10-Q: BorgWarner Q3 Earnings Dip Amid Restructuring, EV Volatility

BorgWarner reports a significant decline in net earnings and EPS for Q3 and YTD 2025, driven by restructuring costs, a legal settlement, and the exit of its charging business, despite a slight increase in net sales.

Summary

• Net sales for the three months ended September 30, 2025, increased by 4% to $3,591 million, compared to $3,449 million in the prior year period.
• Net sales for the nine months ended September 30, 2025, increased by 0.9% to $10,744 million, compared to $10,647 million in the prior year period.
• Net earnings attributable to BorgWarner Inc. for Q3 2025 decreased by 32.5% to $158 million, down from $234 million in Q3 2024.
• Diluted earnings per share (EPS) for Q3 2025 fell by 32.4% to $0.73, from $1.08 in Q3 2024.
• Net earnings attributable to BorgWarner Inc. for the nine months ended September 30, 2025, decreased by 27.5% to $539 million, from $743 million in the prior year period.
• Diluted EPS for the nine months ended September 30, 2025, decreased by 27.0% to $2.48, from $3.40 in the prior year period.
• Operating income for Q3 2025 was $248 million, an 8.1% decrease from $270 million in Q3 2024.
• Operating income for the nine months ended September 30, 2025, was $774 million, a 10.3% decrease from $862 million in the prior year period.
• The company recorded a $38 million net charge in Q3 2025 related to a legal settlement with PHINIA, resolving a lawsuit over VAT refunds.
• BorgWarner decided to exit its charging business within the Battery & Charging Systems segment in February 2025, incurring $23 million in exit costs and $42 million in impairment charges (intangible assets, goodwill, fixed assets) during the nine months ended September 30, 2025.
• The company initiated a $75 million restructuring plan in June 2024 for its PowerDrive Systems segment, incurring $29 million in charges year-to-date 2025, aiming for $100 million to $120 million in annual cost savings by 2026.
• Net cash provided by operating activities from continuing operations increased to $1,029 million for the nine months ended September 30, 2025, from $700 million in the prior year period.
• Net cash used in investing activities from continuing operations decreased to $246 million for the nine months ended September 30, 2025, from $460 million in the prior year period, primarily due to lower eProduct investments.
• Net cash used in financing activities from continuing operations was $753 million for the nine months ended September 30, 2025, compared to $250 million provided in the prior year period, mainly due to debt repayments and share repurchases.
• The company's eProducts revenue for Q3 2025 was $606 million (17% of total revenue), down from $639 million (19%) in Q3 2024.
• eProducts revenue for the nine months ended September 30, 2025, was $1,901 million (18% of total revenue), up from $1,721 million (16%) in the prior year period.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant declines in net earnings and EPS, increased tax provision, and substantial restructuring and impairment charges. While sales saw a modest increase and strategic actions are underway to improve future profitability, the current period's financial performance is weak. The dividend increase and share repurchase program offer some positive signals for shareholder returns, but are overshadowed by the operational and profitability challenges.

Positives

• Net sales increased by 4% for the three months and 0.9% for the nine months ended September 30, 2025, indicating continued revenue growth.
• Net cash provided by operating activities significantly increased to $1,029 million for the nine months ended September 30, 2025, from $700 million in the prior year, primarily due to favorable changes in working capital.
• Net cash used in investing activities decreased, reflecting lower eProduct investments, which could indicate more efficient capital allocation.
• The company maintains strong liquidity with $2,172 million in cash, cash equivalents, and restricted cash, and an undrawn $2,000 million revolving credit facility, totaling $4,172 million.
• The settlement of the lawsuit with PHINIA for $78 million resolves a significant legal contingency, providing clarity and a cash inflow.
• The exit of the charging business is expected to eliminate approximately $30 million of annualized adjusted operating losses by 2026, streamlining the product portfolio.
• The consolidation of the North American battery systems business is expected to generate annual cost savings of approximately $20 million by 2026.
• The 2024 Structural Cost Plan for PowerDrive Systems is projected to yield $100 million to $120 million in annual cost savings by 2026.
• The 2023 Structural Cost Plan for Foundational products is complete and expected to generate at least $80 million to $90 million in annual gross savings by 2027.
• The quarterly cash dividend was increased to $0.17 per share, demonstrating confidence in future cash flows and returning value to shareholders.
• A new $1 billion share repurchase authorization was approved, replacing the previous one, with $508 million already repurchased, indicating ongoing commitment to shareholder returns.

