Q3 2020 Borgwarner Inc Earnings Call
[music].
Morning, My name is <unk> and I will be her conference for somebody theater at this time I would like to welcome everyone to the Borgwarner 2000, Blink first quarter results conference call. All lines have been placed on mute to prevent any background noise I forget speakers remarks burn will be a question and answer.
Period, if you would want to ask a question. During this time simply press star one on your telephone keypad. If you would want to withdraw your question press. The pound key if you were using a speaker phone. Please pick up the handset before asking your question I would know like the vertical over to Patrick Nolan Vice.
Vice President of Investor Relations Mr. Nolan you May begin your conference.
Thank you Jerome and good morning, everyone. Thank you for joining us today.
You should our earnings release earlier. This morning, it's posted on our website Borgwarner dot com on our homepage and on our Investor Relations homepage.
The broad join Investor Relations calendar, we will be attending multiple comp does between now and our next earnings release. Please see the events section of our Investor Relations home page for a full list.
Before we begin a formula during 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 highlights on certain non-GAAP measures in order to provide a clearer picture of how the core business performed for comparison purposes with prior periods.
When you hear us say on a comparable basis that means excluding the impact of FX net M&A and other next non comparable items.
When you hear us say adjusted that means excluding non comparable items.
Yes, they are gonna <unk> that means excluding the impact of FX and that M&A.
We will also refer to our growth compare to our market.
When you hear us say market that means the change in light vehicle production waited for our geographic exposure.
Our outgrowth is defined as our organic revenue change versus the market.
Please note that we have posted an earnings call presentation to the IR page of our website.
We encourage you to follow along with the slides during our discussion.
With that I'm happy to turn the call EBITDA Fred.
Thank you Beth and good morning, everyone.
We are very pleased to share our results for Q3 today and provide an overall company updates starting on slide five.
The industry production rates steadily improved throughout the quarter as volumes in China, and North America exceeded our expectation.
Importantly, we continued to outperform on a relative basis.
With approximately 2.5 billion in sales, we were up about 1% organically and this compares to a market being down about to this means we sold continued outgrowth in the quarter.
We saw a significant outgrowth in China, driven by D. C D and commercial vehicle business. We also outperformed in North America, driven by new programs and beneficial mix.
Our incremental margin performance was very strong.
As revenue trends exceeded our expectations and we benefited from our restructuring savings and temporary wage reductions.
We also delivered significant positive free cash flow.
And we completed the acquisition of Delphi technologies. Shortly after the close of the quarter. We're excited to move forward as one company and capitalize on our product leadership.
Let's now turn to slide six where you can see our perspectives on the global industry production.
As you can see by the chart on the slide the industry backdrop in the second half as significantly improved from the environment that we experienced during the first half.
It's important to note that the market environment is seeded volatiles with the risk of future disruptions.
Arising from Koby Nineteena.
As you've seen the latest look downs announcement in Europe.
Announced last night, the risk level of these potential disruptions as innovated and we're monitoring the situation very closely.
With that in Bolton caveats in mind on the full year basis overall, our industry production expectations for the full year have improved we.
We expect the market decline to be in the minus 18.5 to minus 19% range compared to our prior expectation of the 20% to 25% decline.
Getting at this by region branding for Europe to be down in the 23% to 24% range and in North America, we expect the 20% to 21% decline.
On a relative basis the outlook for China is stronger, but we still expect 7% to 9% decline for the full year.
As you see from the line shall we expect a low to mid single digit decline in Q4.
As we manage the balance of 2020, we will continue to maintain a very active dialogue with both our customers and our suppliers to manage any production volatility.
Let's now discuss some new business awards first I'm happy to announce on slide seven our second eats OBO award with a major European OEM launching in 2023.
Our E turbo isn't efficient solution capable of delivering crucial benefits for our partners, especially in hybrid application.
The in ALS Association of the mechanical in this case the turbo state of the art Motor and then the electronic controller was key for us to win.
