BorgWarner Inc. (BWA) is a global leader in clean and efficient technology solutions for combustion, hybrid, and electric vehicles. With a diverse product portfolio and a focus on innovation, the company has emerged as a resilient player in the ever-evolving automotive landscape.

Company History

Founded in 1987, BorgWarner has a rich history spanning over three decades. The company's roots can be traced back to the early 20th century when it was known as Borg-Warner Automotive, a manufacturer of automotive parts and components. Over the years, BorgWarner has undergone strategic transformations, expanding its footprint globally and diversifying its product offerings to meet the changing demands of the industry. The company started as a manufacturer of turbochargers, emissions systems, and thermal systems for internal combustion engines. A key milestone in BorgWarner's history was the acquisition of Borg-Warner Automotive, Inc. in 1999, which significantly expanded the company's global footprint and product offerings, allowing it to become a leading supplier of advanced technologies for the automotive industry. Despite the challenges posed by the 2008-2009 financial crisis, BorgWarner remained resilient and continued to invest in research and development to stay ahead of industry trends. The company made strategic acquisitions, such as the purchase of Delphi Technologies in 2020, to further strengthen its position in the electrification and hybrid vehicle markets. Throughout its history, BorgWarner has maintained a strong focus on operational excellence, customer relationships, and technological innovation, enabling it to weather various industry changes and emerge as a leading global supplier of clean and efficient powertrain solutions.

Business Segments

BorgWarner operates in four reportable segments: Turbos Thermal Technologies, Drivetrain Morse Systems, PowerDrive Systems, and Battery Charging Systems. These segments collectively contribute to the company's diverse product portfolio, which includes turbochargers, emission systems, thermal systems, transmission components, power electronics, and battery systems, among others. This breadth of offerings has enabled BorgWarner to maintain a strong market presence and cater to the varying needs of its global customer base.

Turbos Thermal Technologies Segment

This segment develops and manufactures products to improve fuel economy, reduce emissions, and enhance performance. The product range includes turbochargers, eBoosters, eTurbos, emissions systems, thermal systems, gasoline ignition technology, smart remote actuators, powertrain sensors, cabin heaters, and battery heaters. Turbochargers for light vehicles represented approximately 21% of the company's net sales in 2024, down from 22% in 2023 and 25% in 2022. The segment's Adjusted Operating Income Margin was 14.9% in 2024, up from 14.5% in 2023, as lower sales were offset by manufacturing efficiencies, supply chain, and restructuring savings.

Drivetrain Morse Systems Segment

This segment produces control modules, friction and mechanical clutch products for automatic transmissions, torque-management products, and coupling systems. It also manufactures chain systems and variable camshaft phasing products. Segment net sales increased 1% in 2024, driven by increased demand for the company's products despite a decline in weighted average market production. The segment's Adjusted Operating Income Margin improved to 18.1% in 2024 from 17.3% in 2023 due to conversion on higher sales and manufacturing efficiencies, supply chain, and restructuring savings.

PowerDrive Systems Segment

The PowerDrive Systems segment provides power electronics such as inverters, onboard chargers, DCDC converters and combination boxes, rotating electric machines, fully integrated drive modules, and electronic controls. Segment net sales declined 11% in 2024, primarily due to decreased demand for the company's light vehicle Foundational products, partially offset by customer recoveries. Despite the lower sales, the segment's Adjusted Operating Margin improved to 7.4% in 2024 from 4.2% in 2023, due to supply chain and restructuring savings.

Battery Charging Systems Segment

This segment produces high-performance lithium-ion battery systems for electrified bus, truck, and off-highway applications, as well as DC fast chargers for electric vehicles. Segment net sales increased 34% in 2024, driven by higher demand for battery system products in Europe. However, the segment's Adjusted Operating Margin decreased to 6.4% in 2024 from 21.2% in 2023 due to the impact of new business acquisition, higher research and development costs, higher input costs from inflation, and additional depreciation expense.

Financials

In 2024, BorgWarner reported net sales of $14.09 billion, a slight decrease of 1% compared to the previous year. The company's adjusted operating margin for the year came in at 10.1%, exceeding the high end of its guidance range. This strong operational performance was driven by the company's continued focus on cost control and operational efficiency across its business segments.

