BorgWarner Q1 2026 Earnings Call - Industrial push into data center power products advances while 2026 guide is reaffirmed

Chris McNally, Analyst, Evercore1: Good morning. My name is Michael. I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 first quarter results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a 0. After today’s presentation, there will be an opportunity to ask questions. If you’d like to ask a question during this time, simply press star 1 on your telephone. If you would like to withdraw your question, press star 2. If you are using a speakerphone, please pick up the handset before asking your question. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Chris McNally, Analyst, Evercore2: Thank you, Michael. 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 our homepage and on our investor relations homepage. With regard to our investor relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today’s presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding non-comparable items.

When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our markets. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted today’s earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I’m happy to turn the call over to Joe.

Joe Fadool, Chief Executive Officer, BorgWarner: Thank you, Pat, and good morning, everyone. I’m pleased to share our results for the first quarter of 2026 and provide an overall company update starting on slide 5. I wish to begin by thanking our employees, our customers, and our suppliers for all of their trust, efforts, and continued support. In the quarter, we achieved sales of $3.5 billion. Excluding the decline in our battery energy systems segment, our organic net sales were down approximately 3% year-over-year, in line with the decline in the market production. I’m excited to report that our strong award activity has continued into the first quarter. Today, I’ll highlight 12 new business awards across our foundational products and e-products portfolios.

These wins represent only a portion of the awards secured during the quarter, but I believe that they underscore the strength of our portfolio and the global demand for efficient powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business. We are taking steps to grow our product capabilities for the data center and other industrial markets. I will share two additional products with you in a few slides. At the same time, our turbine generator continued to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value during the quarter, returning approximately $185 million to shareholders through share repurchases and our quarterly cash dividend.

Looking back on our first quarter performance, I’m extremely proud of our team and our results. Once again, we executed at a very high level, which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value throughout long-term profitable growth. Turning to slide six, I’d like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First, BorgWarner has secured three electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S-winding and ultra-short hairpin winding technologies for hybrid vehicles. In South Korea, BorgWarner secured a new stator assembly business for an electric vehicle program.

I believe these awards reflect the customer’s confidence in BorgWarner’s engineering capabilities, localized manufacturing footprint, and product quality in Asia. Second, BorgWarner has secured a 7-year contract extension to supply 8 families of engine, machine, power module, and battery management controllers to a leading off-highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications, from construction vehicles and marine platforms to stationary power systems. I believe this contract expansion validates our position as a trusted long-term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured 3 turbocharger program extension awards and 1 turbocharger conquest award with a major European OEM. Our turbochargers will be utilized on a range of passenger car and van applications.

The awards include variable turbine geometry, twin-scroll wastegate, and regulated two-stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements, helping the customer meet demanding performance, fuel economy, and emissions targets across a broad range of applications. I believe these business wins reflect BorgWarner’s strong turbocharging technology, our competitive solutions, and the trust we have built with this long-standing customer. Fourth, BorgWarner secured conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro 7 compliant heavy-duty diesel engine platform. The award expands BorgWarner’s product portfolio in the on-highway commercial vehicle segment and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. Finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with two new program awards.

BorgWarner will supply a next-generation wet dual clutch for a Chinese OEM’s SUV platform. BorgWarner also secured a conquest win for a Cam Torque Actuated VCT system for a Japanese OEM’s next-generation hybrid engine. These new awards reflect BorgWarner’s continued commitment to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high-performance, cost-competitive solutions for both combustion and hybrid powertrains. On slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let’s start with an update on our turbine generator launch progress. I’m very pleased with the advancements we’ve made over the past quarter. Strong customer demand indicators continue with ongoing end customer visits to our facility in Asheville.

Next, I’m pleased to report that our first B sample turbine generators are now being delivered to our customer. This is a very important step to allow our customer to move towards field testing our product. In addition, our teams have continued their testing processes, which are performing as planned. As part of our production readiness, I’m also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification, which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production currently expected in 2027.

In the middle and right side of the slide, you’ll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I’m really excited that this portfolio now includes battery energy storage systems and bidirectional microgrid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage, and power conversion. First, I would like to highlight our battery energy storage system offering. You’ve heard BorgWarner speak about the possible application of our battery technology for various industrial markets, and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system design is cell chemistry form factor and application independent.

