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    BWA
    Earnings call· Mar 2026(Q1 FY26)

    BORGWARNER Q1 FY26 earnings call BWA

    May 6, 2026 Source

    Executive summary

    BorgWarner Q1 FY26 — Strong Operational Performance and Industrial Market Expansion

    BorgWarner delivered strong Q1 FY26 results, driven by robust cost controls and operational execution, despite a challenging market and battery sales decline. The company is actively expanding its portfolio into data center and industrial markets with new product developments, aiming to diversify revenue streams and ensure long-term profitable growth while maintaining a disciplined capital allocation strategy.

    Highlights

    5

    • Adjusted operating margin expanded 50 bps to 10.5% in Q1 FY26, reflecting strong cost controls.

    • Adjusted EPS grew 12% year-over-year, up $0.13, driven by higher operating income and share repurchases.

    • Secured 12 new business awards across foundational products and e-products, including 3 conquest wins, demonstrating technology competitiveness.

    • Free cash flow generated $13 million in Q1 FY26, a $48 million improvement year-over-year.

    • Significant progress in industrial market expansion with first B sample turbine generators delivered and new battery energy storage systems and bi-directional microgrid inverters becoming production-ready in 2027.

    Concerns

    3

    • Organic net sales were down approximately 3% year-over-year, or $95 million, primarily due to a decline in the Battery Energy Systems segment and light vehicle market production.

    • Expected full-year 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, impacted by a 150 bps headwind from battery sales decline.

    • Light vehicle market production is expected to be flat to down 3% for the full year 2026, posing a market headwind.

    Guidance & targets

    11
    CategoryTargetConfidence
    Total Sales
    $14.0 billion to $14.3 billion
    high materiality
    High
    Adjusted Operating Margin
    10.7% to 10.9%
    high materiality
    High
    Adjusted EPS
    $5.00 to $5.20 per diluted share
    high materiality
    High
    Free Cash Flow
    $900 million to $1.1 billion
    high materiality
    High
    Organic Sales Change
    down 3.5% to down 1.5%
    high materiality
    Medium
    Weighted End Markets (Light Vehicle Production)
    flat to down 3%
    high materiality
    Medium
    Battery Business Sales Headwind
    150 basis point headwind
    medium materiality
    High
    Turbine Generator Production Start
    2027
    medium materiality
    High
    Battery Energy Storage System Production Readiness
    2027
    medium materiality
    High
    Bi-directional Microgrid Inverter Production Readiness
    2027
    medium materiality
    High
    Turbine Generator Capacity Expansion Decision
    decision by H2 2026
    medium materiality
    Medium

    Operational metrics

    23
    FX impact on sales
    $167 millionincrease YoY
    Q1 FY26

    Stronger foreign currencies drove a year-over-year increase in sales.

    Battery sales headwind
    $54 milliondecrease YoY
    Q1 FY26

    Sales headwind from battery business.

    Organic sales decline
    $95 milliondecrease YoY
    Q1 FY26

    Remaining organic sales decline, in line with light vehicle market production reduction.

    Organic sales decline percentage
    2.7%decrease YoY
    Q1 FY26

    Remaining organic sales decline, in line with light vehicle market production reduction.

    Adjusted operating income
    $372 million
    Q1 FY26

    Equating to a 10.5% adjusted operating margin.

    Adjusted operating income
    $352 million
    Q1 FY25

    Prior year adjusted operating income, equating to a 10.0% adjusted operating margin.

    Share repurchases
    over $650 million
    Past 4 quarters

    Impacted adjusted EPS growth.

    Charging business exit impact on operating income
    $8 millionincrease YoY
    Q1 FY26

    Benefit from the exit of charging business.

    Adjusted operating income decrease (ex-benefit and FX)
    $4 milliondecrease YoY
    Q1 FY26

    On $149 million of lower sales, excluding charging business exit benefit and FX impacts.

    Sales decrease (ex-benefit and FX)
    $149 milliondecrease YoY
    Q1 FY26

    Excluding charging business exit benefit and FX impacts.

