Q1 2025 Borgwarner Inc Earnings Call
Wyatt: Good morning, my name is Wyatt and I will be your conference specialist. At this time I would like to welcome everyone to the BorgWarner 2025 First Quarter Results Conference call. All participants will be in listen only mode.
Wyatt: Should you need assistance, please signal a conference specialist by pressing the star key, followed by a zero. After today's presentation, it will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star 1 on your telephone. Thank you for your time.
Speaker Change: If you would like to watch all your questions, press star two. If you are using a speaker phone, please pick up the handset before asking your question.
Patrick Nolan: Thank you, Wyatt. Good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, BorgWarner.com, both on the homepage and on our Invest Relations homepage.
Patrick Nolan: With regards to our Investor Relations calendar, we will be attending multiple conferences between now and our ex earnings release. Please see the event section of our IRPage for our full list.
Patrick Nolan: Before we begin, I just want to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed at our tent category.
Patrick Nolan: Our actual results may differ significantly from the matters discussed today.
Patrick Nolan: When you hear a say on a comparable basis, that means excluding the impact of effects net M&A and other non-comparable items.
Patrick Nolan: When you hear say adjusted, that means excluding non-capairable items.
Patrick Nolan: When you hear a say organic, that means excluding the impact of FX and Net MNI.
we will also refer to our incremental margin performance.
Patrick Nolan: Our incremental margin performance is defined as the organic change in our adjusted operating income divided by the organic change in sales.
Patrick Nolan: Lastly, we're referred to our growth compared to our market. When you hear a say market, that means the change in light and commercial vehicle production waited for our geographic exposure.
Patrick Nolan: Please note that we've posted today's Ernie Skull presentation to the IRL page of our website.
Patrick Nolan: We encourage you to follow along with these slides during our discussion.
Joe: With that, I'm happy to turn the call over to Joe.
Thank you Pat and good morning everyone.
Joe: I'm pleased to share our results for the first quarter of 2025 and provide an overall company update starting on slide five.
Joe: I wish to begin by thanking our employees, our customers and suppliers for all of their trust and efforts.
Joe: With just over three and a half billion dollars, our organic sales were relatively flat, despite a decline in market production.
Joe: Our sales outgrowth in the quarter was strong at 3.7%, which was primarily driven by a 47% increase in light vehicle e-product sales.
Joe: This growth was well ahead of the 25% increase in global hybrid and bath production in the quarter.
Joe: Which we believe further validates our product leadership position and leading edge technology that our customers demand to solve the world's mobility needs.
Joe: We continue to secure multiple new product awards for both foundational and e-products across our portfolio.
Joe: I'm pleased to announce a wide array of new business awards that I expect will support our focus on long-term profitable growth.
Joe: Our adjusted operating margin performance was strong in the first quarter, coming in at 10%.
Joe: This strong underlying operational performance was once again driven by e-products growth and our focus on cost controls across our business.
Joe: Next, we make two important portfolio decisions in the quarter that will drive focus and competitiveness of our product portfolio.
Joe: It's important that we continuously review our portfolio to ensure we stay focused on products that we can scale and achieve BorgWarner's 15% ROIC threshold.
Joe: With that in mind, we made the difficult decision to exit our charging business.
Joe: Ultimately, we did not see this business creating shareholder value within our planning horizon.
Joe: Additionally, we began capacity consolidation actions within our North American battery systems business during the quarter.
Joe: This was done to adjust our cost structure to current market dynamics and create a more competitive business.
Joe: As I reflect back on my first 90 days as CEO , I couldn't be more excited about the future of BorgWarner.
Joe: I continue to believe that we have the right product portfolio, leadership, and focus on operational performance to drive profitable growth and significant shareholder value for years to come.
Joe: I'm very pleased with our first quarter results, the momentum behind our continued product awards and the strength of our portfolio that we can continue to build upon.
Joe: Now, let's look at some new product awards on slide 6, which I continue to believe are a strong indicator of our future profitable growth.
Joe: First, BorgWarner has secured a hybrid e-motor award with a major North American OEM.
Joe: Our 400-volt swine e-motor will be used on a series of hybrid full-size trucks and SUVs, as well as a performance vehicle application.
This business is expected to launch in 2028.
Joe: We are so excited and looking forward to deepening our relationship with this OEM.
Joe: Second, BorgWarner has secured a high-voltage coolant heater award in North America with a global OEM for their plug-in hybrid electric vehicle platforms.
Joe: The award includes P-Hav application spanning mid-sized pickup trucks, SUVs and many vans.
This business is expected to launch in 2027.
