Consumer Discretionary
Auto Parts
$7.02B
40K
BorgWarner Inc., 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.
Key insights and themes extracted from this filing
For the three months ended June 30, 2025, net sales increased slightly by 1% to $3,638 million, but gross profit decreased from $685 million to $640 million, leading to a gross margin decline from 19.0% to 17.6%. Similarly, operating income fell from $297 million to $289 million, and net earnings attributable to BorgWarner Inc. dropped from $303 million to $224 million.
Net cash provided by operating activities from continuing operations significantly increased to $661 million for the six months ended June 30, 2025, up from $344 million in the prior year period. Concurrently, capital expenditures, including tooling outlays, decreased to $196 million for the six months ended June 30, 2025, compared to $355 million in the same period of 2024, reflecting a more disciplined capital allocation.
Net cash used in financing activities from continuing operations surged to $606 million for the six months ended June 30, 2025, compared to $242 million in the prior year. This was primarily driven by the repayment of $403 million in debt, including the maturity of the Company's 3.375% senior notes on March 15, 2025, which significantly reduced short-term debt from $398 million to $6 million.
The Company's eProducts revenue grew significantly, reaching $658 million for the three months ended June 30, 2025, up from $576 million in the prior year, and $1,295 million for the six months, up from $1,082 million. This represents an increase in eProducts' share of total revenue from 16% to 18% for the three-month period, aligning with the Company's strategy to focus on profitable growth in electric and hybrid vehicle technologies.
In February 2025, BorgWarner decided to exit its charging business within the Battery & Charging Systems segment, ceasing production in Q2 2025. This strategic move is expected to eliminate approximately $30 million of annualized adjusted operating losses by 2026 and allows for a more focused product portfolio.
The Company is executing two major restructuring plans: the 2023 Structural Cost Plan (targeting $130M-$150M in Foundational products, expected $80M-$90M annual savings by 2027) and the 2024 Structural Cost Plan (targeting $75M in PowerDrive Systems, expected $100M-$120M annual savings by 2026). These initiatives demonstrate a commitment to streamlining operations and achieving net cost reductions.
Management initiated a new $75 million restructuring plan in PowerDrive Systems in June 2024, recording $17 million in charges for the six months ended June 30, 2025, with expected annual savings of $100 million to $120 million by 2026. This, alongside the completed 2023 plan, demonstrates management's commitment to streamlining operations and adapting to market dynamics, such as EV adoption volatility.
The decision in February 2025 to exit the charging business, which resulted in $23 million in costs to exit for the six months ended June 30, 2025, is a clear management action to divest from underperforming assets. This move is projected to eliminate approximately $30 million of annualized adjusted operating losses by 2026, indicating a decisive response to portfolio underperformance.
Despite restructuring efforts, gross margin declined to 17.6% for the three months ended June 30, 2025, from 19.0% in the prior year, and operating income decreased from $297 million to $289 million. This suggests that while management is taking steps, external factors like higher input costs and unfavorable customer pricing continue to challenge overall operational profitability.
The Company highlighted a new risk factor concerning changes in U.S. and other countries' administrative policies, specifically the imposition or increase of tariffs. These tariffs are expected to increase the cost of raw materials and components, and retaliatory tariffs could reduce demand for products, potentially having a material adverse effect on business, financial condition, and cash flows.
Management explicitly noted the 'difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth' as a key risk. Furthermore, the weighted average market production for the six months ended June 30, 2025, was down approximately 2% from the prior year, indicating a challenging and uncertain market environment for the automotive industry.
BorgWarner is engaged in a lawsuit against PHINIA to recover approximately $120 million in VAT refunds. While the Company has recorded this as an asset in Receivables, net, it is unable to predict the timing of collection, which impacts its 2025 free cash flow guidance and introduces an element of financial uncertainty.
BorgWarner's strategy emphasizes profitable growth in its technology-focused portfolio supporting electric, hybrid, and combustion vehicles. The significant increase in eProducts revenue (14.2% for 3 months, 19.7% for 6 months YoY) demonstrates its ability to capture growth in the evolving automotive landscape, even as the industry experiences 'electric vehicle adoption volatility.'
Sales from Foundational products, which include internal combustion engine components, decreased to $2,980 million for the three months ended June 30, 2025, from $3,027 million in the prior year. This decline, alongside the 2023 restructuring plan targeting these businesses, suggests a challenging environment for traditional product lines, potentially impacting overall competitive standing.
The Company explicitly stated that 'unfavorable customer pricing' decreased sales by approximately $40 million for the three months ended June 30, 2025, and $35 million for the six months, partially offsetting favorable volume and new business. This indicates a challenge in maintaining pricing power in a competitive automotive supplier market.
