Borgwarner Inc at KeyBanc Capital Markets Industrials and Basic Materials Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Great. Well, that's a fantastic intro and sets the stage. We'll spend most of this time talking about electrification, I promise you that. But just to kick things off, maybe just with a macro update, I mean regarding the chip shortage, OEM downtime announcements. The second quarter is slated to be the most challenged, right? We're 2 months in now. How are things trending from BorgWarner's standpoint? How would you characterize this second quarter relative to your full year? And how about the thought on -- also on mix, right? Product mix. Content mix was a benefit in the first quarter. Is that something that sustains the rest of this year?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : And I know like you don't like talking about specific OEMs. But I just want to ask about Ford, right? Ford's maybe a 10% or 11% pro forma sales type customer for you guys. I think they've been, in my view, at least most transparent in terms of their semi exposure and the production impact. Any way to dimension your specific exposure to Ford, given the quantification that we have from the OEM? And is that something -- was there a contingency already baked into your outlook, your guidance?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : And how about, just very quickly, on the commercial vehicle and off-highway side. I mean commercial vehicle, right, nonauto was about 15% maybe of your pro forma revenue mix. So something material, something that you're now including in your production outlook. How are those end markets trending at this point? How would you characterize that?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. That's helpful. Jumping right into the electrification story. Regarding the full system iDM award with Hyundai, we now know it's Hyundai. I believe this was -- BorgWarner's first award that combines legacy BorgWarner motor and gearing capability with the Delphi inverter. So I do want to start the conversation there. You're just 7 months into having the Delphi inverter business in-house. I mean how important was it to have won this award with Hyundai, having that Delphi of the power electronics, that inverter piece in-house? Because I mean we do see other drivetrain competitors announce JV and partnership alliances to have access to that inverter. What is that competitive moat? What does that competitive advantage looks like for BorgWarner, having full ownership of that inverter asset?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. And a nuance question here. But -- and maybe not using Hyundai as the specific example, but more theoretical or hypothetical. Do -- does the OEM go into the whole bidding process with the intent to grant a full system award? Or is that -- is there a leeway there? Is there a huge gray area where, since you have the complete portfolio, you could kind of shift the conversation to a full system award? More of a question in terms of OEM [and tenant], and your ability to shift the conversation.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. No, that's really helpful. And then just in terms of the pace in industry quoting activity, specific to electrification, I mean this Hyundai award, you just announced the award, and now you already have a start of production in 2023, right? So a pretty quick turnaround. I mean is this a sign of the new normal in terms of EV launches and the turnarounds and the accelerated push by OEMs to get these to market as quickly as possible? Just your thoughts there.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : No. That makes sense. And I do want to ask about content. I mean, EVs, battery electrics represent a 3x multiplier to your ICE business. The Delphi inverter alone, I mean, when you tell me that it's maybe something around the 900 zip code plus -- 900 plus, I mean that would cover your entire ICE content potential. We know you have the inverter awards already in backlog with just 3 European OEMs. Just those 3 account for 1.1 million units by 2025, is the expectation. And that's, again, just across those 3 European customers. Can you share your thoughts on, focusing on the inverter, what your market share might look like by 2025, and not just across those 3 OEMs, but all of your inverter awarded business? And if I don't get a great answer to that question, how about win rate, right? Other suppliers talk about their win rates, right? So they're not bidding on everything out there. So maybe a color on what your inverter win rate is in terms of the project -- the programs that you're bidding on. And any color there, I think, would be great.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Right. Yes. No. That's really helpful. At your recent Analyst Day, I mean -- and you had it in the slides, right, in terms of the transformation of your EV revenue mix, by 2025, 10 points above global EV penetration. And I mean that whole trajectory is pretty clear. But I mean a major driver behind that strategy is the intent to divest $3 billion to $4 billion in legacy ICE revenue, right, over the next 4 years, fill that inorganically with $2 billion to $3 billion in acquired EV-related sales. So first off, can you give us an update on what you intend to achieve on the divestitures front over the next 12 or so months? And any color on the assets that are likely candidates, right? And so I'll start. Is the aftermarket business a definite core piece to BorgWarner's long-term portfolio? Or should we not necessarily rule anything out in terms of the divestiture candidates?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : No business is sacred other than turbochargers though? Just kidding.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. And on the M&A side, right, so the $2 billion to $3 billion in targeted required EV-related revenue, I mean any concrete projects -- product examples that might represent the best opportunities to round out what -- from the outside looking in, what already is a complete EV portfolio, right? We've hired a few no bids on in the past, enhancing capabilities to move electrons around the vehicle. We know Fred likes to that race. And that was before and after the AKASOL acquisition, and you spread the wheel. So yes, just color on the M&A strategy, what -- any specific product categories that make sense?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. No. Understood. That's helpful. Quickly, on ...

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : On the AKASOL acquisition, I believe that's expected to close any week now. $900 million or so investment, right, into the commercial EV battery pack and battery management system market. This follows your initial equity investment JV with Romeo Power. So could you just talk about the CPV opportunity in this space? How much of a door opener is the -- having AKASOL in terms of your exposure to the commercial vehicle space? Or is it the other way around, where you already have your relationships and now you're bringing in AKASOL? So yes, curious on the color there. And the 10,000 or 15,000 plus CPV for AKASOL, correct me if I'm wrong, I mean that's got to be a good bargaining chip for -- to cross-sell and maybe pull through more of your own content.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. I'm going to run over by a minute or 2. And so I'll get in front of getting you on that here. But if we just think about the incrementals over the next few years, the company is running at peak R&D levels this year and over the next few years, I believe. You've got that 2023 margin target of greater than 11%. So it seems as though the Delphi integration is progressing ahead of original expectations, seeing good margin pull-through there. Your cost-out synergies are trending towards the high end. Just curious on that bridge, right? What are the major pieces relative to your 2021 guidance, getting to that 2023? What are the upside factors that maybe we should have in mind? And maybe other factors that are -- should limit that upside in terms of maybe not getting ahead of ourselves. So yes, curious on that bridge. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 02, 2021 / 2:00PM, BWA.N - Borgwarner Inc at KeyBanc Capital Markets Industrials and Basic Materials Conference

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. Well, thank you guys so much. This was super helpful. Appreciate the time, and I'll see you guys throughout the day in other meetings. So thank you, guys.