Joe: Next, BorgWarner is extending four programs for exhaust gas, recirculation components including valves, coolers, and complete modules with a major North American OEM.
Joe: BorgWarner's EGR systems are used on several of the automakers passenger and light commercial vehicle platforms.
Joe: Production of these components is expected to continue through the end of 2029.
And finally...
Joe: BorgWarner has secured two dual-clutch transmission awards in China, including a seven-year extension with a German OEM in China and a new award with a prominent transmission manufacturer with production expected to start at the end of 2025.
Joe: We believe these awards further validate the strength of our product portfolio and the need for our technology across combustion, hybrid and bed platforms.
Joe: Now let's turn to slide seven and review our decision to exit our charging business.
Joe: We actively assess our portfolio to position it to grow above industry production.
Joe: As part of our ongoing assessment, we reached the difficult decision to exit our charging business, based on our analysis of the current market and midterm financial outlook for this business.
Joe: Unfortunately, the charging market is not growing as anticipated in both North America and Europe .
The market also remains highly competitive and disaggregated.
Joe: This backdrop is causing challenges in achieving scale and our ROIC thresholds.
Joe: Therefore, we have made the difficult decision to cease global charging operations.
Joe: To achieve this, we will shut down or sell five locations across three regions.
Joe: These actions are expected to be completed during the second quarter of the year.
Joe: We expect this will create a more focused portfolio and eliminate approximately $30 million of annualized operating losses.
Joe: Compared to our previous 2025 guidance, the exit of our charging business is approximately a $30 million headwind to sales, but a $15 million increase to operating income.
Joe: While the decision to exit charging was not easy, we believe that it will further strengthen our product portfolio and position BorgWarner to continue to grow profitably.
Joe: Now let's turn to slide eight and discuss capacity consolidation actions that we are undertaking within our battery systems business.
Joe: While we remain pleased with the technological and competitive positioning of our battery systems business, we do see lower demand in North America than we had expected at the beginning of the year.
Joe: Therefore, it was critical for us to right-side our North American battery system capacity to current market dynamics, with consolidation actions that started late in the first quarter.
Joe: These actions include shifting all battery production from our Hazel Park and Warren Michigan locations to our Seneca South Carolina plan.
Joe: We estimate cumulative cash costs of these actions to be approximately $10 million that will extend through 2026.
Joe: These actions are expected to result in annual cost savings of approximately $20 million by 2026.
Joe: After these actions, all our North American battery capacity will be consolidated into our Seneca plant, which is one of our largest facilities in North America.
Joe: The intention of this restructuring is to improve the near term earnings of this business, but also position the business for long term success.
Thank you. Thank you. Thank you.
To summarize, the key takeaways from today are the following.
First, BorgWarner's first quarter results were strong.
Joe: Sales Performance, once again outperformed industry production, supported by a 47% increase in our light vehicle e-products business across the world.
Joe: Our adjusted operating margin expanded 60 basis points despite a 20 basis point headwind from Reflecting our continued focus on cost controls and turning sales growth into income.
Joe: Second, we secured multiple new business awards in the quarter across our entire portfolio, which we believe further demonstrates our focus on product leadership across combustion, hybrid, and Bev architectures.
Joe: And finally, we took meaningful steps to manage our cost structure and create a more focused portfolio in response to changing market dynamics.
Joe: While we acknowledge that we are operating in a challenging and uncertain environment, I'm confident in our team and their ability to effectively manage through another uncertain production environment.
Joe: We have the right portfolio, a decentralized operating model, and the financial strength to deliver our revised guidance and drive long-term profitable growth. With that, I'll turn the call over to Craig.
Craig: Thank you, Joe, and good morning everyone. Before I dive into the financials, I'd like to provide a quick overview of our first quarter results.
Craig: First, we reported just over three and a half billion in sales, which was relatively flat versus prior year, excluding FX and M&A.
Craig: This was driven by strong light vehicle e-product growth across all major regions of the world and foundational growth outside of China.
Craig: Second, we had strong adjusted operating margin performance in the quarter at 10.0 percent.
Craig: This performance was achieved despite 6 million or a 20 basis tariff headwind in the quarter.
Craig: This also represents the fourth quarter in a row with a margin at or above 10%.
which I believe demonstrates the consistency of our operating performance.
Craig: Third, we had strong free cash loan a quarter with our results improving by over 270 million or 89% year over year.
Craig: Now, let's turn to slide nine for a look at our You're Over Your Sales Walk for the first quarter.
Last year's Q1 sales were just under $3.6 billion.