Negatives

• Net earnings attributable to BorgWarner Inc. decreased significantly by 32.5% for the three months and 27.5% for the nine months ended September 30, 2025.
• Diluted EPS decreased substantially by 32.4% for the three months and 27.0% for the nine months ended September 30, 2025.
• Operating income declined by 8.1% for the three months and 10.3% for the nine months ended September 30, 2025.
• The provision for income taxes increased significantly to $75 million (30% effective rate) in Q3 2025 from $13 million (5% effective rate) in Q3 2024, and to $188 million (25% effective rate) YTD 2025 from $44 million (5% effective rate) YTD 2024.
• The exit of the charging business resulted in $23 million in exit costs and $42 million in impairment charges (intangible assets, goodwill, fixed assets) during the nine months ended September 30, 2025.
• A $38 million net charge was recorded in Q3 2025 due to the PHINIA legal settlement, reducing VAT-related receivables.
• PowerDrive Systems segment adjusted operating loss increased to $35 million in Q3 2025 from $19 million in Q3 2024, with margin declining to (6.0)% from (3.7)%, primarily due to customer pricing and lower recoveries.
• Battery & Charging Systems segment adjusted operating loss increased to $41 million for the nine months ended September 30, 2025, from $33 million in the prior year, with margin declining to (9.3)% from (5.8)%, due to lower sales and higher depreciation.
• eProducts revenue for Q3 2025 decreased to $606 million from $639 million in Q3 2024, indicating a slowdown in this strategic growth area for the quarter.
• The company incurred $5 million in Q3 2025 and $11 million YTD 2025 for duplicative CEO transition compensation.
• Restructuring expenses increased to $23 million in Q3 2025 from $21 million in Q3 2024, and to $71 million YTD 2025 from $65 million YTD 2024.

Risks

• Supply disruptions impacting the company or its customers, commodity availability and pricing, and inability to achieve expected levels of recoverability in commercial negotiations with customers concerning these costs.
• Competitive challenges from existing and new competitors, including original equipment manufacturer (OEM) customers.
• Challenges associated with rapidly changing technologies and the company's ability to innovate in response.
• Difficulty in forecasting demand for electric vehicles and the company's electric vehicles revenue growth.
• Potential disruptions in the global economy caused by wars or other geopolitical conflicts.
• The ability to identify targets and consummate acquisitions on acceptable terms, and failure to realize the expected benefits of acquisitions on a timely basis.
• The failure to promptly and effectively integrate acquired businesses, and the potential for unknown or inestimable liabilities relating to acquired businesses.
• Impacts of the company's exit of the charging business.
• Dependence on automotive and truck production, which is highly cyclical and subject to disruptions.
• Reliance on major OEM customers and impacts of any future strikes involving any of these customers.
• Fluctuations in interest rates and foreign currency exchange rates.
• Dependence on information systems.
• Uncertainty of the global economic environment and global trade policies, including tariffs and export restrictions, and their impacts on the company, its customers, and suppliers.
• The outcome of existing or any future legal proceedings, including litigation with respect to various claims, or governmental investigations.
• Future changes in laws and regulations, including taxes and tariffs, in the countries in which the company operates.
• Impacts from any potential future acquisition or disposition transactions.
• Changes in administrative policy on the part of the U.S. or other countries, including the imposition of or increases in tariffs, changes to existing trade agreements, and any resulting changes in international trade relations, which could increase costs and reduce demand for products.

Future Outlook

The company expects global industry production to be roughly flat year-over-year in 2025. Net new business-related sales growth and cost recovery actions are anticipated to be offset by declining sales in the Battery & Charging Systems segment, leading to an overall sales outlook that is roughly flat year-over-year, excluding foreign currency impacts. The company maintains a positive long-term outlook, driven by the adoption of electrified vehicle product offerings and increasingly stringent global emissions standards. Commodity and other costs are expected to be relatively flat in 2025, but with potential for increased volatility due to tariffs.

Management Comments

• The company's balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions.
• The company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy.

