8-K: BorgWarner Reports Strong First Quarter 2025 Results, Announces Exit of Charging Business

BorgWarner's Q1 2025 results show relatively flat organic sales and an adjusted operating margin expansion despite market headwinds, alongside strategic portfolio actions including exiting the charging business.

Summary

• BorgWarner reported its first quarter 2025 financial results on May 7, 2025.
• Organic sales were relatively flat compared to Q1 2024, with a U.S. GAAP net sales decrease of approximately 2%.
• This was despite a 3.6% decrease in the company's weighted light and commercial vehicle markets.
• Strong light vehicle eProduct sales drove an outgrowth of approximately 3.7%, increasing 47% year-over-year.
• The adjusted operating margin was 10.0%, equating to a U.S. GAAP operating margin of 6.7%.
• The company expanded its adjusted operating margin by approximately 60 basis points compared to Q1 2024, despite a 20 basis point headwind from tariffs.
• BorgWarner announced it will exit its Charging business during the second quarter of 2025, expecting to eliminate approximately $30 million of annualized adjusted operating losses.
• The company is consolidating its North American Battery Systems business, expecting annual cost savings of approximately $20 million by 2026.
• New business awards include a high-volume hybrid eMotor award with a major North American OEM launching in 2028 and a high-voltage coolant heater (HVCH) award in North America with a global OEM launching in 2027.
• Four program extensions for exhaust gas recirculation (EGR) components with a major North American OEM will continue through the end of 2029.
• Two dual-clutch transmission (DCT) awards in China include a seven-year extension with a German OEM and a new award with a prominent transmission manufacturer with production expected to start the end of 2025.
• U.S. GAAP net sales were $3,515 million, a decrease of approximately 2% compared with Q1 2024.
• U.S. GAAP net earnings were $0.72 per diluted share, while adjusted net earnings were $1.11 per diluted share.
• U.S. GAAP operating income was $237 million, or 6.7% of net sales, while adjusted operating income was $352 million, or 10.0% of net sales.
• Net cash provided by operating activities was $82 million, and free cash flow was $(35) million.
• The company updated its 2025 full-year guidance, expecting net sales in the range of $13.6 billion to $14.2 billion.
• The company expects its weighted light and commercial vehicle markets to be in the range of down 4% to down 2% in 2025.
• The company expects operating margin to be in the range of 8.1% to 8.6% in 2025.
• Net earnings are expected to be within the range of $3.44 to $3.85 per diluted share.
• Full-year operating cash flow is expected to be in the range of $1,323 million to $1,375 million, and free cash flow is expected to be in the range of $650 million to $750 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While sales are slightly down, the company is focusing on profitable growth areas, expanding margins, and securing new business. The guidance for the full year is also positive.

Positives

• BorgWarner achieved an adjusted operating margin expansion of approximately 60 basis points compared to Q1 2024.
• Strong light vehicle eProduct sales increased 47% year-over-year, driving outgrowth.
• The company is exiting its Charging business, which is expected to eliminate approximately $30 million of annualized adjusted operating losses.
• The consolidation of the North American Battery Systems business is expected to result in annual cost savings of approximately $20 million by 2026.
• BorgWarner secured multiple new business awards, including a high-volume hybrid eMotor award and a high-voltage coolant heater (HVCH) award.
• Adjusted net earnings per diluted share increased by approximately 8% compared to Q1 2024.

Negatives

• U.S. GAAP net sales decreased by approximately 2% compared with Q1 2024.
• The company's weighted light and commercial vehicle markets decreased by 3.6%.
• Free cash flow was $(35) million for the quarter.
• The company expects its weighted light and commercial vehicle markets to be in the range of down 4% to down 2% in 2025.

Risks

• Supply disruptions impacting BorgWarner or its customers.
• Commodity availability and pricing fluctuations.
• Competitive challenges from existing and new competitors.
• Rapidly changing technologies, particularly related to electric vehicles.
• Difficulty in forecasting demand for electric vehicles.
• Potential disruptions in the global economy caused by wars or other geopolitical conflicts.
• Dependence on automotive and truck production, which is highly cyclical and subject to disruptions.
• Reliance on major OEM customers.
• Impacts of any future strikes involving any of BorgWarner's OEM customers.
• Fluctuations in interest rates and foreign currency exchange rates.
• Uncertainty of the global economic environment.
• Future changes in laws and regulations, including taxes and tariffs.

Future Outlook

BorgWarner expects net sales between $13.6 billion and $14.2 billion in 2025, with an operating margin between 8.1% and 8.6%. Adjusted net earnings are projected to be between $4.00 and $4.45 per diluted share. Full-year operating cash flow is expected to be between $1,323 million and $1,375 million, and free cash flow is expected to be between $650 million and $750 million.

Management Comments

• The company announced a number of portfolio actions that are intended to drive focus and enhance its future long-term profitable growth.

Industry Context

BorgWarner's focus on eMobility and securing new business in hybrid and electric vehicle components aligns with the broader industry trend towards electrification. The company's portfolio actions, such as exiting the charging business, reflect a strategic shift towards higher-growth and more profitable areas within the automotive industry.

Comparison to Industry Standards

• BorgWarner's adjusted operating margin of 10.0% is comparable to other automotive suppliers focusing on electrification.
• Companies like Aptiv and Magna International, which are also investing heavily in electric vehicle technologies, typically aim for similar or higher operating margins.
• The company's focus on securing new business in hybrid and electric vehicle components is in line with industry trends, as traditional automotive suppliers adapt to the shift towards electrification.
• The expected cost savings from consolidating the North American Battery Systems business are also in line with industry efforts to optimize cost structures in the face of changing market dynamics.

Stakeholder Impact

• Shareholders may see long-term benefits from the company's focus on profitable growth areas and cost-saving measures.
• Employees in the Charging business may be affected by the exit of that business.
• Customers will benefit from the company's continued innovation in eMobility and hybrid technologies.
• Suppliers may see changes in demand as the company shifts its focus to different product lines.

Next Steps

• The company will exit its Charging business during the second quarter of 2025.
• The company will consolidate its North American Battery Systems business.
• Production of new dual-clutch transmission (DCT) awards in China is expected to start the end of 2025.
• The company will launch a high-voltage coolant heater (HVCH) award in North America in 2027.
• The company will launch a high-volume hybrid eMotor award with a major North American OEM in 2028.
• Production of exhaust gas recirculation (EGR) components with a major North American OEM is expected to continue through the end of 2029.

Key Dates

Keywords

BorgWarner, financial results, first quarter 2025, eMobility, automotive, electric vehicles, operating margin, net sales, earnings, guidance