    Capital deployed to shareholders
    over $800 million
    Past 5 quarters

    Through share repurchases and dividends.

    Prior year quarterly sales
    $3.6 billionper quarter
    Q2-Q4 FY25

    Sales for Q2 through Q4 of last year.

    Prior year quarterly operating margin
    11.0%
    Q2-Q4 FY25

    Operating margin for Q2 through Q4 of last year.

    Implied current year quarterly sales
    $3.54 billionper quarter
    Q2-Q4 FY26

    Implied revenue in BorgWarner's guide.

    Implied quarterly sales contraction
    $60 millionloss per quarter
    Q2-Q4 FY26

    Implied contraction in BorgWarner's guide, primarily due to battery business.

    Battery storage cost
    $225 to $250
    Current environment

    Industry average for battery storage.

    Turbine generator capacity
    2 gigawatts
    Installed

    Installed capacity for turbine generators.

    Turbine generator initial revenue
    $300 million
    2027

    Initial launch and revenue planned for 2027, a subset of installed capacity.

    Power generation backlog
    5-6 years
    Current

    Industry backlog for power generation.

    Charging business exit impact on adjusted operating margin
    10 bpsimprovement
    Full Year 2026

    Expected enhancement to adjusted operating margin.

    Cost controls impact on adjusted operating margin
    10 bpsimprovement
    Full Year 2026

    Expected enhancement to adjusted operating margin from additional cost controls.

    Decremental conversion
    mid-teens
    Full Year 2026

    Expected full-year decremental conversion, including inflationary pressures.

    Light vehicle business sales share
    over 80%
    Current

    Comprises over 80% of BorgWarner's total sales.

    Industry KPIs

    5
    MetricValueDetails
    EPS$0.13USD
    Revenue$3.5 billionUSD
    Operating margin10.5%%
    Operating income EBIT$372 millionUSD
    Share buyback capital return$185 millionUSD

    Product announcements

    3
    ProductTypeDetails
    Turbine Generatormilestone
    Battery Energy Storage Systemlaunch
    Bi-directional Microgrid Inverterlaunch

    Deals & partnerships

    7
    Asian OEMs (South Korea and China)Secured 3 electric motor business awards, including S winding and ultra short hairpin winding technology for hybrid vehicles and state assembly business for an EV program.

    Awards reflect customers' confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia.

    A leading off-highway manufacturerSecured a 7-year contract extension to supply 8 families of engine, machines, power module, and battery management controllers.7 years

    Builds on decades of partnership, spanning construction vehicles, marine platforms, and stationary power systems.

    A major European OEMSecured 3 turbocharger program extension awards and 1 turbocharger conquest award.

    Awards include variable turbine geometry, twin-scroll wastegate, and regulated 2-stage turbocharging technologies.

    A major European commercial vehicle OEMSecured conquest business to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro VII compliant heavy-duty diesel engine platform.

    For a Euro VII compliant heavy-duty diesel engine platform.

    Chinese OEMWill supply a next-generation wet dual clutch for an SUV platform.

    For a next-generation wet dual clutch for an SUV platform.

    Japanese OEMSecured a conquest win for a Tamtor-actuated VCT system for a next-generation hybrid ego.

    For a next-generation hybrid ego.

    Endeavor (and Turbocell)Exclusive relationship to bring the turbine generator to market for data center applications.

    Partnership for turbine generator for data center market.

    Risks & headwinds

    5
    Challenging and uncertain current environmentQ1 FY26 and ongoing

    organic net sales were down approximately 3% year-over-year

    Mitigation: Focus on cost controls, strong operational performance, diversified portfolio, decentralized operating model, financial strength.

    Decline in Battery Energy Systems segment salesQ1 FY26 and full year 2026

    $54 million decrease in Q1 FY26; 150 bps headwind to full-year sales growth

    Mitigation: Leveraging existing battery technology for new industrial markets (BESS), expanding into data center and other industrial markets.

