that inorganic has been paused. I guess I'm wondering as you sort of take over here how you think about that going forward, especially since we've seen some activity in M and A in the space and I would even say sort of more broadly in the markets. Like do you is there do you expect a little bit more focus on inorganic opportunities as we move forward from here?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. So we will continue to invest organically as our top priority. We have a terrific product portfolio and we see lots of opportunities to keep building on that and growing that to outgrow the market. We will continue to look at acquisitions as it remains an important part of our strategy. So the industry turbulence that we're all witnessing right now actually provides a unique opportunity for BorgWarner given our financial strength.

[Joseph Fadool, President & CEO at BorgWarner]

So as we execute them, if we execute them, it will be in a very thoughtful way. And our focus is to create long term shareholder value.

[Joseph Spak, Managing Director at UBS Group]

Thank you.

[Operator]

And your next question today will come from Edison Yu with Deutsche Bank. Please go ahead.

[Edison Yu, Analyst at Deutsche Bank]

Thank you for taking the questions and congrats Fred. I wanted to ask about eREV. You've obviously had quite a bit of success in China with that.

[Edison Yu, Analyst at Deutsche Bank]

How are those conversations going in U. S. And Europe? And do you think the volumes there could in three or four years be similar?

[Joseph Fadool, President & CEO at BorgWarner]

So we have seen some success on eREvs in China, as you mentioned. I would say the other regions are certain to look at eREvs as a way to, especially in the truck market, meet all the requirements for our customers, but also provide better overall fuel economy and emission reduction. So, we don't see it in big volumes just yet, but we do see it as an emerging option architecture for the customers to meet their emission requirements.

[Edison Yu, Analyst at Deutsche Bank]

Understood. And just one thing on the guidance for China, Are you assuming the scrappage incentives still continue? I think there's probably, to your point, you mentioned some risk, but in terms of the upside, just curious what kind of you're assuming there?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

No, we're really looking at a China market that is flattish year over year. So we haven't factored that in at this point.

[Edison Yu, Analyst at Deutsche Bank]

Okay. Thank you.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Thank you.

[Operator]

Your next question today will come from Emmanuel Rosner with Wolfe Research. Please go ahead.

[Emmanuel Rosner, Analyst at Wolfe Research]

Thank you. My first question is on the CapEx outlook. Can you provide a little more context around the lower CapEx budget and to what extent these, I guess, extra free cash flow would go towards buybacks versus something else?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Yes. So, let me address CapEx. When you go back a few years, our CapEx was in kind of the mid-5s as a percent of sales, 5.5%, five point four %. We saw this year come down to below 5%. Our guidance as we look at it this year is maintaining that around the high-4s, low-5s as a percentage of sales.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

So that's how you should think about it. From a buyback perspective, we have not incorporated anything into this guide. So I wanted to address that a little bit. When we step back and think about buybacks as a company, we've deployed a lot of cash to shareholders about $3,400,000,000 since 2020. So we've deployed a lot of cash to our shareholders.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

I want to step back and talk about our goal. Our goal as a company is to really focus on earnings and cash flow, grow earnings and cash flow over time. And as we think about buybacks for this year, we're going to use the full power of Board Warner to focus on earnings growth, to focus on full cash and cash flow growth. As we continue throughout the year, we'll look at this lever as an item to pull and we'll look at it appropriately as we move forward. That's how we're thinking about buybacks this year.

[Emmanuel Rosner, Analyst at Wolfe Research]

Got it. That's helpful. And then how are you thinking about the growth outlook this year and also beyond for EV products in China, specifically given very competitive market dynamics?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. So I mean, more broadly speaking, 20% of our total business is in China.

[Joseph Fadool, President & CEO at BorgWarner]

And as we mentioned, we're very strong with the Chinese OEMs. In fact, the Chinese OEMs have over 90% of the market share on EVs and they are 75% of our business. So, we feel very well positioned with the Chinese whether they're serving the domestic market or as we've seen over the last few years exporting those vehicles.