Craig: You can see that the weakening US dollar drove over your decrease in sales of 85 million.
Craig: Then you can see a slight increase in organic sales, which was 3.7% above market production.
Craig: This outgrowth was due to a 47% increase in light vehicle e-product growth across all major regions, as well as foundational growth in Europe , North America, and the rest of the world.
Craig: The sum of all this with just over three and a half billion of sales in Q1.
Craig: Turning to slide 10, you can see our earnings and cash flow performance for the quarter.
Craig: Our first quarter adjusted operating income was $352 million, equating to a strong 10.0% adjusted operating margin, which includes a 20 basis point headwind from tariff cost.
Craig: that compares to adjusted operating income from continuing operations of $339 million, or a 9.4% and adjusted operating margin from a year ago.
Craig: On a comparable basis, adjusted operating income increased 23 million on 5 million of higher sales.
Craig: This is a great result and reflects our ability to deliver profitability despite a declining production environment.
Craig: This performance was driven by the benefit of our restructuring efforts as well as our continued focus on cost controls across our business.
Craig: Our adjusted EPS from continuing operations was up eight cents compared to a year ago as a result of strong adjusted operating income and the impact of our Sherry purchases during 2024.
Craig: And finally, free cash flow from continuing operations was a usage of 35 million during the first quarter, which was a significantly lower usage than a year ago driven by higher operating income, better working capital efficiency and lower capital spending. Thank you very much.
Craig: Now, let's take a look at our full year outlook on slide 11.
Craig: First, it's important to note that our guidance includes estimated net tariff costs related to all previously announced U.S. and retaliatory tariff.
John Murphy, John Murphy, John Murphy, John Murphy, John
Craig: We are now projecting total 2025 sales in the range of 13.6 to 14.2 billion, which is an increase from our prior guidance of 13.4 to 14 billion.
Craig: This increase is due to stronger foreign currencies and the impact of anticipated tariff cost recoveries, partly offset by a lower market production outlook and the exit of our charging business.
Now, let's review our Europe Year saleswalk.
Craig: Starting with foreign currencies, our guidance now assumes an expected full-year sales headwind from weaker foreign currencies of $160 million compared to 2024.
Craig: However, this is a sales talent of 250 million versus our prior guidance, primarily due to the strengthening of the Euro and the Chinese Remembley versus the US dollar.
Craig: Within our guidance, our full year on market assumption has been reduced to down 2-4% versus down 1-3% previously.
Craig: This reduction reflects our estimated impact of tariffs on customer demand primarily in North America.
Craig: We also incorporated a 30 million sales headwind related to the exit of our charging business during the first quarter.
Craig: Within this guidance, we expect a tailwind from terror-related recoveries of up to 1.6% of sales, as this is a pass-through recovery of our cost from our customers.
Craig: Additionally, we expect the company's full yourselves outgrowth to be approximately 200 to 400 basis points.
Craig: based on these assumptions. We expect our 2025 organic sales change to be down 2% to up 2% over here in line with our previous guidance.
Now, let's switch to March.
Craig: We expect our full-year adjusted operating margin to be in the range of 9.6 to 10.2 percent compared to our previous guidance of 10.0 to 10.2 percent.
Craig: This revised guidance now assumes 20 basis points of delusion from tariffs. Its estimated a tear for coverings will flow through sales with no benefit to margin.
Craig: for wider margin range, incorporates various industry volume outcomes, and a range of results related to tariff cost recoveries.
Craig: Overall, we view this as strong underlying performance, supported by our solid first quarter operational execution, which we expect to continue for the remainder of 2025.
Craig: based on this sales and marginal look. We're expecting full-year just DPS in the range of $4 to $4.45 that sounds perturbed to share with the midpoint unchanged from our previous guidance.
Craig: And we continue to expect full your free cash flow to be in the range of 650 to 750 million.
With that, that's our 20-25 outlook. Thank you for joining us today.
So, let me summarize my financial remarks.
Overall, we were very pleased with our first quarter results.
Craig: Our sales outgrowth, margin, and pre-cash flow performance represent a strong start to the year, and we believe position thus well to meet or exceed our revised guidance.
Craig: I'm confident in our global teams and their ability to effectively manage through any near-term uncertainty from terrorists or other events.
Craig: As we look ahead to the balance of 2025, our outlook aligns with our vast assessment of market dynamics and the financial impacts of currently announced tariffs.
as we continue to focus on what we can control.
We are still expecting to deliver on our financial priorities.
Craig: First, we still expect to continue to outperform market production with an expected hit full-your-sales outgrowth of 200 to 400 basis points.
