Borgwarner Inc Q4 2024 Earnings Call Transcript

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

Question: John Murphy - BofA Global Research - Analyst : Fred, congratulations. Look forward to visiting you in Burgundy, It will be a lot of fun hopefully. And I apologize you have to deal with us now. But -- first question, the portfolio that is well balanced, almost in whichever direction powertrain go. It seems like a very good way to be positioned and you're set there. I'm just curious, as you look at sort of the short-term swings that we're seeing in programs, stuff like Ford canceling the three-row EV last year. When those shifts happen very quickly, how well do you think the portfolio is hedged? I think you pick up those lost sales with something like explore the ICE version or something like that. I mean, how quickly does that get balanced out? And maybe sort of with that -- is that one of the key drivers of why we're seeing this $600 million in organic sales? Or what else is driving that $600 million organic variance? Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems John, so if you look at the ERFQs outside of China, they've been slowing a little bit, and we've seen some delays or cancellations. On the other side, we see more RFQs for foundational products, and those usually result in higher volumes of our existing products, we're serving a customer with or it might be extensions because they've delayed EV tracker SUV. So we're in a great position to take advantage of that and also be ready when they launch those new programs on EVs and the market's ready.

Question: John Murphy - BofA Global Research - Analyst : Okay. And then just maybe one quick follow-up. Could you just remind us what exposure is right now with domestic versus international players? And where you think that's going to land in '25? And how much it may shift towards the domestics in the next few years? Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems Specifically in China or ?

Question: Colin Langan - Wells Fargo Securities, LLC - Analyst : Congrats Fred on your retirement. It's been a pretty impressive pivots or any powertrain engine leadership. One, powertrain, any color on how eProducts should perform this year? I noticed the battery side was a bit weaker sequentially. And I think there's some small in North America you've indicated. And should we start seeing a help -- I know Europe with regulations, there should be a light vehicle there likely some increase in the US. Does that start showing up in maybe the second half? Or how should we think about it?

Question: Colin Langan - Wells Fargo Securities, LLC - Analyst : Got it. And then the guide for this year has 200 basis points growth over market. And in the past, you've kind of talked about 4%. I think you've called out a couple of things. I mean should we think about eventually getting back to something like a 4%? Or is this lower EV adoption just kind of holding that back for several years from now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, BWA.N - Q4 2024 Borgwarner Inc Earnings Call

Question: Ryan Brinkman - JPMorgan Chase & Co - Analyst : Just curious with regard to the products that you manufacture in Mexico, the extent to which they are installed on products in Mexico versus brought across the US border? And then what -- any preliminary conversations with automakers might look like in terms of the pass-through of any potential tariff costs?

Question: Luke Junk - Robert W. Baird & Co., Inc. - Analyst : My congratulations to you as well, Fred. Maybe starting with the outgrowth, hoping you could just help us understand, at least directionally what that assumes for eProducts and PowerDrive? Specifically in Europe, where you had a big launch here in '24 and in China relative to what of course, continued tailwinds around NAV adoption overall. And I guess any offsets we should be thinking beyond what you've already mentioned in the existing book of business in either go as well?

Question: Luke Junk - Robert W. Baird & Co., Inc. - Analyst : Got it. And then for my follow-up, hoping you could just maybe expand on your comments around foundational awards. It's now been a couple of quarters in a row, you've highlighted a good number in Foundation awards, as you mentioned, you're seeing a reacceleration in RF. I guess what I'm trying to square is how that might translate to outgrowth, not this year, but looking out '26, '27? And especially, it seems like there may have been a well just given where the industry's focus was a few years ago in those awards, how that might translate to some pickup in '26 plus?

Question: Joe Spak - UBS - Analyst : And Fred, again, my congrats as well and enjoy. Just maybe just one on the guidance, just a little bit more color. I just want to understand like that is what you're saying that North America weighted down 3% to 4%. And I think if we look at some third parties, it's closer to that, too. Is that delta sort of the I guess, conservative that you're sort of putting in or maybe some disruption as to what could happen if tariffs come in? I just want to be clear on that. And then I don't think I heard on a little bit late. I don't think I heard sort of any eProducts overall. I know you have the new segments, but any sort of products sort of expectations for this year. Is there any color you can provide there, just so we can sort of track, I guess, performance relative to some of the underlying market dynamics?

Question: Joe Spak - UBS - Analyst : But anything on eProducts in relation to the overall guidance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, BWA.N - Q4 2024 Borgwarner Inc Earnings Call

Question: Joe Spak - UBS - Analyst : Okay. Joe, the second question is thinking in some of your prepared remarks, you talked about building on your portfolio organically and inorganically. And I don't think that's a change from what you've talked about in the past as an organization, but there had been some messaging or communication that inorganic has been paused. I guess I'm wondering as you sort of take over here, how you think about that going forward, especially since we've seen some activity and M&A in the space, and I would even say sort of more broadly in the markets. Like do you -- is there -- do you expect a little bit more focus on inorganic opportunities as we move forward from here? Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems Yes. So we will continue to invest organically as our top priority. We have a terrific product portfolio, and we see lots of opportunities to keep building on that and growing that to outgrow the market. We will continue to look at acquisitions as it remains an important part of our strategy. So the industry turbulence that we're all witnessing right now actually provides a unique opportunity for BorgWarner in our financial strength. So as we execute them, if we execute them, it will be in a very thoughtful way, and our focus is to create long-term shareholder value.

Question: Edison Yu - Deutsche Bank - Analyst : Congrats, Fred. I want to ask about EREVs. You've obviously had quite a bit of success in China with that. How are those conversations going in US and Europe? And do you think the volumes there could, in three or four years be similar? Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems So we have seen some success on EREVs in China, as you mentioned. I would say the other regions are starting to look at EREVs as a way to especially (technical difficulty). -- So -- we don't see it in big volumes just yet, but we do see it as an emerging option architecture for the customers to meet their emission requirements.

Question: Emmanuel Rosner - Wolfe Research - Analyst : My first question is on the CapEx outlook. Can you provide a little more context around the lower CapEx budget? And to extend these, I guess, extra free cash flow would go towards buybacks versus something else?

Question: Emmanuel Rosner - Wolfe Research - Analyst : Got it. That's helpful. And then how are you thinking about the gross outlook this year and also beyond for EV products in China, specifically given a very competitive market dynamics?

Question: Dan Levy - Barclays - Analyst : Fred, congratulations to you. I wanted to first just start with a follow-up on that last question there. PowerDrive was disappointing or soft in 2024. Maybe you can give us a flavor for what turns around in that business? And maybe you could just then remind us why Asia in PowerDrive was soft as was despite EV in China doing as well as it did? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, BWA.N - Q4 2024 Borgwarner Inc Earnings Call

Question: Dan Levy - Barclays - Analyst : And how much of that is China? Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems Yes. We don't break out specifically China, but let's say that there are strong -- they've got a strong position in the overall market. I'll let Pat maybe cover that in a follow-up.

Question: Dan Levy - Barclays - Analyst : And what was unique in 2024 that is not repeating in '25 that you had such strong incremental REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, BWA.N - Q4 2024 Borgwarner Inc Earnings Call Joseph Fadool - Borgwarner Inc - Vice President, President and General Manager of BorgWarner Emissions, Thermal and Turbo Systems I think when you look at our performance in 2024, we really focused on restructuring savings. We focused on cost control across the business, including GSM and productivity. And we're maintaining that as we look into this year. And so we feel really good with where we landed in '24 and this outlook for 2025. And we're going to keep our focus on cost control as we move forward.