Next I would like to summarize our latest inverter when that was announced in September on slide eight.
We're partnering with the premium European OEM to supply our 800 volt silicon carbide inverter for their next generation battery electric vehicle.
This business will announce in 2024 and even that is another great win in power electronics.
Our 800 volt silicon carbide inverter significantly improves efficiency and range Weiss, enabling through the 800 volt architecture.
50% challenging time reduction.
We're excited to build upon the momentum of this win and positioned borgwarner as a leading supplier of inverters for future battery electric vehicles.
I would like to give you a little more detail on our planned customer engagement on veeco electrification on slide nine.
We had been looking forward to engaging with our customers about our expanded electrification product offerings. After the closing of the Delphi transaction.
And we're excited to report that we've hit the ground running post closing with customer meetings currently underway.
We have plans to meet with customers, representing 70% of the global industry volume over the next four months.
We will be pursuing both full system and component opportunities with these customers. The charts on the right I'll just a sampling of the programs we expect to pursue.
We believe that we are very well positioned to secure our share of the expected industry award activity over the next 12 to 24 months.
Before I turn it over to Kevin Let me summarize our third quarter results and our outlook on slide 10.
We achieved a better than expected our growth in the third quarter, driven by new business in China.
Margin performance has been solid.
Despite the industry challenging challenges throughout 2020, we delivered strong year to date free cash flow.
As I look forward I am excited about our positioning.
As we look to capitalize on the profound industry shift towards electrification.
[noise] wins like the 800 volt silicon carbide inverter and the turbo only helps support our continued and accelerated evolution.
It is our people and their efforts that allow us to manage through a year like 2020, while continuing to secure our future position in the industry I am very proud of the teams with that I will turn it over to Kevin.
Thank you Fred and good morning, everyone.
Given the number of financial topics, we have to get through this morning, I'm going to dive right into the details.
So, let's turn to slide 11.
As we look at our year over year Web revenue walk for Q3, you can see that modestly stronger foreign currencies increased revenue by about 8.8% from a year ago.
Excluding this impact our organic sales were up almost 1% compared to a roughly 2% decline in weighted average market production.
That means we delivered 280 basis points of outgrowth in the quarter.
In China, we outperformed the market by about 17%.
Strong DTT demand was the biggest contributor the sizable out growth in the quarter, but our channel commercial vehicle business also outperformed although the CV. Good news in China was largely offset by commercial vehicle declines in other regions.
In North America, we outperformed the relatively flat market by approximately 2% driven by strong mix and new programs.
From a mix perspective are slightly overweight position in sq decent pickup trucks continues to bode well for our ability to deliver outgrowth in the region.
And in Europe, our light vehicle organic revenue was down 12% compared to the market decline of approximately 8%.
As we've discussed for several quarters, we've been outperforming light vehicle diesel in Europe since the third quarter of last year. However, we have now started to lap this market outperformance, which simply means that diesel will start to become a bit of a headwind again.
Nonetheless, even with this headwind we delivered another quarter of meaningful outgrowth.
Now, let's look at our earnings and cash flow performance, which can be found on slide 12.
Our third quarter, adjusted operating income was $317 million compared to $294 million in the third quarter of 2019.
This yielded an adjusted operating margin of 12.5%, which was up compared to the 11.8% in the third quarter of 2019.
On a comparable basis adjusted operating income increased $25 million on 20 million of higher sales.
This earnings performance in the quarter was driven by our ability to successfully convert on the revenue recovery and the benefit of our restructuring actions and some of the temporary wage reductions we implemented earlier in the year.
Adjusted earnings per share was 88 cents for the quarter, which was lower than a year ago due to a higher tax rate this year.
The higher tax rate was driven by a us tax regulation changed announced at the end of the quarter, which will limit our ability to utilize certain foreign tax credits to offset future tax obligations.