Craig: Second, the midpoint of our EPS guidance is unchanged despite the headmen's of tariff related costs and a lower market production outlook.
Craig: And finally, we expect to have another year of strong free cash flow of 700 million at the midpoint of our guidance which is consistent with our prior guidance.
Craig: We believe our ability to drive strong free cash flow and combination with our investment grade balance sheet allows us to continue to create shareholder value through a balanced capital allocation approach.
Pat: With that, I'd like to turn the call back over to Pat.
Speaker Change: Thank you, Craig. Why rate it open up for questions?
Speaker Change: Thank you. At this time, I would like to remind everyone that you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: If you're using a speaker phone, please pick up the hand set before asking your question.
To withdraw your question, please press star 2.
Speaker Change: In the interest of time, please limit yourself to one question and one follow-up question.
Speaker Change: At this time, we will pause momentarily to assemble our Q&A roster.
Speaker Change: And our first question will come from John Murphy with Bank of America. Please go ahead.
John Murphy: Good morning, guys. I'm going to try to steer clear of tariffs and get to the core business. If we think about slide six
John Murphy: What that ultimately means for the need to maybe reinvest a bit as those programs get extended in tooling.
and other PP&E.
John Murphy: But then also, as you think about these E-product awards, which sound like they're pretty good wins here, some pretty big products.
John Murphy: You know, what are the, you know, what are the kind of the return characters you're, you're expecting there, and you know, one of the big things that's happening right now is there's, there's concern around rare earths, so if we think about e-motors and other e-products, is there any kind of risk that we should think about there or solutions that you've had. [inaudible]
John Murphy: Sure, so good morning, John , so I'll speak to the extensions first, you know, I think this highlights
John Murphy: Margins and similar profiles of what we have today. With regard to some of the newer wins I mentioned, this is fantastic, especially because they're related to hybrids. We're starting to get more clarity from the OEMs as they...
John Murphy: Finalize some of their cycle plan changes and I think the first quarter wins.
John Murphy: You know, really gives me confidence that we've got great products and our customers are demanding them and they're fitting into this hybrid space, which
John Murphy: We've all been waiting to see some of the growth there. And then finally with regard to rare earth. So we do have products that consume. [inaudible]
Rare Earth elements and specifically magnets so.
John Murphy: as with any constrained component area. You know, we have teams in place to manage through that. There is a license.
John Murphy: You can submit with a 45-day lead time to the China government on that and we're hopefully get approval on those and in the meantime, you know, we continue to look for other options to make sure we can continuous supply. Bye.
Speaker Change: Okay, and if I could just sneak in one follow up on the portfolio actions, it seems like these are really great returns. I mean, is there anything else? [inaudible]
Speaker Change: New Roll in leading the company and making some tough decisions that maybe weren't made in the past for the market for shifting because that battery exit of $10 million cash cost and then $20 million benefit operating income next year is quite phenomenal. Right? I just curious if there's anything else like that out there.
Yeah, so you're right. I mean, we have taken a-
Speaker Change: critical eye to the portfolio and I think that's important for us to do to be decisive.
around areas of the portfolio.
We really got there.
Speaker Change: Due to this lower volume, we expect in North America than when we started the year. So, you know, we think it's got position as well for the long term improve our competitiveness as well as bring some short term returns.
Speaker Change: and so do the cost reduction. So we still feel technologically and from a competitive standpoint, really good about that business. But as usual we want to take the size of actions when we see some of the market dynamics that we see today.
Very helpful. Thank you guys.
Colin Langan: And the next question will come from Colin Langan with Wells Fargo. Please go ahead.
Colin Langan: So great, thanks Frdric, my questions. On the slide you indicate China growth over market was modest positive.
Colin Langan: Which is a pretty good start because it's been a point of investor concern. I thought the comps actually started to get a better next quarter. So, how should we think about this trending through the rest of the year is the sort of the start of things turning in that market? Okay.
Colin Langan: Yeah, Colin, I'm not going to comment on the rest of the year, obviously a lot of moving pieces right now, but as we look at Q1, we feel really good about our growth in general or how growth in general.
Colin Langan: and especially our China business. Again, just took a couple of numbers for you. We outgrew the industry by about 3.7%. Overall, and where did that come from? A lot of it was on the light vehicle side of our portfolio, light vehicle key product growth. [inaudible]
Colin Langan: 47% we've been talking about for some time, really watch PDFs.
Colin Langan: PDS Crew, quite significantly in the quarter, about 30% year over year, but when you look at the light vehicle, e-product portion of the portfolio, they grew by over 60% year over year.