I believe this is important given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular, lean, and scalable with redundancy in our design. We believe this design can be deployed for applications, including peak shaving, backup power, and more. We believe our battery energy storage system will be production ready in 2027, with ongoing customer validation and UL compliance in process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding bidirectional microgrid inverter or grid tie inverter to our portfolio for these markets, and we expect this product to be production ready in 2027. Our grid tie inverter features a power distribution unit critical for efficient and flexible grid forming across microgrid applications.

Our grid tie inverter is designed to enable the following: significantly reduced weight and size compared to traditional systems, efficient bidirectional power flow for seamless charge and discharge, wide voltage conversion capability to support diverse energy systems, and fast dynamic response for improved microgrid stability and control. Our UL compliance for this new product is already underway as part of our product readiness. We’re excited to share that the 1st grid tie inverter B sample units are being shipped to 4 customers, a major milestone for the program and a testament to the work behind it. To summarize, there are 3 key takeaways from today’s call. First, BorgWarner’s first quarter results were solid. Excluding the decline in our battery and charging sales, our sales performance was in line with industry production and is consistent with our full year outlook.

Our adjusted operating margin expanded 50 basis points, and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid, and BEV architectures. Third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future. While the current environment remains challenging and uncertain, I’m confident in our team’s ability to effectively navigate these conditions, which we clearly demonstrated in the first quarter.

I also continue to firmly believe that we have the right portfolio, decentralized operating model, and financial strength to deliver our full year 2026 guidance and drive long-term profitable growth. With that, I will turn the call over to Craig.

Craig Drinkwater, Chief Financial Officer, BorgWarner: Thank you, Joe, and good morning, everyone. Let’s jump into our first quarter financials by turning to slide 8 for a look at our year-over-year sales walk. Last year’s Q1 sales were just over $3.5 billion. In the first quarter, stronger foreign currencies drove a year-over-year increase in sales of $167 million. You can see the sales headwind from our battery business, which drove a year-over-year decrease in sales of $54 million. The remaining organic sales decline of $95 million or 2.7% was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America, which was more than offset by foundational product headwinds in Europe and a timing-related e-product sales decline in China.

The sum of all this was just over three and a half billion of sales in the first quarter. Turning to slide 9, you can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $372 million, equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of $352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $8 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income decreased $4 million on $149 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business.

Our adjusted EPS was up $0.13, or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over $650 million in share repurchases over the past four quarters. Finally, free cash flow with a generation of $13 million in the 1st quarter, which was a $48 million improvement from a year ago. Now, let’s turn to slide 10 and take a look at our full year 2026 outlook, which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of $14.0 billion-$14.3 billion. Starting with foreign currencies, our guidance assumes an expected full year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar.

We continue to expect our weighted net markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted light vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market, excluding the decline in battery sales. Now, let’s switch to margin.

We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits. While the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls, just like we saw in the first quarter. We view this as strong underlying performance, with our first quarter results providing a strong start to the year.

Based on this sales and margin outlook, we’re expecting full year adjusted EPS in the range of $5.00-$5.20 per diluted share, which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving earnings expansion despite lower industry production, battery sales declines, and potential cost inflation. Finally, we continue to expect full year free cash flow to be in the range of $900 million-$1.1 billion, building off a strong 2025. With that’s our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance, despite a challenging first quarter production environment.

We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales. Our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrates the BorgWarner team’s ability to deliver strong financial results in a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales are expected to decline in 2026.

Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner’s earnings power and execute a balanced capital allocation approach that rewards shareholders. With that, I’d like to turn the call back over to Pat.

Chris McNally, Analyst, Evercore2: Thank you, Craig. Michael, we’re ready to open up for questions.

Chris McNally, Analyst, Evercore1: Certainly. 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 you are using a speakerphone, please pick up the handset before asking your question. To withdraw your question, please press star two. In the interest of time, please limit yourself to one question and one follow-up question. At this time, we’ll pause momentarily to assemble our Q&A roster. The first question today comes from James Picariello with BNP Paribas. Please go ahead.