The PowerDrive Systems segment saw its Adjusted Operating Loss decrease by $16 million for the three months ended June 30, 2025, primarily due to 'higher sales, supply chain and restructuring savings.' Similarly, the Turbos & Thermal Technologies segment's Adjusted Operating Income increased due to 'supply chain savings, manufacturing efficiencies... and restructuring savings,' demonstrating tangible benefits from operational efficiency efforts.
The decision to exit the charging business is expected to eliminate approximately $30 million of annualized adjusted operating losses by 2026. Additionally, the consolidation of the North American battery systems business is projected to result in annual cost savings of approximately $20 million by 2026. These actions directly target improving the Company's cost structure and operational efficiency.
Despite specific segment improvements, the Company's consolidated gross margin decreased from 19.0% to 17.6% for the three months ended June 30, 2025, and from 18.5% to 17.9% for the six months. This decline was attributed to higher input costs, including foreign currency fluctuations and increased tariff expenses, suggesting that broader cost pressures continue to impact overall operational efficiency.
The Company's eProducts revenue, representing products for electric vehicles and hybrid powertrains, increased by 14.2% to $658 million for the three months ended June 30, 2025, and by 19.7% to $1,295 million for the six months. This sustained growth underscores BorgWarner's successful innovation and technological adaptation to the evolving automotive market.
Net R&D expenditures decreased to $182 million for the three months ended June 30, 2025, from $189 million in the prior year, and to $364 million for the six months, from $376 million. Despite this reduction, R&D costs remained consistent at 5.0% of net sales for the three-month period, indicating a continued, albeit more efficient, investment in new product development and technology.
The acquisition of Drivetek AG in December 2022 strengthened the Company's power electronics capabilities in auxiliary inverters, accelerating the growth of its High Voltage eFan business. This targeted acquisition demonstrates a commitment to enhancing technological capabilities in key e-mobility areas.
The Board of Directors declared a quarterly cash dividend of $0.17 per share for the third quarter of 2025, an increase of $0.06 per share from the previous quarter's dividend of $0.11. This 54.5% increase indicates management's confidence in the Company's sustained profitability and future cash flow generation.
Capital expenditures, including tooling outlays, decreased to $196 million for the six months ended June 30, 2025, compared to $355 million in the prior year, representing 2.7% of sales versus 4.9%. This reduction, alongside strong operating cash flow, suggests a disciplined approach to capital allocation, prioritizing efficiency and potentially higher returns on investment.
The Company repaid $403 million in debt during the six months ended June 30, 2025, primarily due to the maturity of senior notes, significantly reducing short-term debt. Concurrently, a new share repurchase authorization of up to $1 billion was approved in July 2025, replacing the previous $767 million program. These actions demonstrate active management of the capital structure, balancing debt reduction with shareholder returns.
The Company reported an accrual for environmental liabilities of $5 million as of June 30, 2025 and December 31, 2024, related to four hazardous waste disposal sites. Remediation activities are complete or nearing completion at 12 other sites, and management believes these matters will not have a material adverse effect, indicating stable environmental risk management.
Restructuring expenses for the six months ended June 30, 2025, totaled $48 million, with employee termination benefits accounting for $33 million of this. While necessary for efficiency, these costs reflect the social impact of operational changes, including facility closures and consolidations in Europe, China, and the U.S.
BorgWarner's core strategy to grow its eProducts portfolio (products for EVs and hybrid powertrains) directly supports global emissions standards and vehicle efficiency. The significant growth in eProducts revenue (up 19.7% for six months YoY) demonstrates the Company's commitment to providing solutions that contribute to environmental sustainability in the automotive sector.
The Company's weighted average market production, as estimated by S&P Global, was down approximately 2% for the six months ended June 30, 2025, compared to the prior year. Management expects global industry production to decrease year-over-year in 2025, indicating a challenging macroeconomic backdrop for the automotive sector.
A new risk factor highlights the adverse effect of changes in U.S. and other countries' administrative policies, including new tariffs on imports from regions like the EU, Canada, Mexico, and China. These tariffs could increase costs of raw materials and components and lead to retaliatory tariffs, creating significant uncertainty and potential negative impacts on supply chain and demand.
While the Company expects commodity prices and other input costs (labor, energy, materials) to be relatively flat in 2025 compared to 2024, it warns of 'greater uncertainty and volatility' due to potential tariffs. This indicates that inflationary pressures, though somewhat managed, could still materially impact costs and profitability in the future.