Colin Langan: and the good news as we saw that across all regions of the world, or at the America, Europe , China, so we're really seeing a nice pull from that business.
Colin Langan: And maybe to add a little bit of color to that, I just returned from China at the Shanghai Auto Show, and it just confirms to me in that market there's still a lot of demand for our competitive technology, our speed that we're operating in that market.
Colin Langan: really sets us apart from our competition. Just one example, you know, we launched with a leading Chinese customer, a dual inverter, second half of last year, and we launched that in ten months.
Colin Langan: Now, they're asking for us a capacity uplift, in fact they want to double the capacity and they're asking for it to be installed in June .
Colin Langan: So the speed of that market, combined with the success we're having, we're really optimistic about the growth potential there.
That's a great caller.
Speaker Change: Normally, you guys take a very conservative approach. If I look at the slides, I think the midpoint of the light vehicle market outlook is down to.
Speaker Change: Yeah, so just to recap, you know, where were we in our February guide?
Speaker Change: We assumed overall like vehicle production down one to three percent. We're now expanding that to two to four percent. You know, the question is why it's really North America. You know, when we think about North American production, that's where we're a little concerned. We were assuming down three to four percent in February and now we're assuming seven to twelve percent. So that was really the shift that you see in those figures. [inaudible]
John Murphy, John Murphy, John Murphy, John Murphy,
That's very helpful. Thanks. Thanks for taking my questions.
Thank you, Colin.
Speaker Change: Next question, we'll come from James Picariello with D&D Paraba. Please go ahead.
James Piccarella: Good morning, everybody. Yeah, I actually was going to was going to hit on North America like vehicle production. You're down some to 12 percent.
informs this view from North America. Thanks.
James Piccarella: Yeah, so maybe starting with the first quarter production, very strong, or what we expected. Second quarter orders also look good. There's nothing really in the mid-term order bank.
James Piccarella: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Welcome. Yes, please.
James Piccarella: and do the overall macro uncertainty. So, you know, I think our guide is appropriate and, you know, as things change, we're going to adjust quickly as we normally do.
Speaker Change: An incremental headwind in terms of the guidance revision. I just want to clarify that. And then to also confirm your tariff recoveries are embedded in your poor sales range. Is that correct?
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: Yeah, so from an FX standpoint, FX is a tailwind to our prior guidance.
Speaker Change: So it's about a $250 million tailwind. It's really coming from from the euro and the Chinese from Indy, so against the US dollar. So that's how to think about it from an FX standpoint.
We have included terra-related recoveries into our guide.
Speaker Change: We've effectively assumed, and we're expecting 100% recovery from our customers as we get to the lower end of the guide we did provide some discount.
Speaker Change: and that's really related to climbing. A good example of that is in the second quarter where we will have an impact from tariffs, but we're going to be working through the recovery process with our customers, and there may be a timing component there.
John Murphy, John Murphy, John Murphy,
Appreciate it. Thanks.
Thank you.
Joseph Speck: Your next question will come from Joseph Spak with UBS. Please go ahead.
Thanks, everyone. Maybe just sticking with tariffs for a second.
Joseph Speck: So, you're basically saying something over $200 million of impact for this year. It actually seems a little bit high relative to some disclosure given the past, which is $865 million of annual imports into the US, but, you know, like 60% of that was...
Joseph Speck: Mexico, Canada, I know you've got some from Europe , and a little bit from China that obviously has a very high tariff rate, but it still seems like a pretty high number. So make yourself as understand how you're getting to that level.
for three quarters of an hour.
Joseph Speck: Yeah, I can bring you some color there. So maybe first of all, it's important to know our updated guidance includes everything we know about tariff. So whether it's i.e. tariff, 232 auto parts,
Reciprocal tariffs, or these retaliatory tariffs. Everything we know is in the guide.
Joseph Speck: We've already started mitigation plans and customer recovery, where short-term mitigation is not possible, you know, from our view, this is a manageable item overall.
Joseph Speck: Compared to six weeks ago, there's a lot more clarity out there, and I believe, you know, from a tear of impact, it's more manageable. My bigger concern is on the production outlook.
Joseph Speck: but I'm confident in our teams will manage through that just as they always have.
Joseph Speck: To your point around, it's a little bit larger than maybe expected, just as a reminder, you know, 55 to 60% of our cogs is material. So compared to some of our peers, where maybe labor is higher content.
That our material portion of sales.
Joseph Speck: 100% in this market of our Canadian imports, our USMCA compliant, and 70% of Mexico. So that gives a little more color about the size of it, and I would say that the AEPA.