James Picariello, Analyst, BNP Paribas: Hey, good morning, everybody. I’d like to hit on the hit on the company’s non-auto industrial focus to start things off, which is clearly gaining momentum in terms of the company’s strategy. For the Battery Energy Storage product launch potential, like how translatable is the company’s competency regarding, you know, commercial truck battery packs to a proper energy storage system? Like, you know, how I mean, clearly you’re targeting the potential for production next year. Like, is there additional investment that we should anticipate within that battery system segment this year? You know, how rich is the quoting pipeline?

Joe Fadool, Chief Executive Officer, BorgWarner: Hi, James. First of all, the battery energy storage business and our products are very portable to these types of stationary applications. You know, if you think about the requirements in commercial vehicles and e-buses, they’re pretty significant in terms of reliability and quality. We are leveraging our existing capacity to pivot further into the data center space and other industrial markets. From that standpoint, you know, it’s a really smart play for our teams. As we mentioned, the battery energy systems are cell chemistry and form factor independent. We think we’re well-positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers, we’re real pleased with the pipeline we’re seeing.

James Picariello, Analyst, BNP Paribas: Got it. My follow-up, is there a natural synergy for battery energy storage through your turbine generator partner, Endeavour? As we think about the power generation business for data centers for BorgWarner, I know production starts next year, targeting $300 million plus in sales. It’s early days, but are there any considerations to potentially expand your turbine generator capacity, like beyond the North Carolina plant? I know Endeavour and its subsidiary, Edged, have data centers, active data centers in Europe, you know, in addition to the U.S. I’m just curious how the company might be thinking about that capacity, potential international expansion element, and then the synergy, the potential synergy on the energy storage piece. Thank you.

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah, sure. The first question on synergy, there’s definite synergy. I mean, if you think about the 3 offerings we show on page 7, turbine generator, battery energy storage, and then power conversion, those are highly related products in the system, and they’re all solving the major issue, which is lack of power. When it comes specific to Endeavour, definitely, we’ve got a great partnership with Endeavour. We see it continuing to grow over time. The even better news is these energy storage systems and power conversion have lots of opportunities outside of the strong Endeavour relationship. We’re optimistic. There’s a lot of applications and potential customers out there for both energy storage and power conversion.

With respect to your question on the turbine generator, as we mentioned on the call, the progress is quite good in our view. We’re on track for a 2027 launch. Sometime this year, we will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we’ve installed in North Carolina. We’ll take that decision as we get closer to the second half.

James Picariello, Analyst, BNP Paribas: Much appreciated. Thank you.

Chris McNally, Analyst, Evercore1: Your next question comes from Emmanuel Rosner with Wolfe Research. Please go ahead.

Emmanuel Rosner, Analyst, Wolfe Research: Great. Thank you so much. Just one follow-up on the power gen side. Obviously it’s, you know, still early days and, you know, a lot to learn there, you know, from customers, et cetera. Are you able to give us some color on how to think about the value proposition that your solution offers? What do your unit economics look like? How does that compare with the existing established solution? Just trying to understand how the conversation with, you know, potential customers is going.

Joe Fadool, Chief Executive Officer, BorgWarner: Sure. A couple of things we’re solving here for. One is time to market. You know, the backlog for power generation is pretty significant, sometimes up to five and six years. Our ability to leverage automotive scale and move quickly into the space is speed that’s well needed in this market. That’s the first thing. The second is the emission profile of these turbine generators raises the bar and meets even the CARB requirements out in 2027 and beyond. From an emission standpoint, very clean power. The third thing is the total cost of ownership is very attractive. We feel really good about the value proposition of this into the space, especially right now.

Emmanuel Rosner, Analyst, Wolfe Research: Understood. My second question would be on the capital allocation. It looks like you have in front of you some opportunities to invest more capital into this industrial solution. You’ll make a decision on the capacity for power gen, obviously you’re trying to get into energy storage, power conversion. Is there any change at all in, into how you’re thinking about, you know, capital allocation, either within CapEx, you know, in terms of, you know, increasing that or just shifting that towards these solutions and away from autos? In terms of M&A versus buybacks, like if you have so many organic opportunities, do you still have as much focus on M&A as you did, you know, recently?

