BorgWarner (BWA) Q1 FY26 earnings call: guidance and Q&A

How translatable are commercial truck battery competencies to stationary BESS? Will there be additional investment in the Battery Systems segment this year, and what's the quoting pipeline like?

BESS products are highly portable to stationary applications, leveraging existing capacity and competencies from commercial vehicles. The design is cell chemistry and form factor independent. The company is actively quoting with a strong pipeline.

“the battery energy storage business and our products are very portable to these types of stationary applications. If you think about the requirements in commercial vehicles and buses, they're pretty significant in terms of reliability and quality. So -- we are leveraging our existing capacity to pivot further into the data center space and other industrial markets.”

asked by James Picariello · answered by Joseph Fadool

Is there synergy between BESS and the turbine generator? Are there considerations to expand turbine generator capacity beyond North Carolina, given Endeavor's presence in Europe?

There is definite synergy between turbine generators, BESS, and power conversion, as they all address power availability. The company will decide on expanding turbine generator capacity beyond the 2 gigawatts in North Carolina by H2 2026, based on demand and purchase orders, potentially considering international locations.

“I mean, if you think about the 3 offerings we show on Page 7, turbine generator, battery energy storage and then power conversion. Those are highly related products in the system, and they're all solving a major issue, which is lack of power.”

asked by James Picariello · answered by Joseph Fadool

What is the value proposition of BorgWarner's turbine generator solution compared to existing solutions, including unit economics?

The solution offers speed to market (leveraging automotive scale to address 5-6 year backlogs), a clean emission profile meeting 2027 requirements, and attractive total cost of ownership.

“So a couple of things we're solving here for. One is time to market the backlog for power generation is pretty significant, sometimes up to 5 and 6 years. So our ability to leverage automotive scale and move quickly into the space is speed that's well needed in this market.”

asked by Emmanuel Rosner · answered by Joseph Fadool

Given new organic investment opportunities in industrial solutions, is there a change in capital allocation priorities, particularly regarding CapEx, M&A, and buybacks?

Organic growth remains the top priority for capital investment. The capital allocation process hasn't changed, maintaining discipline for M&A (leveraging competence, accretive, fair price) and continuing shareholder returns. The company deployed $185 million to shareholders in Q1, representing 70% of FCF over the past 5 quarters.

“Let me begin by saying our top priority will always be on driving organic growth... Nothing has changed from our capital allocation process beyond that.”

asked by Emmanuel Rosner · answered by Joseph Fadool

Given worse production, better raw materials, and held guidance, what are the puts and takes? Are there favorable mix/FX or additional cost actions offsetting inflation?

The company expects to manage inflationary impacts within its mid-teens decremental conversion. The guidance reflects a headwind from industry production (1.5% decline), battery business decline, but positive FX and modest outgrowth. Margin expansion is driven by the charging business exit (10 bps) and additional cost controls (10 bps), maintaining mid-teens decremental conversion despite inflation.

“Overall, we think we can manage the inflationary impact at this point. in our mid-teens decremental conversion.”

asked by Colin Langan · answered by Craig Aaron

Is the power gen market supply-constrained or customer-by-customer? What does the capacity ramp look like, and will capacity follow deals? How to size the 2 gigawatts capacity relative to $300 million revenue?

The market is demand-driven, with massive demand for power gen due to data center growth and utility lead times. The existing 2 GW capacity is significant, with $300 million planned for initial 2027 revenue as a subset. A decision on additional capacity will be made based on demand and purchase orders. The 2 GW capacity is "multiples" of $300 million revenue.

“The demand for power gen, especially behind the meter, driven by the fact that many utilities have a 4-, 5-, 6-year lead time to get the power to serve these data centers.”

asked by Chris McNally · answered by Joseph Fadool

Given long lead times for components like blades/vanes in power gen, what is BorgWarner's confidence in its supply chain for the turbine generator, especially if capacity expands?

High confidence. BorgWarner's system uses radial turbos, different from large axial turbines, and leverages its existing automotive supply base (80% are current suppliers). The company's global supply chain expertise is a core competence for managing and mitigating potential issues.

“our turbine generator system, it does leverage not only our supply base, but our technology. So our turbo products are radial turbos many of the large turbines are more flow-through or axial turbos. So it's different technology, different levels of material selection for these are more consistent with what you see in commercial vehicle applications and sometimes pass car.”

asked by Dan Levy · answered by Joseph Fadool

Given strong Q1 performance, why isn't full-year guidance being raised? Is it too early or due to investments in new products?

Q1 was good, but overall environment uncertainty remains. The Q1 performance is already implied in the current guidance. The company expects Q2-Q4 revenue to be slightly lower than last year due to battery business contraction, but operating margin profile to remain consistent at around 10.9% by managing decremental conversion in the mid-teens.

“I think we had a really good Q1. There's still a lot of uncertainty in the overall environment, but when you look at our performance, that's implied in the guide”

asked by Luke Junk · answered by Craig Aaron