Joseph Speck: Portion of this is really only a quarter of the total amount. So, you know, for us, it's really important to take a global view, identify mitigating actions and customer recovery, and I'm really confident in our team and their ability to manage through this.
Speaker Change: Just maybe a quick follow. I just want to make sure I understand you're saying that
Speaker Change: The imports you mentioned on the compliance, that's sort of more direct, but then because you're buying some components, the cost of those components is going higher because either your sub-suppliers are facing tariff headwinds, so they're passing it on for you to pass on. Is that what you mean. [inaudible]
Speaker Change: That's correct. We have both direct, we call them direct impacts.
Speaker Change: where we're producing, let's say in Mexico, and we're striving to get to USMCA requirements. And then we have other ones that are more indirect, and that's where we purchase components that are being tariffed and bound. And we're going to get to USMCA requirements.
Speaker Change: and that could be then bound in this, you know, part of the world or it could be somewhere else in the world. And I'm sure pads happen to walk you through that in details.
I can't wait.
Speaker Change: Second question is just, you know, cash balance, you know, expected free cash flow for the year, clearly you guys are in a really good position here. I'm just wondering how you're thinking about.
Speaker Change: you know deploying some of that cash and what you admit is a little bit of a you know uncertain environment at least for the back half and you know I guess the other part of that is are you reconsidering any timing of buybacks given you know the multiples near five year lows.
Yeah, thanks for the question.
Speaker Change: I agree we have a nice strong balance sheet at the end of the quarter and we're still expecting to generate about $700 million in pre cash flow at the midpoint of our guide.
Speaker Change: Q1, great execution, 89% increase in free cash flow, better by $280 million over here, so great Q1.
Speaker Change: You know, we take a step back. What's our goal with our cash and the strength of our balance sheet? Our focus is creating additional shareholder value and it's going to come in multiple areas. It's going to either come from inorganic investment, dividends or buybacks. [inaudible]
Speaker Change: Like you saw last year, we continue to look at Piebacks as a lever to create shareholder value. In fact, we repurchased 400 million last year. We're going to continue to look at it opportunistically as we work through Q2 in the bounce of the year.
Bishop.
Thank you.
Speaker Change: Your next question will come from Dan Levy with Parkleece. Please go ahead.
Craig, good morning. Thanks for taking the questions.
Speaker Change: I wanted to start first with a question on some of the M&A deals in the past, and so recognize
Speaker Change: Charging, you've come to the conclusion that it's just not a profitable business, but maybe we can go back to some of the other deals you've done, and Akasal, Central, the market's different.
Speaker Change: We appreciate that. You've done some restructuring. But are these deals still driving the initial benefits that you expected? And so charging was a bit of a situation, a different situation.
Speaker Change: Yeah, so, you know, first of all, we don't comment on any particular acquisition that we've done. You know, we're continuously reviewing the portfolio.
Speaker Change: to see areas we can strengthen. You know, in the case of charging, our overall assumptions change for that business. Starting with the market outlook, and then second, our inability to build scale in a timely...
Speaker Change: period, where we could reach our 15% return on invested capital targets. So, you know, we're going to take the same discipline that we're reviewing our portfolio with in the future
Speaker Change: I think it's important that, you know, when things change, that we give it a critical eye and we take decisions as appropriate.
Speaker Change: Okay, thank you. And then similar as a follow-up.
Power Drive and battery, recognizing there's been obviously some lumpiness in the ballings. You're taking actions here.
Speaker Change: on the portfolio side. You do have some restructuring, but maybe you could just refresh us on the path for both of those to reach breaking and what other actions there are and maybe just anything that's going to impact the direction margin here.
Speaker Change: Dan, maybe I'll just comment on the first quarter. So when you look at power drive systems, really strong growth in the quarter, up 30% year over here, I mentioned earlier, white vehicle, e-product growth, up over 60% year over here, across every major region of the world, North America, Europe and China.
Speaker Change: How did they convert on that growth? About 15 cents on the dollar, a nice strong conversion, gives Joe and I a lot of confidence that we have that cost draw to write. We fully expect that business to grow and we expect it to increment on the 15th.
Speaker Change: When you look at our battery business down about 15% your year, not because of units, but because of battery cell prices coming down.
Speaker Change: which we spoke about. We spoke about throughout the first quarter. They did decrement at about 26 cents on the dollar. That's higher than we'd like and that's why we took some of the actions to restructure North America that Joe spoke about. [inaudible]
Okay, thank you.
Thank you.
Speaker Change: Our next question will come from Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good morning. Thank you very much for taking my questions.