[Emmanuel Rosner, Analyst at Wolfe Research]

Great. Thank you.

[Operator]

We have time for one final question and that question comes from Dan Levy with Barclays. Please go ahead.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Hi, good morning. Thanks for taking questions. Fred, congratulations to you. Wanted to first just start with a follow-up on that last question there. PowerDrive was disappointing or soft in 2024.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Maybe you can give us a flavor for what turns around in that business? And maybe you could just comment or remind us why Asia EmpowerDrive was as soft as was despite EV in China doing as well as it did?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Maybe I'll start on the year over year performance. So we were down a little over $200,000,000 in sales. When you think about that, that was really on the foundational side of their portfolio as a customer program was pending. But when

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

you look at the E side of

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

the portfolio, it was actually relatively flat. There was just volatility in the market. I'll let Joe comment on going forward.

[Joseph Fadool, President & CEO at BorgWarner]

Right. So as we look forward in 2025, we're in the middle of launching a number of new products and platforms. So that's what's really bringing the additional growth on the PDS side of the business.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

And how much of that is China?

[Joseph Fadool, President & CEO at BorgWarner]

Yes. We don't break out specifically China, but but let's say that they're strong they've got a strong position in the overall market. I'll let Pat maybe cover that in a follow-up.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Okay. Thank you. And then as a follow-up, I wanted to just understand the EBIT bridge. And maybe we could just compare versus 2024 because on organic revenue flat or down slightly, you still had EBIT up some $60,000,000 Now in 2025, you've talked about restructuring benefits for e product. And I would presume there's going to be some pricing benefits for programs that you've tooled for, but the volumes never appreciated.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

So why aren't we seeing maybe a little more margin benefit given these developments?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

Yes. So let

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

me walk through the guide. When you start with last year's sales $14,100,000,000 the midpoint of our guide is $13,700,000,000 and when you look at the difference and exclude foreign exchange, again that $410,000,000 we're basically slightly up about 40 basis points. Again, the market backdrop that we expect is down 2%. So that's where you get about our two fifty basis points of outgrowth. As you look at our EBIT line, we're maintaining 10.1% on that relatively flat sales.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

As we look at the low end of the guide, we're basically decrementing at 10% at the high end in the mid teens. So we feel really good about the performance that you're seeing in

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

the guide.

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

That's how we're thinking about it. It does incorporate the savings year over year from our e product restructuring.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

And what was unique in 2024 that is not repeat in 2025 that you had such strong incremental?

[Craig Aaron, CFO, Executive VP & Controller at BorgWarner]

I think when you look at our performance in 2024, we really focused on restructuring savings. We focused on our cost controls across the business including GSM and productivity and we're maintaining that as we look into this year. And so we feel really good with where we landed in 2024 and this outlook for 2025. And we're going to keep our focus on cost controls as we move forward.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Okay. Thank you.

[Joseph Fadool, President & CEO at BorgWarner]

Thank you.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

Thank you all for your great questions today. If there are additional follow ups, feel free to reach out to me or my team.

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

With that, Nick, you can

[Patrick Nolan, Vice President, Investor Relations at BorgWarner]

go ahead and conclude today's call.

[Operator]

Thank you. This concludes the BorgWarner twenty twenty four fourth quarter and full year results conference call. You may now disconnect.

Participants

Executives

• Patrick Nolan, Vice President, Investor Relations
• Frédéric Lissalde, President and CEO
• Frédéric Lissalde, Retired CEO
• Joseph Fadool, President & CEO
• Craig Aaron, CFO, Executive VP & Controller

Analysts

• John Murphy, Analyst at Bank of America
• Colin Langan, Automotive & Mobility Analyst at Wells Fargo
• Ryan Brinkman, Equity Research Analyst at JP Morgan
• Luke Junk, Senior Research Analyst at Robert W. Baird & Co
• Joseph Spak, Managing Director at UBS Group
• Edison Yu, Analyst at Deutsche Bank
• Emmanuel Rosner, Analyst at Wolfe Research
• Dan Lévy, Senior Equity Research Analyst at Barclays