Industry Context

The automotive industry is experiencing volatility in electric vehicle adoption across different regions, which is impacting BorgWarner's eProducts segment. While the company's eProducts revenue grew year-to-date, it saw a decline in Q3, and the company is taking strategic actions like exiting its charging business and consolidating battery systems to align with market dynamics. Global industry production is expected to be flat, and the company faces ongoing challenges from commodity pricing, supply chain disruptions, and evolving global trade policies, including tariffs, which could introduce further uncertainty and cost volatility.

Corporate Governance

Legal Proceedings

• On October 15, 2025, BorgWarner entered into a settlement agreement with PHINIA, resolving a lawsuit seeking approximately $120 million in VAT refunds. PHINIA agreed to pay BorgWarner $78 million.
• In connection with the settlement, an amended and restated tax matters agreement was entered into, limiting BorgWarner's responsibility to certain defined tax obligations.
• As a result of the settlement, BorgWarner recorded a net charge of $38 million in Q3 2025, for the reduction of VAT-related receivables, elimination of certain liabilities, and related legal fees.
• The company is identified as a potentially responsible party (PRP) at 16 hazardous waste disposal sites under Superfund and equivalent laws, with an accrual for environmental liabilities of $5 million as of September 30, 2025, relating to four of these sites.

Related Party Transactions

• The company entered into a settlement agreement with PHINIA, a company spun off from BorgWarner, resolving a lawsuit and other matters related to the Spin-Off. This included a $78 million payment from PHINIA to BorgWarner and an amended tax matters agreement.
• Adjustments associated with Spin-Off related balances, including the contract manufacturing agreement with PHINIA and net amounts owed related to the tax matters agreement, resulted in expenses of $8 million in Q3 2025 and $7 million YTD 2025.

Stakeholder Impact

• Shareholders: Negatively impacted by significant declines in net earnings and EPS, but positively impacted by an increased dividend and ongoing share repurchase program. The PHINIA settlement provides clarity on a legal matter.
• Employees: Impacted by restructuring activities, including employee termination benefits, as part of cost reduction plans in various segments.
• Customers: Affected by potential supply disruptions, commodity pricing volatility, and changes in global trade policies (tariffs). Downtime at a European customer due to a cyber-related shutdown also impacted sales.
• Suppliers: May be affected by supply chain disruptions and changes in commodity pricing.
• Creditors: The company maintains strong liquidity and compliance with debt covenants, indicating a stable position for creditors, despite higher debt levels from previous note issuance.

Next Steps

• Complete the termination of the U.S. Pension Plan, expected to take up to eighteen months from October 31, 2025.
• Continue to execute the 2024 Structural Cost Plan in the PowerDrive Systems segment to achieve $100 million to $120 million in annual cost savings by 2026.
• Realize the expected $30 million annualized adjusted operating loss elimination from the exit of the charging business by 2026.
• Achieve $20 million in annual cost savings by 2026 from the consolidation of the North American battery systems business.
• Continue to evaluate different options across operations to reduce existing structural costs over the next few years.
• Monitor global industry production, which is expected to be roughly flat year-over-year in 2025.
• Pursue new product development and strategic investments to enhance product leadership, particularly for electrified vehicles and products supporting stringent global emissions standards.

Key Dates

Recommendation

While BorgWarner's net sales showed modest growth, the significant decline in net earnings and EPS for both the quarter and year-to-date periods is a concern. The company is undergoing substantial restructuring and portfolio adjustments, including exiting the charging business and consolidating battery systems, which are generating significant one-time charges and impairments. These actions, while intended to improve long-term profitability and focus on core strengths, indicate current challenges in the EV transition and market volatility. The legal settlement with PHINIA provides clarity but also resulted in a material charge. The increased dividend and share repurchase program are positive for shareholder returns, and the company maintains strong liquidity. However, the 'roughly flat' sales outlook for 2025 and ongoing industry headwinds, particularly EV adoption volatility and tariff risks, suggest a period of transition and uncertainty. A 'hold' recommendation is appropriate as investors await clearer signs of improved profitability and successful execution of strategic initiatives, especially in the eProducts segments, before considering a stronger position.

Keywords

BorgWarner, Automotive Supplier, Electric Vehicles, EV Components, Hybrid Powertrains, Internal Combustion Engines, Auto Industry, SEC Filing, 10-Q, Financial Results, Restructuring, Tariffs, Global Economy, Supply Chain, Corporate Governance, Share Repurchase, Dividends, PHINIA, Charging Business Exit