Moving to cash flow, we're proud of the fact that we generated $390 million a positive free cash flow during the third quarter.
Fundamentally we demonstrated our ability to convert operating income into cash flow.
In addition to that we drove inventory performance that was better than we anticipated and we saw some accelerated customer collections as certain customers paid early in China in advance of the Golden week holiday period that started on October onest.
Our year to date cash flow performance positions us very well to deliver higher full year free cash flow than what we were previously projecting I'll talk about that more in a moment.
Before I discuss our updated full year outlook I wanted to take a few minutes on slide 13 to review the expected impact of Delphi technologies on our Q4 outlook.
Starting with revenue.
We expect the acquired businesses to contribute between $950 million and $1 billion of revenue to our Q4 results, which will be down 5% to 10% from Delphi as reported fourth quarter revenue last year.
We expect the adjusted baseline operating margin for the Delphi businesses to be in the range of 4.7% to 6% inclusive of $10 million in synergies.
This lower year over year margin is the result of downside conversion on the combustion portfolio being only partially offset at this point by the benefits from restructuring actions.
This is in line with what we told you to expect for this business specifically, we don't expect to see the Standalone business before synergies to return to 2000 nineteens level of margin performance until we see both the restructuring initiatives fully implemented in 2022, and a recovery of revenue to pre cold.
Good levels.
In addition.
Listen to the baseline performance of the Delphi businesses, we're anticipating between 55 and $60 million of annualized purchase price amortization.
That means we expect to have around $15 million in amortization each quarter.
So inclusive of this amortization, we expect the Q4 adjusted operating income impact of $30 million to $45 million from the acquisition.
And finally from a free cash flow perspective, we expect our fourth quarter cash flow to be impacted by approximately $100 million of transaction related costs at or around the closing and the cost of achieving synergies during the quarter.
Now that you have a good understanding of how the Delphi acquisition is expected to impact our Q4 results, let's talk about our consolidated full year outlook on slide 14.
Our guidance is based on the end market assumptions that Fred reviewed earlier with global production being down 18.5% to 19%.
Also we expect to drive market outgrowth for the full year of approximately 550 to 600 basis points, which is at the high end of our prior guidance of 450 to 600 basis points.
Based on these assumptions, our 2020 organic revenue would decline by 12.5% to 13.5% year over year then.
Then, adding the Q4 revenue from Delphi technologies, we're projecting total 2020 revenue to be in the range of $9.7 billion to $9.85 billion.
From a margin perspective, we expect our full year adjusted operating margin to be in the range of 8.7% to 9.0%.
This contemplates the legacy Borgwarner business delivering full year decrementals in the 30% range consistent with our prior guidance.
Now this implies a somewhat higher Q4 decremental margin as a result of the relatively strong 13.3% margin from a year ago, which makes for a difficult comparable.
Q4, R&D that we expect will be higher by about $25 million as we continue to fund investment in our long term organic growth opportunities.
And our expectation that we'll experience some level of cobot related costs and inefficiencies that impact our operational performance.
This guidance range also contemplates the impact of adding Delphi technologies to the mix, which means that we are adding up to $1 billion of revenue in Q4 with much lower operating margin for the reasons I noted earlier.
Let's turn to slide 15, we can see our updated free cash flow guidance.
Year to date, we have generated $546 million of free cash flow, which we view as a tremendous achievement in this very challenging end market environment.
As COVID-19 hit we focused our team on taking the actions necessary to manage decremental margins, while at the same time, managing working capital and capital expenditures prudently the results speak for themselves.
As we look ahead to the full year, we now expect to generate between 575 and $625 million a free cash flow before the $100 million of expected Delphi technologies transaction related costs and cost of achieved achieving synergies that I mentioned earlier.
Even with the Q4 headwinds arising from the transaction, we still expect to deliver $475 million to $525 million in free cash flow a significant increase from our prior guidance.
This positions us to continue investing in our future growth opportunities, while maintaining a focus on returning cash flow to shareholders.