Joe Fadool, Chief Executive Officer, BorgWarner: Let me begin by saying our top priority will always be on driving organic growth. We’re able to show that we’re leveraging our entire portfolio, especially if you look at our last 18 months of wins. We wanna continue with that winning strategy. The first priority for capital will be to invest for those projects. Nothing has changed from our capital allocation process beyond that. I’ll answer the M&A topic, maybe Craig can talk more deep about the other way to serve shareholders. You know, on the M&A side, we continue to open up the aperture and have a very disciplined process and flow of targets that we’re looking at. Just to remind you, there’s 3 main criteria here. One is really leveraging the core competence we already have. It has to make some strong industrial logic.

The second is we want any acquisition to be accretive. Third, we want to pay a fair price. We’re sticking with that disciplined approach. We continue to have a good flow of targets inside auto and out. I would just say, you know, you can expect from Craig and I to stick to that game plan.

Craig Drinkwater, Chief Financial Officer, BorgWarner: Yeah, maybe just to add on to Joe’s comments. You know, what is our goal? Our goal is to create value with our cash. I think we’ve done that very effectively over the past several quarters. Q1 was another great example of that. $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past 5 quarters, we deployed over $800 million of cash, which represents about 70% of our free cash flow. You know, Joe and I are focused on disciplined consistency in how we’re allocating capital across the business, whether it’s through those levers or investing in the business organically. We feel really good about the actions we’ve taken over the last several quarters.

Emmanuel Rosner, Analyst, Wolfe Research: Great. Thank you.

Craig Drinkwater, Chief Financial Officer, BorgWarner: Thank you.

Chris McNally, Analyst, Evercore1: Your next question comes from Joseph Spak with UBS. Please go ahead.

Joseph Spak, Analyst, UBS: Thanks. Good morning, everyone. Back on the best opportunity. I just wanna be clear sort of what you’re doing here. It’s similar to what you do on or were doing on commercial trucks, where you’re putting the packs together into a system with some software. You know, it does say sort of chemistry and form factor independent, which leads me to believe you’re sort of not doing the cells here. I guess the reason I ask is I keep going back to this FinDreams LFP announcement from 2024, and I know that agreement, you know, said it was specifically for commercial vehicles, but I’m wondering if there’s any leeway in that agreement to be able to leverage that relationship as well.

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah. Hi, Joe. As you mentioned, we do have a strong partnership with FinDreams, and our products are cell chemistry agnostic. We’re in production today on NMC, but we’re also working on future cell chemistries like LFP, sodium-ion, and others. You know, the great part about the pivot here is we’re leveraging both our technology that’s existing on commercial vehicle and e-buses and the current CapEx that’s invested. That’s one of the reasons we can get to market so quickly. We’re moving forward with UL certification and quoting. As far as our content on it, very similar to a CV or an e-bus in terms of, you know, procurement of the cells, design of the entire pack, the system, the BMS, and the final testing. The main difference is these will be for stationary applications versus mobility.

Joseph Spak, Analyst, UBS: Okay. That’s helpful. Just to, I guess, follow on to Emmanuel’s question on capital. You know, look, these opportunities are super exciting. They’re still relatively small, but you can see how they are much more meaningful in the future. Is there any, like, just rule of thumb for and I know you’re using existing capital and as you sort of just mentioned, but is there any rule of thumb about how you would advise investors to think about, you know, incremental investment $1 per every, I don’t know, pick your metric of revenue, just so we can understand, you know, how the return profile looks going forward?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah. I think it would be fair to say that the ROI and capital intensity will be similar to our light vehicle business. If I look at our turbine generator, which we talked about over the last quarter, you know, although we’re putting a greenfield site in for the final assembly and test in Hendersonville, we’re leveraging 4 existing auto plants for all the components and sub-assemblies. I think it’s a great example of how we’re leveraging our CapEx, our capability, and our speed so that we can move quickly into these new markets.

Joseph Spak, Analyst, UBS: Okay. Thank you.

Chris McNally, Analyst, Evercore1: Your next question comes from Colin Langan with Wells Fargo. Please go ahead.

Colin Langan, Analyst, Wells Fargo: Oh, great. Thanks for taking my questions. Just on the overall guidance to step back, I mean, production has come in a bit worse, raw materials have gotten better, and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX and any additional cost actions that may be needed to offset some of the inflation we’ve seen in the market?

