BorgWarner (NYSE:BWA) FY Conference Transcript

Summary of BorgWarner Conference Call Company Overview - Company: BorgWarner - Industry: Automotive technology, focusing on both legacy combustion technologies and electric vehicle (EV) products Key Priorities and Strategies - Financial Performance: The company aims to drive financial performance by launching new business globally, focusing on both combustion and EV products [2][3] - RFQ Flow: There has been a significant increase in Request for Quotations (RFQs) compared to the previous year, with the company winning a fair share across its portfolio, including turbochargers, EGR systems, inverters, and complete drive systems [2][5] - Growth Expectations: Anticipated growth is expected to materialize around 2027-2028, with a balanced approach to capital allocation, including shareholder returns and potential inorganic investments [3][14] Market Dynamics - Geographical Insights: - China: Strong growth in e-products, with a significant portion of combustion programs also present. The company has won numerous awards in this market [5][6][25] - Europe: A balanced focus on EVs, advanced hybrids, and combustion technologies, with a slower short-term growth in EVs [5][6] - North America: The market is currently facing supply chain issues, particularly with a North American truckmaker, impacting production [9][10] Financial Performance - Earnings Growth: The company is focused on growing earnings per share (EPS) and free cash flow, with a target to continue this trend into 2026 and 2027 [14][18] - Margin Expansion: Despite flat sales, the company has managed to expand operating margins by 30 basis points year-to-date through cost controls and productivity improvements [16][17] - Cash Flow: The company generated $900 million in free cash flow and is committed to returning cash to shareholders through dividends and buybacks [18][50] Challenges and Risks - Supply Chain Issues: Ongoing challenges with aluminum supply and semiconductor chips have been noted, but the company has not shut down any customers and is managing these disruptions [9][10] - Tariffs: The company has been managing tariff impacts, with expectations for recovery in the fourth quarter as agreements with customers cover about 80% of tariff exposure [19][50] Technological Advancements - AI and Machine Learning: The company is exploring the use of AI tools for quality improvement and cost reduction, with positive results from pilot programs [20][21] - E-Products Growth: Approximately 50% of light vehicle e-product sales are in China, with a 27% increase in sales year-over-year [25][28] M&A Strategy - Inorganic Growth: The company is open to both larger acquisitions and smaller tuck-in deals that align with its core competencies in rotating mechanics, electrics, and system engineering [45][48] - Valuation Discipline: A disciplined approach to valuation is emphasized, with a focus on ensuring that any inorganic investment drives earnings growth [47][50] Conclusion BorgWarner is strategically positioned to leverage its diverse portfolio in both combustion and electric vehicle technologies, with a strong focus on financial performance, market expansion, and technological innovation. The company is navigating current challenges while preparing for future growth opportunities, particularly in the rapidly evolving automotive landscape.