Mark Delaney: The company has products that are applicable for all power trains as you mentioned and illustrated well by the various awards you announced this week. We take all that into consideration. Can you speak to your thoughts about the ability to drive revenue growth over a market in the medium to longer term with both foundational and e-products, especially as you mentioned, OAMs are starting to settle on their updated plans for combustion hybrid vehicles or do you see the top line going forward is more driven by e-products? The company has the ability to drive revenue growth over a market in the medium to longer term with the ability to drive revenue growth over a market in the medium to longer term.
Mark Delaney: Sure, I can answer that. So, you know, when we think about our portfolio, where we're number one or number two on a foundational side and we're growing and building scale on the east side.
A beautiful part about hybrids. It pulls from both sides.
Mark Delaney: of the portfolio and the content for vehicle opportunity for us is quite high. So, you know, many of these products from our portfolio show up on these hybrids from our first quarter announcements, you can see we're winning salad businesses.
Mark Delaney: on these advanced hybrids. So, you know, our focus is to drive out growth.
Mark Delaney: over and above our end markets, and is through leveraging our portfolio and our core competence. And then as we do that, drive in the financial performance to expand margins and generate strong cash flow.
Speaker Change: Thanks for that. My second question was on the China business.
Thanks for watching!
John Murphy, John Murphy, John Murphy,
Speaker Change: Yes, so today we continue to see positive trends in the Chinese business.
Speaker Change: You know, as, as you mentioned, we modestly outperformed the market during the first quarter as the mainly supported by the e-product growth.
Speaker Change: The second is we got great customer intimacy. You know, we've been in China over 30 years.
Speaker Change: and we've had terrific, strong relationships, especially with the domestic OEMs.
Speaker Change: who really command more than 70% of that market today, and we're slightly overweight with the domestics.
Speaker Change: I think the third is really our speed to market. Let's get started.
Speaker Change: I gave the one example, so although it is a very competitive market, it's a very attractive market, we see the transition toward hybrids and new energy vehicles and that's exciting for us, because we really get to exercise our new portfolio and
We still feel quite optimistic about China.
Speaker Change: Can you just specifically on tariffs in China? I mean, I think you have an in-region for-region approach in general, but are there any exports into China that are facing a higher tariff cost you need to pass on?
Speaker Change: Yeah, I think the largest one that probably most people speak about is semiconductors, so we are working on mitigation action for semiconductors.
Speaker Change: and there may be one or two other commodities, but as I stated earlier in the call, you know, for me this is a very manageable issue for us, so I'm confident our teams will continue to find mitigating actions.
Okay, thank you.
Speaker Change: Our next question will come from Emmanuel Rosner with Wolf Research. Please go ahead.
Emmanuelle Rosner: Great, thank you so much. I was hoping to follow up actually on the tariff cost of north of 200 million dollars, and I'm not sure I fully understand where they come from. Anyway, can you give us some color or maybe bucket it in terms of. [inaudible]
Emmanuelle Rosner: what really goes into this, this tariff cause because as was mentioned earlier in the call I think.
Emmanuelle Rosner: in the U.S. border with maybe like 900 million off-parts. So.
Emmanuelle Rosner: 200% of that would seem to be like 25% of the total, but yet you have high USMCA compliance. So maybe if there's over to Bucket, what goes into that, that 200 million. And also, um. [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Emmanuelle Rosner: How much of those recoveries have already been negotiated with customers versus even negotiations that still need to happen?
Emmanuelle Rosner: Yeah, so when we look at our overall exposure, like we've been discussing, it's about 1.6% of sales across the organization.
Emmanuelle Rosner: And when you break it into its pieces, about 50% is IEPA-related and Auto Parts 232-related. The remaining 50% is China retaliatory.
Patrick Nolan, Frdric Lissalde, Fred Lissalde, Joseph Fadool
Right, so where are we in this process?
Emmanuelle Rosner: So if we talk specifically about USMCA, you know, we're striving to first achieve USMCA compliance.
and climbing. [inaudible]
Emmanuelle Rosner: For the non-compliant part, actually we've recovered, or we've got line of sight on about 50% of that from customers. So, well underway, our teams are stood up.
Emmanuelle Rosner: We've dusted off what we call the inflation playbook and we're very versed in how to negotiate with customers on these recoveries.
Great. And then follow up on e-product. I think you're...
Speaker Change: Can you update us on, I mean, you give some color on how those launches are going, you know, CQ1 progress was strong, what's embedded in the updated guidance from an E-product point of view.
Yeah, so...