Joe Fadool, Chief Executive Officer, BorgWarner: Yes, Colin, overall, we think we can manage the inflationary impact at this point in our mid-teens detrimental conversion. Let me start there, but I’ll walk you through again the guide from a revenue perspective and a margin perspective at the midpoint. Really it’s unchanged from our view. Q1 was a good start to the year. When we think about sales year over year, we ended last year at $14.3 billion. We do see a headwind from industry production right around 1.5% decline versus last year. We see the battery business declining, but we see positive FX coming in as well as some modest outgrowth, and that’s what gets us to $14.15 billion.

When you think about the margin profile, we’re excited that we’re expanding margins at the midpoint and the high point of our guide, despite some challenges from a market perspective. That’s really coming from a couple areas. First, the exit of our charging business. That’s about 10 basis points of enhancement. Additional cost controls, just like you saw in Q1, that’s another 10 basis points. Again, we’re holding that detrimental conversion in the mid-teens, which includes the inflationary pressures that might happen in Q1 and throughout the year. We’re closely monitoring that, but we feel good that we can expand margins and expand EPS this year despite some macro headwinds.

Colin Langan, Analyst, Wells Fargo: Okay. There’s no cost or there’s no, you’re gonna offset those costs with cost savings actions from a raw material side?

Joe Fadool, Chief Executive Officer, BorgWarner: At this point, we feel like we can manage that appropriately.

Colin Langan, Analyst, Wells Fargo: Okay. On the, just on the data center and storage, just trying to understand all this. One, just from the energy gen side, I mean, just to be clear, this is more at this point, you’re just capacity constrained. It looks like that market is just completely sold out. On the storage side, you know, any way to size that market? Is that potentially just as big as the turbine generator opportunity? Lastly, as we think of these businesses together, does that actually help you market to customers? ’Cause I believe hyperscalers are actually starting to actually have storage requirements as they build out data centers. Does the combo actually, is that a selling package that you could provide both and that create an added opportunity to win business? Thanks.

Joe Fadool, Chief Executive Officer, BorgWarner: Hi, Colin. Maybe I’ll start with that second question. You know, when you think about, again, page 7, power gen, storage, and power conversion, those are highly related, and they’re all towards solving this power availability issue. Yes, there’s synergy between those 3, and we do find customers that want more of a system solution or at least someone that understands the complete system across these very complex product segments. With regard to your first question, you know, the ability to bring storage to market fits well within the same data center growth that we see across all 3 platforms. From our view, we’re talking mid-teens CAGR for the next 10 years or more. The backdrop and the demand very strong for these products.

It’s actually increased over the last 12 months, as many folks know.

Colin Langan, Analyst, Wells Fargo: Got it. All right. Thanks for taking my questions.

Joe Fadool, Chief Executive Officer, BorgWarner: Thank you.

Chris McNally, Analyst, Evercore1: Your next question comes from Chris McNally with Evercore. Please go ahead.

Chris McNally, Analyst, Evercore: Thanks so much, team. Sorry if some of these will be repeat questions. Like, I get the tone of the call on the industrial extensions, I wanted to kind of phrase it differently. I think the way I’m, you know, questioning, you know, the size of Let’s focus on the power gen opportunity over the next two years is, would you characterize it as is there a supply constraint, a capacity constraint, or signing up, you know, customer by customer? I mean, it’s a new business. It’s going to be deal by deal. What we’d love to know is, you know, what is a capacity ramp look like? How does that occur?

Is that the type of thing that you’ll need multiple years lead time, or as the deals come in, as the customer wins come in, your capacity will follow? You know, that supply versus demand, what would be the bottleneck? Thinking a couple of years out would be great for sizing the business.

Joe Fadool, Chief Executive Officer, BorgWarner: Sure. Thanks for the question, Chris. Let’s say this starts massively with demand. You know, demand for power gen, especially behind the meter, driven by the fact that many utilities, you know, have a 4, 5, 6-year lead time to get the power to serve these data centers. On top of that, the growth of GenAI specifically is creating a massive demand challenge. I would say over the last 12 months, what we’ve seen is the supply constraints of the existing turbine generators and other behind-the-meter solutions has made the challenge even bigger. You know, we’re fortunate to come in at the time we are with a great product that has a lot of value to the customer. I hope that answers that question. You know, with regard to the capacity we have installed and how do we go about selling that.