So let me summarize my financial remarks.
Simply put we had another strong quarter.
In spite of overarching industry pressures, we delivered outgrowth at the high end of our expectations we.
We delivered a strong operating margin for the quarter back to levels, we've seen in recent years.
And we converted our earnings to free cash flow, both for the quarter and on a year to date basis.
So as we wrap up this quarter and look ahead to the balance of the year, we're confident and reinstating our margin guidance and in raising our 2020 expectations for both revenue and free cash flow.
With that I'd like to turn the call back over to Pat.
Thank you Kevin drew.
Jerome array to open up the call for questions.
At this time I would like to remind everyone.
If you would like to ask a question, perhaps par one on your telephone keypad, if you will.
We are using a speakerphone please pick up the handset before asking your question.
The interest of time, please limit yourself to one question and one follow up question well pause for just a moment to compile to see any roster.
Your first question.
[noise] comments from John Murphy with Bank of America, You May know ask your question.
Good morning, guys.
Well I just want to add.
A first question around.
The fourth quarter, and then into 2021 on on trucks in North America.
The other 150, I think they're talking about being down about 100000 units in the fourth quarter I'm, just curious what kind of impact.
Do you think that as that then we are going through this sort of.
New truck boom right, it's been going on for a while but it seems like it's strengthening as we go into 2021 and beyond with some product launches and that's very good for your business. Just curious how you think about that going forward.
Yes, Fred what kind of opportunity there is in your backlog and what you might be able to win and that's a little less accident EPS, maybe but it's still pretty sexy on profit in the profit side.
And John It's Kevin I'll start with that on the on the Ford F. 150, Yeah. Obviously, we are seeing that change over and that is having an impact on our outgrowth, both a little bit in Q3, but a little bit more so in Q4, I'd say from a revenue perspective, it's about a $30 million impact for us in Q4 from a revenue perspective, but then as you as you alluded to the truck mix has been a benefit.
Right. So when we talk about North America mix benefits that were seeing part of it is the benefit of having a.
Mix skewed a little bit more toward trucks than car than what we've seen in the past. So that is what we're seeing right now where we're reaping the benefits of that in our outgrowth.
Yes, and John I, just wondered I like the fact that this is exactly why we are executing a balanced strategy across.
In Boston and hybrid electric with grateful for yield to capitalize on the growth of electrification.
If you if you take if you take your question at the high level. If you look at.
The vehicles that are going to be produced between down 2030.
It's about a billion vehicle age as saying, 17% electrification. This round it to 20 hours out of that billion Ziegel 900 million vehicle, we'd have a combustion engine either as a combustion architecture. So together with the hybrid and we believe that would be a mistake to ignore.
Or that profitable cash generating revenue as well as the inbound on environmental an opportunity to to to to be supplying products on those 900 million vehicle and I think your question is a good is the good is a good example.
Okay. That's incredibly helpful. And then just a second follow up question to the Eagle headwind.
In Europe I'm, just Kevin if you can I mean, I understand the comps and there is some recovery in the comps get are getting a little bit tougher, but eagle headwind will still persist presumably in your business, but also in Delphi is business. So just curious if you think we're through that the worst of this this mix shifts.
And how should we think about that going forward.
So youre right the diesel diesel.
Is going down the take rates going down and actually.
Pretty significant lead down from Q2 to Q3.
We are going to do.
We outgrew that diesel market.
Last year on since since Q3 last year, so we starting lapping these our growth.
And ER and it's tough to figure out where it stops certainly we are more heavily weighted on bigger diesels.
And the drop is essentially touching the smaller ones.
But yeah, it's going to be it's going to be a bit of a headwind for US now you you you may remember that for some of our product lines.
The growth on gasoline is is compensating that that loss of of elements in diesel.
And an overall this headwind will moderate in the future.
Okay, Alright, thank you very much.
Thank you.
Your next question comes from the.
