Company Reports

BorgWarner increased second-quarter sales by 0.3% and adjusted operating income by 11% year over year, improving its adjusted operating income margin by 100 basis points to 11.3%. Strong profitability supports an increase in its share repurchase program by $1 billion.

BorgWarner has a record of foreseeing large, long-lasting, and efficiency-enhancing technological trends in the auto-parts industry and then taking an early leadership share through mergers and acquisitions and capital spending. Technologies that benefit from market growth and increased penetration by automotive original equipment manufacturers create a runway for above-market growth. In a mature industry with limited pricing power, increasing the value of content supplied to an OEM is the primary organic growth driver for a parts supplier. A market-leading position also supports the company’s ability to pass on annual price-downs to its suppliers.

BorgWarner's net sales were flat in the first quarter, while organic growth fell 4.2% amid lower market production and top-line pressure in the battery energy systems segment. Underlying adjusted operating margin improved by 50 basis points to 10.5%, just below management’s full-year target range.

BorgWarner has a record of foreseeing large, long-lasting, and efficiency-enhancing technological trends in the auto-parts industry and then taking an early leadership share through mergers and acquisitions and capital spending. Technologies that benefit from market growth and increased penetration by automotive original equipment manufacturers create a runway for above-market growth. In a mature industry with limited pricing power, increasing the value of content supplied to an OEM is the primary organic growth driver for a parts supplier. A market-leading position also supports the company’s ability to pass on annual price-downs to its suppliers.

BorgWarner shares jumped 25% after reporting a full-year adjusted operating margin of 10.7%, exceeding guidance and our expectations. A new supply agreement for data center applications further supported sentiment. For 2026, management expects organic sales decline and modest margin improvement.

BorgWarner reported revenue growth of 4%, organic sales growth of 2%, and an adjusted operating income margin of 10.7%, a 60-basis-point year-over-year increase despite a 60-basis-point tariff headwind. Free cash flow increased by over 30%.

BorgWarner has revised its full-year guidance upward on higher-than-expected industry production, a less dilutive impact of customer tariff recoveries, and solid results for the half year. Additionally, it will increase dividends by 55% and has authorized an increased share repurchase program.

BorgWarner has a record of foreseeing large, long-lasting, and efficiency-enhancing technological trends in the auto-parts industry and then taking an early leadership share through mergers and acquisitions and capital spending. Technologies that benefit from market growth and increased penetration by automotive original equipment manufacturers create a runway for above-market growth. In a mature industry with limited pricing power, increasing the value of content supplied to an OEM is the primary organic growth driver for a parts supplier. A market-leading position also supports the company’s ability to pass on annual price-downs to its suppliers.

The European Union and the US have reached a trade deal, setting a baseline tariff rate of 15% for all imports from the EU, compared with the 25% previously applied to auto parts.

BorgWarner's revenue of negative 2%, or +0.1% on an organic basis, is in contrast to market vehicle production of negative 3.6%. The outperformance was led by strong eProduct growth. The lower end of the full-year EBIT margin guidance was lowered by 40 basis points, 20 basis points from tariffs.

Battery electric vehicle sales stalled in the US and Europe in 2024 after a postpandemic rise. With sales growing in China and globally, many companies throughout the EV supply chain stand to benefit from the transition to EVs.

US President Donald Trump implemented a 25% tariff on all imported goods from Mexico and Canada into the US on March 4, 2025. This is a material headwind for our European auto supplier coverage. Many auto parts suppliers have said that they will pass on the tariff costs to their customers, the automotive original equipment manufacturers, or OEMs, given their already thin margins and lower industry production volumes. Even if this is the case, we see secondary effects affecting their bottom lines and cash flows. We keep our fair value estimates for BorgWarner and Continental unchanged for now, given the uncertainty around the duration or permanency of these tariffs.

Full-year 2024 and fourth-quarter results for narrow-moat BorgWarner came in line with our expectations and the company’s own guidance. This is a strong result, highlighting the company’s ability to adapt its cost base to a softer demand environment quickly. Despite a continued decline in top-line growth in the fourth quarter, it achieved its 10% adjusted operating margin target and strong free cash flow growth. A large goodwill impairment was recognized on its eBusiness assets given the continued delay in BEV adoption. Despite this, the company continues to seek merger and acquisition opportunities to gain market share and build on adjacencies in its eBusiness; we include this in our forecasts. While the company's strong balance sheet positions it well to consolidate the market, we will be looking carefully at valuations paid on future acquisitions. In 2025, the company expects its markets to continue to decline, thus delivering flat top-line performance, but aims to maintain the 10% profitability level and absolute free cash flow achieved in 2024 (before M&A). We make no changes to out fair value estimate of $38 per share.

BorgWarner has a record of foreseeing large, long-lasting, and efficiency-enhancing technological trends in the auto-parts industry and then taking an early leadership share through mergers and acquisitions and capital spending. Technologies that benefit from market growth and increased penetration by automotive original equipment manufacturers create a runway for above-market growth. In a mature industry with limited pricing power, increasing the value of content supplied to an OEM is the primary organic growth driver for a parts supplier. A market-leading position also supports the company’s ability to pass on annual price-downs to its suppliers.

Following a fresh review of automotive-parts supplier BorgWarner, we are maintaining our narrow economic moat rating but reducing our fair value estimate to $38 per share from $42.

Narrow-moat BorgWarner missed third-quarter FactSet sales and earnings per share expectations by around 8%, with sales declining 5% year over year on softer industry vehicle production volume. As a result, BorgWarner marginally reduced its full-year top-line guidance. In contrast, strong cost containment and operational improvements caused the company to lift its full-year adjusted operating margin and EPS guidance, while its free cash flow outlook is unchanged. We make no changes to our $42 fair value estimate.

BorgWarner is well positioned to capitalize on auto sector industry trends arising from global clean air regulations, consumers' demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Acquisitions of vehicle electrification companies such as Remy, Delphi Technologies, Akasol, and Santroll as well as the completed spinoff of the fuel systems and aftermarket business lines as Phinia support our thesis.

While softening industry production volumes restricted top-line growth, narrow-moat BorgWarner beat FactSet consensus expectations on the bottom line by delivering adjusted EPS of $1.19 versus consensus' $1.01. Full-year profit guidance was revised upward and share repurchases for the year increased from $100 million to $400 million. It also announced that the restructuring of the e-propulsion segment is expected to generate cost savings of $100 million by 2026 (operating income for the segment year to date is negative $111 million).

Narrow-moat BorgWarner reported first-quarter 2024 EPS before special items of $1.03, $0.16 ahead of the $0.87 FactSet consensus and $0.22 ahead of the prior year. Revenue grew organically by 7% to $3.6 billion, also beating expectations. Adjusted EBIT margin came in at 9.4% versus 9% a year prior. Management raised the floor on its guidance for 2024 organic growth from 1%-5% to 2%-5%, while also raising adjusted diluted EPS for the year from $3.65-$4.00 to $3.80-$4.15. Unchanged were management expectations for the year regarding eProduct sales and free cash flow. Management also announced an additional $500 million share buyback authorization over the next three years. These are broadly positive results that have mollified investors, with shares up over 8% in early trading. Regardless, we make no changes to our forecasts and maintain a fair value estimate of $42 per share.

BorgWarner is well positioned to capitalize on auto sector industry trends arising from global clean air regulations, consumers' demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Acquisitions of vehicle electrification companies such as Remy, Delphi Technologies, Akasol, and Santroll as well as the completed spinoff of the fuel systems and aftermarket business lines as Phinia support our thesis.