As a reminder, we’ve installed 2 gigawatts of capacity. The $300 million next year is the initial launch and revenue that we’re planning. It’s a, you know, it’s a subset of this capacity. We feel really good about the installation of the 2 gig. You know, we wouldn’t have installed that much if we didn’t feel that there was going to be a backlog created. As we mentioned earlier in the call, you know, we’ll likely take a decision whether or not we add additional capacity based on the demand that we see and the purchase orders placed. That capacity could be installed in this market, but we also see demand in Europe and other markets, so we’ll also have to decide the location.

Chris McNally, Analyst, Evercore: It’s great. I know we tried to do this math last call, obviously, we’re not gonna get specific pricing, but just ballpark like 2 gigawatts is multiples of $300 million of revenue. Is that fair to say?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah. We haven’t provided pricing, so, yeah, multiples is a fair way to think about it. You know, I think if you look at the pricing that’s out there for power gen, especially behind the meter, you get a range.

Chris McNally, Analyst, Evercore: Yeah

Joe Fadool, Chief Executive Officer, BorgWarner: that’s out there.

Chris McNally, Analyst, Evercore: Great

Joe Fadool, Chief Executive Officer, BorgWarner: increased over time. That might give you some indication of where we’re at.

Chris McNally, Analyst, Evercore: No, that’s excellent. That was the check on the math. The last follow-up. I think someone had asked right before, it seems like with the behind the meter and the battery storage that also you could have great lead-ins from some of the auto customers, right, on the battery storage side. A lot of excess capacity we know in batteries. Is that helping on a cross-sell specifically on those two businesses?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah. I would say it’s adding significantly to our play. You know, our play is more about serving these industrial markets directly, not with our automotive customers. Clearly we have relationships with those customers, and where we can work together, we will. You know, these plays are more about our relationships with the industrial customers.

Chris McNally, Analyst, Evercore: Okay. Great. Thank you so much.

Chris McNally, Analyst, Evercore1: Your next question comes from Dan Levy with Barclays. Please go ahead.

Dan Levy, Analyst, Barclays: Hi. Good morning. Thanks for taking the questions. I’ll continue the line of questions on the data center side and more so just a supply chain question. I know you’ve talked about, you know, two-thirds on the turbine generator, two-thirds of the content is, you know, is coming from you. Then, you know, you’re heavily leveraging the automotive supply chain. I think we’ve heard, you know, within the power gen side that, you know, one of the key sort of supply constraints out there is areas around blades and vanes and very large lead times. You know, we know that generally it takes maybe only one or two components to have, you know, a bottleneck.

Maybe you could just walk us through, you know, your confidence that, you know, when you look across the supply chain, there won’t be any issues getting what you need for the turbine generator system. That if you’re going to expand capacity, that the supply chain can keep up with you even on the most supply limited components.

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah. No, thanks, Dan. A couple of things that I think may help address your question. First of all, our turbine generator system, it does leverage not only our supply base but our technology. Our turbo products are radial turbos. You know, many of the large turbines are more flow-through or axial turbos. It’s different technology, different levels of material. You know, the material selection for these are more consistent with what you see in commercial vehicle applications and sometimes pass car. You know, the requirements are different for what we’re buying. Second point, it is true 80% of the supply base for the turbine generator is already a BorgWarner supplier. They know how to work with us from developing those components to launching and producing those components.

We feel that’s a big risk reduction, getting this product to market. I think the third important thing here is, you know, one of the things that we are experts on is global supply chain. I mean, we have teams of people around the globe that manage suppliers, in many commodities. You know, this is our wheelhouse. It’s a core competence of the company, and we’re gonna bring all that competence to launch these products. You know, from time to time, you do see a constraint or you see an issue with a supplier. As a global company, we get boots on the ground to address those constraints and make sure it doesn’t impact the products to our customers.