James Covello with Keybanc capital markets you May ask your question.
Hey, good morning, guys good morning.
Just on the on the timing of the Delphi cost out synergies. It is anything baked into the fourth quarter outlook or should the synergy capture strictly take place next year.
In our fourth quarter, we're expecting already $10 million of synergies in those numbers that we showed on the slide in the deck. So that includes $10 million of synergies coming through in Q4.
Got it Okay and then the.
The drivers behind drive trains strong quarterly performance I mean, we've seen three quarters now of.
Call it double digit market outperformance that the margins clearly came through this quarter I mean does your guidance factor in your sustainable momentum run rate around around this business and could provide some color on the drivers from a product and and regional standpoint for that segment in particular.
In Q3, the key drivers were.
A strong outgrowth on dual clutch transmissions in China, and and North American.
Mix.
Product profiles so.
And this certainly that DCG growth in China was was above our expectation.
Going into 2020 and going into the second half of 2020.
And we can go to dwell on those programs.
Got it and just just one last one for me is there any change in your your expectations for next year's incremental margins given the stronger second half performance. This year operationally just.
Is there an element of a more difficult comps relative to how you are thinking about things a few months ago or are 30% incremental margin still the right target for Borgwarner space business next year.
Yeah, I mean, when we speak of the 30% incremental that we were talking about earlier this year to date I mean, taking a step back what we said is hey, given the pace at which revenue was coming out as a result of COVID-19, we thought we would generate decrementals at about 30% and then we said hey, as we thought end markets recovered or rebounded from those cove at lows that we should be.
Able to deliver incrementals on the end market recovery at the same rate at which we deck fermented and that's effectively what you saw in our Q3 results, but thats not the long term incremental profile of the company. That's really just the short term snap back of a rebound in revenue. We still continue to think about ourselves as being at mid to high teens incremental converter.
As you get beyond the snap back in the end markets like we've seen here. So I wouldn't look at next year, and then layer on 30% on top of that if you kind of look at our revenue profile that we're back to a north of $10 billion of annualized revenue here in Q3, and Q4 and we've converted on that effectively incrementally back at the 30% like we had hoped and expected.
Okay. So first half next year.
At the same detriment that you had in the first half.
In 2020, and then in the second half maybe at a normalized rate Yeah, I think thats fair way to think about it because we're coming off if you're doing a year over year comp you can see the second quarter, we should expect to be at that type of an incremental because we're getting back to that off the end market lows in Q2, two end market norms hopefully in Q2 of 2021, So you would see those.
These types of Incrementals getting back to normalized markets and more of that 30, percentish type of range, but above and beyond that our growth should be you should expect it to be back the way it was historically.
Understood. Thanks.
Your next question comes from Dan Levy with Credit Suisse. You May ask your question.
Hi, good morning. Thank.
Thank you.
First just wanted to ask a question on your your core turbocharger business given the bankruptcy filing by your largest competitor in the space is there any potential to see maybe incremental turbo charger business over the near to mid term.
And then similarly, you know maybe you can give a sense of the underlying price or margin trends you've seen in terms of whether you anticipate this competitive development, maybe shifting because pricing gross margin trends. So just an update on turbos getting the development.
Yes, well, what I would say is that.
Balance sheet strength is certainly.
A competitive advantage.
And and Thats what were seeing in the total field.
We are not seeing any any major changes from a from from a pricing standpoint that we've seen in the past it remains a competitive business, where we have product leadership is absolutely important because total efficiency translates fall customers into.
Direct impact on EPS on fuel economy, and so you know it's in this business like in a lot of business in our field. It's a lot around efficiency in the product through this if we can provide to our customers.
And if you know appreciate the balance sheet strength that you had its customers.
That has a good reason to you as the sourcing solution.
How long would it theoretically take for some of that incremental revenue to show up in the backlog or ultimately.
Hitting your revenue.
It would take it would take about three to four years to hit the Threed the revenue line.