Net income for the fiscal year 2024 was $338 million. The company's operating cash flow reached $1.38 billion, demonstrating its ability to generate strong cash flows from its operations. BorgWarner's eProducts revenue, which includes products for electric and hybrid vehicles, was approximately $2.3 billion or 17% of total revenue in 2024, up from $2.0 billion or 14% in 2023. Foundational products revenue, which includes products for internal combustion engines, was approximately $11.8 billion or 83% of total revenue in 2024, down from $12.2 billion or 86% in 2023.

In the most recent quarter (Q4 2024), BorgWarner reported revenue of $3.44 billion, representing a year-over-year decrease of approximately 2% compared to Q4 2023. However, the company reported a net loss of $405 million for the quarter.

Liquidity

BorgWarner's free cash flow generation has been a hallmark of its financial strength, with the company delivering $729 million in free cash flow during 2024, up 29% year-over-year and exceeding its full-year guidance. This robust cash flow generation has enabled the company to invest in organic growth initiatives and strategic acquisitions, further strengthening its competitive position.

The company maintains a strong liquidity position with $2.09 billion in cash and cash equivalents as of the end of 2024. BorgWarner also has access to a $2 billion multi-currency revolving credit facility, providing additional financial flexibility. The company's debt-to-equity ratio stands at 0.75, while its current ratio and quick ratio are 1.79 and 1.45, respectively, indicating a healthy balance sheet and ability to meet short-term obligations.

Strategic Position

The company's balanced portfolio, with a mix of foundational products and e-products, has been instrumental in navigating the industry's transition towards electrification. In 2024, BorgWarner's e-product revenue accounted for approximately 17% of its total revenue, up from 14% in the previous year, showcasing the company's ability to adapt to the evolving market dynamics.

Resilience and Adaptability

Despite the challenges posed by the COVID-19 pandemic and global supply chain disruptions, BorgWarner has demonstrated its resilience. The company has proactively implemented cost-saving measures, optimized its operations, and maintained a strong financial position to weather the storm. The company's decentralized operating model has also proven to be a valuable asset, allowing for increased agility and responsiveness to market changes.

Future Outlook

Looking ahead, BorgWarner has provided a cautiously optimistic outlook for 2025. The company expects its global weighted light and commercial vehicle markets to decline by 1% to 3% year-over-year, factoring in potential industry volume headwinds from global tariffs. However, BorgWarner is forecasting to outperform the market by 100 to 300 basis points, underscoring the resilience of its product portfolio and the company's ability to navigate the evolving industry landscape.

For 2025, BorgWarner has provided the following guidance:

• Total sales guidance of $13.4 billion to $14 billion
• Adjusted operating margin guidance of 10.0% to 10.2%
• Adjusted EPS guidance of $4.05 to $4.40 per diluted share
• Free cash flow guidance of $650 million to $750 million

This outlook indicates continued strong operational and financial performance, despite expected industry challenges.

Strategic Priorities

The company's strategic priorities for 2025 and beyond include: 1) Continuing to outgrow industry production by leveraging its core competencies in efficiency and innovation; 2) Building upon its existing product portfolio through organic and inorganic investments; and 3) Driving enhanced financial performance by actively managing its cost structure and preserving its strong financial foundation.

Sustainability Commitment

BorgWarner's commitment to sustainability and environmental responsibility is also worth noting. The company's products are designed to improve vehicle performance, propulsion efficiency, stability, and air quality, aligning with the industry's shift towards cleaner and more sustainable mobility solutions.

Geographic Performance

While BorgWarner does not break out performance by specific geographic markets, approximately 84% of consolidated net sales were generated outside the United States in 2024. This global presence helps the company diversify its revenue streams and mitigate risks associated with regional market fluctuations.

Industry Trends

The weighted average market production, as estimated by BorgWarner, was down approximately 3% in 2024 compared to 2023. Despite this industry-wide decline, the company has managed to outperform the market, demonstrating its strong competitive position and the resilience of its product portfolio.

Conclusion

Despite the challenges faced by the automotive industry, BorgWarner has demonstrated its ability to adapt and thrive. The company's diversified product portfolio, operational excellence, and strong financial position position it well to capitalize on the industry's transformation and deliver long-term value for its shareholders. With a clear focus on growing its eProducts portfolio while maximizing the value of its Foundational products, BorgWarner is well-equipped to navigate the evolving automotive landscape and maintain its position as a global leader in clean and efficient technology solutions.