Dan Levy, Analyst, Barclays: Great. Thank you. As a follow-up, I’ll give you a question on the core business today. I mean, you know, you’re reaffirming the guidance for the growth of the market to be flat this year. You know, you’ve given a sort of another slide of all these component wins. You know, you’ve talked about 2027 really being this re-acceleration of growth. Maybe you could just give us an update on where we are on line of sight to the rest of the portfolio seeing a re-acceleration. You know, is it Content gain, new program launches? What’s going on that’s driving that uptick in growth from the core portfolio in 2027?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah, I think it’s fair to say, you know, in 26 we’re still living with this overhang from some of those programs on the EV side from a couple years ago. We’re working through that. You know, in 27, what we like to point to are the product wins across the entire portfolio. If you just go back the last 18 months, I mean, over 30 awards we’ve announced publicly. You know, it’s not just 1 part of the world, and it’s not just a couple of product lines. The other thing to point to is if you just look at this quarter, we announced 12 wins. 3 of them were conquest wins.

What we’ve been sharing over the last 12 months, that the strong will not only survive, they’re gonna thrive in this type of market, we’re starting to see that in the program wins. Of course, as those launch, we’ll start to see the revenue beginning in 2027.

Dan Levy, Analyst, Barclays: Great. Thank you.

Chris McNally, Analyst, Evercore1: Your next question comes from Luke Junk with Baird. Please go ahead.

Luke Junk, Analyst, Baird: Good morning. Thanks for taking the question. Joe, hoping maybe you could just put a finer point on how you’re thinking about capital allocation as a way to maybe potentially accelerate the data center and industrial story in an inorganic sense. Is that something that you’re looking at intentionally in terms of building the acquisition funnel and thinking sort of holistically in deploying capital towards these efforts?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah, hi, Luke. You know, the capital allocation story hasn’t changed. I would say over the last 12 months, we’ve continued to open up the aperture of what we’re looking at. Not only automotive and CV space, but also this new data center space. I just wanna bring us back to the 3 criteria, you know. The first one is it needs to make a lot of sense and leverage our competence. We want it to be accretive, and we wanna pay a fair price. You know, we wanna stick to that discipline, and you can count on Craig and I to do that. We do feel more and more confident that our products and technology play really well into this data center space.

As you can see, we’re leaning further into it with the R&D investment, and so I can expect, you know, we’re gonna look at some things that might help accelerate that journey. You can count on us being disciplined about it.

Luke Junk, Analyst, Baird: We will stay tuned there. Second, maybe this is an unfair question, Craig, but I’ll ask it. Just, you know, you mentioned that you’re confident in the right path to achieve full year guidance. You know, why not raise it at this point, margins especially? Is it just too early in the year, or is there something that we should be thinking about in terms of investments tied back to these incremental products that you’re showing us this morning?

Craig Drinkwater, Chief Financial Officer, BorgWarner: Yeah. You know, from my seat, I think, you know, we had a really good Q1. There’s still a lot of uncertainty in the overall environment. When you look at our performance, that’s implied in the guide, and I’ll walk through what we saw Q2 through Q4 last year versus this year. You know, Q2 through Q4, sales were about $3.6 billion a quarter. Margin was about 11.0%. What’s implied in our guide is revenues coming in a little bit lower, $3.54 billion per quarter, about $60 million less per quarter. That’s really the contraction in our battery business. Our margin profile is staying right about 10.9%. Basically on top of the 11.0, and it’s managing that decremental conversion right around the mid-teens, which is what we’ve communicated consistently.

From my perspective, I think, hey, solid Q1. There’s a lot of uncertainty with higher energy prices around the globe. Q through Q4 looks pretty consistent year-over-year. We feel like we’re on the right path to create value by executing our guide. That’s where we sit today, Luke.

Luke Junk, Analyst, Baird: Got it. I’ll leave it there. Thank you.

Chris McNally, Analyst, Evercore1: Your next question today comes from Andrew Percoco with Morgan Stanley. Please go ahead.

Andrew Percoco, Analyst, Morgan Stanley: Great. Thanks so much for taking the questions. I do just wanna come back to the power gen side one more time. You know, I know you’re in an exclusivity with Endeavour for this eTurbo product, but as you mentioned, it’s such a capacity-constrained market, and you obviously have a decent amount of content and in-house capability there. I’m curious, like, whether or not you’ve evaluated if there is an opportunity to develop a product on either a standalone basis or work through Endeavour to, you know, look outside of their captive universe of customers to deploy this product.