From a from a sourcing event from a booking event.
Okay. So nothing no.
Great and then second just wanted to ask about your outgrowth trend and in Europe, and we're obviously seeing.
Sharp inflection in Europe.
Europe powertrain trends right now just as automakers scrambling to meet these.
The mission targets and I know that you're more advanced hybrid and easy solutions. Those don't launch for for a couple of years, but maybe you could give us some color on why we wouldn't it's still maybe better.
Europe outbreak.
Quarter end target as I mean, I know you had the tough issue with the diesel comps and that's rolling.
Rolling off but wondering why we're not seeing this more pronounced you know shipped by automakers are they scrambled impact.
Impacting is it just simply portfolio the portfolio.
They're choosing to addressing the TV that it's not hitting sort of enhanced powertrain type solutions right now.
So I think you pointed to the good you pointed a good point I mean the.
The diesel declined sequentially, certainly certainly a factor.
And you pointed out the second the second half.
After my answer which is we are not extremely active into the first generation of hybrids way more active into the of plug in hybrids and the higher voltage.
Hi, a voltage hybrids that will come in 2023 and beyond we've announced a few a few wins already in past quarters.
So so so so thats the key point.
Well, maybe 111 dilemma for you is that from from Q2 to Q3 diesel when the diesel take rate went down 370 basis point, which is one of the biggest decline cool.
Quarter over quarter over the past Uh huh.
Several quarters.
Okay. So that explains a lot of what's going on there.
Thank you.
Your next question comes from Noel Watson with Oppenheimer, You May ask your question.
Hi, good morning, and thanks for taking the questions.
So obviously, you've kind of hit the ground running here on the Delphi integration in terms of the the customer reach can you talk to us a little bit about the execution on some of the though the ramp that we have dealt by.
Hasn't had in front of them in terms of scaling up their G.D. I in power electronics business.
What does your priorities there how do you see that tracking where is your focus going to be with some of those launches.
Okay. So first of all on GBA I see I see.
A lot of demand and also I see I see some bookings coming our way.
From the announced perspective, we're laser focused into helping the plans to launch the products.
We have as I mentioned before put into the fuel injection system business in it a team of excellent operators from phone Borgwarner, we left that business in it.
Untouched.
In order to.
Not disturb any.
And any of those announcing launches in any shape or form.
So admittedly on potty Tronics, we just announced a few a few oh the booking of the patent bookings over the past month.
Also a very I focus on lounge effectiveness.
Across the across our Pts business unit.
Yes, and and as you've got I I don't know how much more information you've been able to glean since the.
The merger closed thing, but you know how do you think about the pricing you know when the pricing contract structures in those businesses.
And anything else that you've learned incrementally that makes.
Makes you more or less confident in being able to do.
We do better than kind of Delphi on a stand alone basis was hoping to do in terms of reaching breakeven or corporate average margins in those businesses over over the next year now.
No we have not seen anything dramatically different than what weve, what we looked at over the past month.
Oh, so no no surprises for us.
And I think from a disciplined perspective, you know that we are instilling the borgwarner culture, we have a focus as we look at new programs of maintaining that implicit discipline of driving toward 15% ROI CNN any programs and thats. The same discipline will hold whether it's a business that we acquired as part of the Delphi acquisition are part of a legacy borgwarner possess.
In that position if it's the same approach that we take to the entire portfolio of businesses, we have a borgwarner.
That's great if I could just sneak one more in its really around the pace of overall booking activity in quoting activity you're seeing in the space.
We've heard from some peers that interestingly I mean, some some bookings were still awarded into Q, but there was a surprising level just ongoing engineering and development activity for what the conditions were in the pandemic you know and I want to ask if you if you have seen.
Then how you think about kind of the cadence and pace of a booking activity as we are exiting the year here.
I I agree with you know.
No I think it's it's amazing how teams and human beings skin.
The strive and push forward programs during the pandemic.
