BORGWARNER INC Q1 FY2025 earnings call

• First quarter results were strong with sales outgrowth, strong adjusted operating margin, and improved free cash flow. • Secured multiple new business awards across portfolio, including Hybrid eMotor, High-Voltage Coolant Heater, EGR component extensions, and dual clutch transmission awards. • Decided to exit charging business due to market not growing as anticipated and inability to achieve scale and ROIC thresholds. • Undertook capacity consolidation in North American battery systems to rightsize to market dynamics, shifting production and expecting cost savings. • Emphasized focus on product leadership, cost controls, and managing cost structure in response to market changes.

Organic sales were just over $3.5 billion, relatively flat despite a decline in market production. Light vehicle eProduct sales saw a 47% increase, driving sales outgrowth of 3.7%. Adjusted operating margin was strong at 10%, driven by eProducts growth and cost controls. The charging business exit is expected to eliminate approximately $30 million of annualized operating losses, with a $30 million headwind to sales but a $15 million increase to operating income. Battery systems capacity consolidation in North America is estimated to have cumulative cash costs of ~$10 million through 2026 and annual cost savings of ~$20 million by 2026.

• 2025 sales projected in range of $13.6 billion to $14.2 billion, up from prior guidance due to stronger foreign currencies and tariff recoveries, partially offset by lower market production and charging business exit. • Adjusted operating margin expected in range of 9.6% to 10.2%. • Full year adjusted EPS in range of $4 to $4.45 per diluted share, midpoint unchanged. • Full year free cash flow expected in range of $650 million to $750 million. • Expect sales outgrowth of approximately 200 to 400 basis points for the year.

• Tariff uncertainties and their impact on customer demand and costs. • Market production uncertainties, particularly in North America. • Supply chain risks related to rare earth elements for eMotors and other eProducts, including managing constraints and finding alternative supplies.

Q: About business extensions on foundational products and return characteristics of eProduct awards, and rare earths risk A: Joseph Fadool said extensions highlight portfolio strength with continued strong margins, eProduct wins are in hybrid space with growth potential, and teams are managing rare earth supply with license submissions and alternative options Q: Follow-up on portfolio actions, anything else in portfolio A: Joseph Fadool said they take critical eye to portfolio, decisive on areas not reaching scale or ROIC, like charging exit and battery consolidation Q: China growth trending, how through rest of year A: Joseph Fadool mentioned outgrew market in Q1, strong light vehicle eProduct growth, and positive feedback at Shanghai Auto Show with speed to market and customer relationships Q: North America light vehicle production outlook, build schedules A: Joseph Fadool said Q1 production strong, Q2 orders good, but market changes and tariffs impact guide, will adjust quickly Q: FX and tariff recoveries in guidance A: Craig Aaron said FX is tailwind to prior guidance from euro and renminbi, tariff recoveries embedded in guide with 100% recovery expected from customers Q: Tariff impact breakdown and manageability A: Craig Aaron said tariff impact is manageable, 55-60% of COGS is material, USMCA compliant imports from Mexico and Canada, IPA portion is quarter of total Q: Cash balance, free cash flow, buybacks A: Craig Aaron said strong cash position, expect $700 million midpoint free cash flow, continue to look at buybacks opportunistically Q: M&A deals, portfolio review A: Craig Aaron said continuously review portfolio, charging exit due to market outlook and ROIC targets, same discipline for future M&A Q: Margins in power drive and battery, path to breakeven A: Craig Aaron said power drive systems had strong growth with good conversion, battery business down due to cell price decline, took restructuring actions in North America Q: Revenue growth with foundational and eProducts, China business risk A: Joseph Fadool said portfolio pulls from both sides, eProducts launches drive growth, China business has positive trends with customer relationships and speed to market, manageable tariff impacts Q: Tariff cost breakdown and recovery negotiations A: Craig Aaron said tariff impact breakdown into IEPA, auto parts 232, and China retaliatory, Joseph Fadool said striving for USMCA compliance, recovered 50% of non-compliant part from customers Q: eProducts growth in guidance, updates A: Joseph Fadool said over 20 eProduct launches ongoing, but no detail on guidance, Q1 progress strong Q: Tariff recoveries by segment, battery components A: Joseph Fadool said managing tariffs through mitigation and customer recovery, battery business impacted by Korean cell imports, same playbook for mitigation and recovery