    Reduction in light vehicle market productionQ1 FY26 and full year 2026

    Organic sales decline of $95 million or 2.7% in Q1 FY26 was in line with market reduction; full-year weighted end markets expected flat to down 3%.

    Mitigation: Focus on cost controls, expanding into new industrial markets, winning new business awards across diverse propulsion technologies.

    Potential cost inflationFull year 2026

    Implied in mid-teens decremental conversion.

    Mitigation: Ongoing cost reduction actions, strong underlying performance.

    Higher energy pricesQ2-Q4 FY26

    Not quantified directly, but mentioned as a factor contributing to uncertainty.

    Mitigation: Not explicitly stated, but implied by overall cost control focus.

    What to watch in Q2 FY26

    5

    Turbine Generator Capacity Expansion Decision

    H2 2026
    CurrentDecision pending on expanding capacity beyond 2 GW in North Carolina.
    TargetDecision made on additional capacity and potential location.

    Why it matters

    This decision will indicate BorgWarner's commitment and outlook for the growth potential of its turbine generator business in the data center market.

    sometime this year, we will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we've installed in North Carolina, but we'll take that decision as we get closer to the second half.

    Q&A highlights

    8

    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

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 FY26 Performance Overview

    BorgWarner reported Q1 FY26 sales of $3.5 billion. Excluding the decline in the Battery Energy Systems segment, organic net sales were down approximately 3% year-over-year, aligning with market production. The company achieved a strong adjusted operating margin of 10.5% and adjusted EPS growth of 12% compared to Q1 FY25, attributed to effective cost controls and share repurchases. Free cash flow generation improved by $48 million year-over-year to $13 million.

    02

    New Business Awards and Propulsion Leadership

    The company secured 12 new business awards in Q1, spanning foundational products and e-products. These include 3 electric motor awards with Asian OEMs (South Korea and China), a 7-year contract extension for engine/power module controllers with an off-highway manufacturer, 3 turbocharger extensions and 1 conquest award with a European OEM, and a conquest win for a VCT system with a Japanese OEM. These wins underscore BorgWarner's competitive technology and execution across combustion, hybrid, and BEV architectures.

    03

    Expansion into Data Center and Industrial Markets

    BorgWarner is actively expanding its portfolio for data center and other industrial markets. The turbine generator project is progressing well towards its 2027 production target, with B sample units now being delivered for field testing and UL compliance underway. The company is also introducing battery energy storage systems and bi-directional microgrid inverters, both expected to be production-ready in 2027, leveraging existing battery technology and manufacturing capabilities.

    04

    Turbine Generator Value Proposition and Capacity

    The turbine generator offers significant value by addressing the long lead times for power generation (up to 5-6 years), providing a cleaner emission profile meeting 2027 requirements, and offering an attractive total cost of ownership. BorgWarner has installed 2 gigawatts of capacity in North Carolina for the turbine generator, with initial revenue of $300 million planned for 2027. A decision on further capacity expansion, potentially beyond North Carolina, is expected in the second half of 2026 based on demand and purchase orders.

    05

    Capital Allocation Strategy

    BorgWarner's capital allocation prioritizes organic growth, followed by disciplined M&A and shareholder returns. The company deployed $185 million to shareholders in Q1 FY26 through share repurchases and dividends, totaling over $800 million in the past 5 quarters (70% of FCF). M&A targets are evaluated based on leveraging core competencies, accretion, and fair pricing, with an increased focus on opportunities that could accelerate the data center and industrial market expansion.

    06

    Supply Chain Confidence for New Industrial Products

    The company expresses high confidence in its supply chain for the new industrial products, particularly the turbine generator. It leverages its existing automotive supply base (80% of suppliers are current BorgWarner partners) and internal technology, which differs from traditional large turbines. BorgWarner's global supply chain expertise is a core competence for managing and mitigating potential issues.

    AI-generated summary of the company’s earnings call. Not investment advice.