And we are a good proxy of that we're spending more R&D.
In in Q fool than than the than than prior year.
And so we don't see any slowdown from a from an electrification trend perspective.
And so this this is still.
This is very very.
Important for customers to just carry on.
Working on those.
I knew.
How train architectures.
This is becoming very very important for them to be able to sell.
Going forward, so we don't see any slowdown in in that field.
Field.
Great. Thank you very much.
At this time I would like to remind everyone. If you would like to ask a question press star one on your telephone keypad, if youre using a speakerphone. Please pick up the handset before asking your question yeah. The interest of time, please limit yourself to one question and one follow up question.
Your next question comes from John Soccer with Evercore ISI you May now ask your question.
Hey, Thanks, it's John Stagger on for Chris Mcnally.
It's on finalizing the transaction.
While the sort of go to market strategy on slide seven to nine and I'm wondering if there's any upside to the initial delphi margin outlook or order bookings.
From potential electrification synergies, if we were to get a democratic sweep on Tuesday.
Yes, I'd say just stepping back from a margin outlook I mean from a margin perspective, we still feel good about the direction that were taking the business and the ability to deliver the 11 plus percent margin as we look at the run rate for the next few years I think in terms of the the impact on the near term what an election.
Mike do TBD, but it's part of our strategy of being balanced across combustion hybrid and electric that hey, we are positioned to be successful and all those environments, depending on which which portion of the portfolio is growing more quickly than the others. So as if there is more emphasis on electrification here following an election, that's great well.
Look to capitalize on that and I think the Delphi technologies acquisition will only help that with the power electronics and electronics capabilities that they bring to the table.
Sure makes sense and then there's there's bridgewater care, if you're a fully integrated solution versus just one of the components in other words, an OEM does the integration and then the sources BW a as a as one of the critical components.
Logical to think about the full integration drive module could that be the highest margin product for board.
We have to.
No and serve our customers and so we'd be happy to provide a system like we do for the Maggie will be also happy to provide components for us we run the company with a return on invested capital and we will we will look at getting the same how low rates, whether it's a system or component.
Okay and then just you know is the do you think the full integration drive modular like could that possibly be the highest margin product that you have.
Yes, we don't get into the margins of our specific products, but I would say just as Fred mentioned, whether it's a component or a system offering.
We look at the driving the same discipline around return on invested capital. They may have different levels of capital investment requirements, but but overall, we would drive that same discipline, obviously as you get to an integrated drive module, particularly if it has all of our components at the higher dollar amount than selling an individual component and so you have the opportunity to generate more dollars, but in terms of.
The return on the employed capital we maintained the same discipline of that 15% target, whether it's a component or system.
All right. Thanks.
Your next question comes from Brian Johnson with Barclays seeming to ask a question.
Hi, Yes, just following up on that question could you maybe drill down a little bit more into that dynamic and it's kinda represented on page nine between component opportunities for pad versus.
Integrated IDN opportunities for.
For bad it.
It looks like in components that most of the things you're chasing our inverter related I guess couple of questions area is that a fair characterization and as Inverters are designed to be bundled very close to or part of the mode or as opposed to a standalone parallel.
Tronics box Howard how comfortable are you with the Delphi product line that you got in terms of the ability to supply in burger components into highly engineered.
Integrated modules at the OEM themselves was producing.
Yeah, Brian first.
It is it is a kind.
Kinda funny to watch that.
Customers go into transaction and even within within the customer some.
Some programs May go in different directions between insourcing and outsourcing the full system.
And so that's why for us it's important to be able to talk to the customer from a system perspective too.
Look at.
The optimization of the design of that that can be done by build one of us is what they can do.
Secondly.
When we talk to customers, we are not only talking to them about full system, but they absolutely understand that we can do for system and being able to understand the full system from mechanical motor on electronics is an enabler to set a system, but it's also an enabler to sell components.
On the.
Its mission side.