Joe Fadool, Chief Executive Officer, BorgWarner: Sure. Andrew, a couple of things. It is true we’re in an exclusive relationship with Endeavour to bring that turbine generator to market. What we’re hyper-focused on is a successful launch next year in 2027. One of the things that’s important to know, Endeavour and the entity we’re working through, eTurbo, they sell internally for their own data center use, but they also are able to sell to other customers and users. You need to keep that in mind. They understand this market. They’ve been in this market for a long time, the principals have. Of course, they wanna leverage those relationships and know-how. We’re more the design and manufacturing house to help them deliver. Hopefully that brings some clarity.

You know, as far as the other two products, battery, we’re actively quoting. I would say, with and outside of Endeavour, inverters the same. The exciting part about the inverters is for customers, we’re shipping product to for their testing. I feel real good about the overall momentum of these three product segments.

Andrew Percoco, Analyst, Morgan Stanley: Okay. That makes sense. Essentially, Endeavour could sell that turbine generator product outside of their own data center applications if there was demand for it. That’s a helpful clarification.

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah.

Andrew Percoco, Analyst, Morgan Stanley: Maybe to follow up on the battery storage for a second here. I think it was asked earlier about the content. Can we just double-click on that? If you think about the current environment, battery storage on average it’s $225 to $250 per kilowatt hour. Is there a way to bracket what your content is as a percentage of that potential ASP? As a follow-on to that, I think it makes sense that you guys are getting into this market. You have core competencies there.

I think one thing that we’ve seen across this landscape is, you know, that the service angle and the service requirements from some of these customers can be a lot different than maybe what you see in auto. I’m just curious in terms of the investment needs maybe on the service side of the organization to make sure, you know, you’re providing the level of uptime needed for some of these customers?

Joe Fadool, Chief Executive Officer, BorgWarner: Sure. The content of the battery energy storage, the way you wanna think about it’s very similar or maybe a little bit incremental to what we serve in the CV side. You know, we’re buying cells, we’re designing complete packs, we’re assembling those complete packs. There’s other value adds like battery management systems and control systems, software development, and then we test and ship those packs. Now the main difference is these are in stationary applications as opposed to mobility. You know, you would see a little bit different structure there. But in essence, it’s a very similar type of product that we serve the CV market with.

Chris McNally, Analyst, Evercore1: We have time for one final question, and that question comes from Mark Delaney with Goldman Sachs. Please go ahead.

Chris McNally, Analyst, Evercore0: Yes, good morning. Thanks for fitting me in and taking my question. One on the PowerGen business as well for me. Joe, you mentioned BorgWarner may need to expand capacity there, and you’re gonna have to make that decision soon. We’ve also seen several hyperscale CapEx guides now during earnings season. They’ve been pretty robust. Given that backdrop and, based on your customer engagements and discussions with Endeavour, should investors think about BorgWarner shipping the full 2 gigawatts in 2028?

Joe Fadool, Chief Executive Officer, BorgWarner: Yeah, we haven’t shared that level of detail. I would say as we get into early 2027, you know, we’ll start to provide more color on the sales and a longer-term view on the business. It is true, we’ve seen recent announcements with the hyperscalers, you know, really growing their capital investments, which I think bodes well for this entire data center space. We’ll provide more details as we get into late ’26 or early ’27.

Chris McNally, Analyst, Evercore0: Okay. My other question was specifically on the auto business and China. The company spoke about a little bit of growth under market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past wins you’ve discussed. Thanks.

Joe Fadool, Chief Executive Officer, BorgWarner: Sure, Mark. First it’s important to note, you know, generally speaking, we are really strong in the China market. We continue to win business there. It’s a very important market for us. I think what you’ve seen in this last quarter, you know, if you start with the market itself, the domestic market was down, but overall it was buoyed by a lot of export sales, and much of that export sales has BorgWarner content on it. You know, we continue to feel optimistic about that market. It’s hard to read too much into 1 quarter, like we have in the first quarter. Generally speaking, you know, the Chinese OEMs continue to grow their share globally, and a lot of it has to do with the export markets, which we’re very well positioned in as they eventually localize in those markets.

Chris McNally, Analyst, Evercore0: Thank you.

Chris McNally, Analyst, Evercore2: Thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can conclude today’s call.

Chris McNally, Analyst, Evercore1: This concludes the BorgWarner 2026 first quarter results conference call. You may now disconnect.