Speaker Change: We're not providing any detail. You know, I'm a guidance with regard to e-products. Nevertheless, what we've shared is the number of the large number of launches we have on the e-product side.
Speaker Change: You know, over 20 of them ongoing and as those products launch, you know, we believe that's going to continue to create a tailwind for us.
and E-Product Grove.
Speaker Change: So we haven't seen substantial delays on these launches. We continue to monitor it closely with customers.
You know, but from where we sit today.
Speaker Change: We feel quite good about the first quarter and the future prospect for each product growth.
Speaker Change: I can share with you our e-product sales in the first quarter which will be published later today with our time queue. We were right around $640 million and that was up from about 500 in Q1 of last year.
Great, thanks for the call.
Speaker Change: Thank you. Our next question will come from Luke Junk with Baird and Company. Please go ahead.
Luke Young: Good morning. Thanks for taking a question. A couple of lots so far today. So maybe just one question for me.
I'm hoping you could just speak to-
Luke Young: We're spiking out of this as we think about modeling across the business, I'm thinking maybe foundational versus e-product at a high level and things that maybe at first lusher might not be obvious in terms of, you know, the batteries footprint. So, I don't know if you're going to be able to do that.
Luke Young: is in the U.S., but I'm assuming there's some components coming in from China there, and then maybe reverse, and it's a PDF as well, can you?
Luke Young: Yeah, I can speak to them. We're not going to break it out by segment.
I think what's more important is, you know, first, [inaudible]
Luke Young: We spent a lot of time clarifying the impact of tariffs, so compared to four or six weeks ago, we've got quite good clarity on it, then it's all about mitigating actions, how can we achieve USMCA compliance?
Are there other ways to mitigate some of the impacts?
Luke Young: and then finally beginning the customer recovery discussions, which we've already done. So, you know, we're well underway here. I think we're quite confident in managing through this topic, independent of which of the four businesses it's flowing through.
Luke Young: with regard to the bad reside, maybe clarify your question again. Adam.
Speaker Change: Yeah, just in terms of any components, I mean, the footprint for battery in the US and South Carolina, so not a, you know, Mexico or USMCA, compliance question, but just in terms of components that might be coming out of China as long as a battery. [inaudible]
Speaker Change: Yeah, so that business, like the others, will have some impact due to tariffs, but again, very same playbook, you know, working to mitigate and then where we're unable to mitigate in the short term, discussing with customers.
Speaker Change: Our plans to recover, which by the way we expect a hundred percent from customers on the short-term mitigation.
Speaker Change: Hey, what do you think about the battery business? It's really those cells that come from Korea, so that's the major impact for that business.
John , that's very helpful. Thank you, Craig. Thank you.
Speaker Change: We have time for one final question and that question comes from Edison New with Deutsche Bank. Please go ahead.
Speaker Change: Hi, I got so much. This was when he on score Edison. I was wondering if you can help us break down the outgrowth for this year of 240 to 100 bits. There's a way to sort of break that down between the foundation of this, this is the product.
Speaker Change: We don't provide that breakout. We're looking to how grow on both sides of our portfolio, whether that's on the foundational side or the heat products side of the portfolio.
Okay, got it.
Speaker Change: And there's just some maybe emanate opportunity to how you're viewing the pipeline of current macro environment. If you know, acquisitions and bulldogs are still sort of the strategy both for the product growth and the mid to long term things.
Speaker Change: and we're not limiting our scope on it. The way to think about it is we've really opened up the aperture.
Speaker Change: in acquisition targets to leverage our core competence and where we can drive growth and shareholder value.
The second is near-term accretion.
Speaker Change: We want to select targets that are going to be accretive, more near term.
Speaker Change: in Nature, and then lastly is valuation. You know, we don't want to overpay. And especially during, you know, times like today with a lot of turmoil, we need to run a lot of different scenarios.
Speaker Change: around these targets to make sure that all the majority of scenarios.
The valuation is consistent with our willingness to...
Pay for the target
Speaker Change: So, you know, with that said, we've used the first quarter to look through the pipeline. We've actually passed.
Speaker Change: on a number of targets because they didn't meet one of those three criteria. So we want to continue in a discipline way.
Speaker Change: with the M&A, and as Craig had mentioned, we're at a strong cash position, and we're not afraid to use all the tools or the toolbox, including buybacks, if necessary.
That's helpful. Thank you.
Speaker Change: Thank you. Thank you all for your questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, why you go ahead and conclude today's call.
Speaker Change: Thank you. This concludes the BorgWarner 2025 First Quarter Results Conference call. You may now disconnect.
Thank you for joining us today.