When the customer does the first is the most probably.
This was a transmission.
On the motive side.
There is a mix of both insourcing outsourcing on the input individuals side as I mentioned I think the last school to call. This might be the component that as the less likely would to be in schools by the customer and so they are a lot of discussion around those those components, but not limited to invoke.
Yes.
What I can tell you is is that.
Borgwarner as a great technology from an investor standpoint.
And the win that I alluded to in my prepared remarks, big volume to two to that 800 volt Silicon carbide is is really really really.
Very high technology, and wed and well managed and controlled.
So so we see some we've seen some some good tailwinds on those systems and components both.
With Jeffery, even though ask a question.
Hi, good morning, and thanks for taking my question did and maybe just starting with the margin assumption for the fourth quarter can you give us a sense for how the board Warner specific restructuring actions are going to factor in there and just curious if you are still on track for the 50 million an incremental savings this year.
<unk>.
From a borgwarner restructuring perspective, you should assume that the queue for on a year over year basis isn't that 10% to $15 million range in terms of the tailwind that it's providing.
And we are definitely on track in terms of achieving the restructuring objectives from a savings perspective for the full year that we laid out before.
Okay, Great. That's helpful. And then I wanted to also ask about your commercial vehicle exposure, you noted strength in China, and and weakness elsewhere, we've been hearing that from others as well we were curious to hear what you're saying as it relates to see.
V exposure trajectory in a year and is it do you think that China tailwind starts to tail off here and are you starting to see some signs of life in recovery and the other regions. Thank you.
So the C V China, both off road and on the highway and it's been very strong very strong.
Stronger than we have expected is is not easy to figure out. If this is gonna. If this is going to carry on but the man is the man is strong and we don't see signer signs of slowing down.
For <unk> for other regions, we we see that business picking up too. We also sees an appetite from a commercial vehicles standpoint.
Customers 10 points to move towards electrification of their propulsion architecture, you the hybrid or fuel cell or Oh that really electric it's gonna take time those cycles are long and commercial vehicles off road then on the highway but we.
You see that trend too pretty suddenly.
Alright got it that's helpful. Thank you.
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And one follow up question. Your next question comes from Joseph Joseph Spock with RBC capital market female ask a question.
Thank you everyone.
Yeah, I I just had a question I guess on.
Where things are headed on electrification in your portfolio I know, you've you've talked about your I D M.
And my understanding is that's really sort of.
Physician sort of you know in the middle of a female and sort of putting power to the wheels, but as some of these larger vehicle programs come to market or or being shown it seems like the motor is closer to the wheel and I'm curious about your.
<unk> capabilities their your product offerings, and whether whether or what you can do on the idea is transferable to accommodate some of the larger vehicles.
Aw electrified.
Yeah, we were looking at.
The wheel motors right now.
We don't see we don't see.
A.
<unk> to to growth in the foreseeable future.
Well, we understand that technology.
Do you feel that having a structure.
That is closer to the traditional IDM architecture is full now the the most probable path.
Going bold so okay, but what about not all the way in the wheel, but just closer to the we all like maybe you know some of the larger electrified pickups are coming out I seem to be using that sort of structure.
I, Yeah, I'm I'm I'm not equipped to to answer that question I I have to go back to come back to you do them on this one.
Sure. Thank you very much [laughter] now.
Now what I would say, though is whether the motorized closer to the wheel not you.
You still gonna have a motel and you're still gonna have an even vote.
But I I can't answer.
Precisely what all the different guide those six of those of those product.
When you when you get those closer to the wheels, So I'll come back to you.
I appreciate it.
Mister Nolan there are no further questions in the queue I will hand, it back to you for concluding remarks.
Thank you all for taking the time today and thank you for your helpful. Questions. If you have any follow up so pretty reach out to me with that Jerome you can conclude today's call.
That does conclude the borgwarner 2023rd quarter results Conference call give me now disconnect.
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Oh really.