BorgWarner (BWA) Q2 FY26 earnings call: guidance and Q&A

Can you provide more color on quoting progress for AI initiatives, specifically the BorgEndeavor Turbocel relationship? Will BorgWarner announce every smaller data center win, or only material ones?

The turbine generator (TG) is on track for a 2027 launch with strong hyperscaler interest and achieved carbon-level emissions. The Endeavor partnership is growing, and BorgWarner will announce important milestones, not every small win. Recent news about Endeavor's financial partners adds credibility and does not materially change the relationship.

“We won't decide do we announce every individual event. We try to share the important events and milestones with the investors. And then with the recent news on Endeavour and their partner in Coke. We're also aware of it. It's not unusual that these financial partners are constantly out raising money for the data center growth, which is out there. But we don't think it materially changes anything between us and our relationship with Endeavour.”

asked by Chris McNally · answered by Joseph Fadool

With BES production starting in 2027 and quoting continuing, can you provide an order of magnitude for a typical contract or win size?

There's no rule of thumb as every data center project is bespoke. The TG, battery, and power conversion solutions all play important roles. Any battery award with a hyperscaler would be substantial. The company is expanding its product offering and sees a strong pipeline.

“I wouldn't say there's any type of rule of thumb. Every data center project is bespoke, what we find is important is that our TG and Turbo cell solution, our battery business and our power conversion all play a very important role in these future data centers. So any award in the battery space with hyperscaler obviously to be substantial.”

asked by Chris McNally · answered by Joseph Fadool

Given strong customer interest, is adding more turbine generator capacity still planned for H2 FY26, and how quickly could new capacity come online?

Strong demand continues, and a decision on capacity expansion is still anticipated in H2 FY26, potentially for this market or a different one with Endeavor. No decision has been made yet.

“So we do continue to see strong demand, as we have mentioned. So we're really encouraged by that. And as we've shared with you, we do anticipate we're going to have to make a decision in the second half of this year on capacity and also decide is that capacity going to serve this market or maybe a different market, which we're also active with our partner in Deveron.”

asked by Colin Langan · answered by Joseph Fadool

Can you explain the H1 to H2 financial bridge, particularly the impact of the $10-$15 million R&D increase on operating income? Is this higher R&D a sustained pace or a pull-forward?

H2 revenue is expected to be lower than H1 due to battery decline, FX headwinds, and modest industry production decline. Operating income will decrement at mid-teens. The R&D increase is a strategic investment in high-growth industrial opportunities, and while it will lead to sustained spending, BorgWarner is efficient with R&D. The company is balancing short-term execution with long-term growth.

“When you think about sales, sales in the first half came in just under $7.2 billion. The midpoint of our guide puts us right around $7 billion from a top line perspective. We have 3 headwinds, first half to second half. First is the battery decline. That's about $60 million. FX is a headwind, it's about $80 million, and the rest is industry production, we're assuming a modest decline in industry production of about 1%. That, again, takes us to $7 billion of revenue at the midpoint. On those lower revenues, we're decrementing at 15%, call it mid-teens -- and then we're leaning forward with that $10 million to $15 million in industrial R&D.”

asked by Joseph Spak · answered by Joseph Fadool

Given recent news about Coke potentially selling its stake in Edge, are there any change in control triggers in BorgWarner's contractual relationship with Edge that could affect the $300 million+ revenue slated for next year?

There are no change in control triggers in the agreement. BorgWarner deals with a 100% Endeavor-owned legal entity, which is not the subject of the reported sale. The news adds credibility to Endeavor's edge data center business and does not materially impact BorgWarner's partnership.

“So there's nothing in our agreement that triggers change in control. You keep in mind that there are several edged legal entities. The one that directly deal with is 100% owned by Endeavour. That's not what being spoken about. It's more about what we understand how co can raise additional money to support the growth that's coming. So again, we don't see this as a material issue.”

asked by James Picariello · answered by Joseph Fadool

Regarding the hyperscaler opportunity, what is the expected sequencing of awards for the turbine generator, battery storage systems, and inverters, and how does this impact capacity decisions?

The turbine generator is the most developed product and is expected to lead, launching with clear customers next year. Battery awards are expected this year. Power conversion (inverters) is a bit behind energy storage, with quoting starting towards the end of this year. Capacity decisions for inverters will be based on quoting activity.

“With the sequencing, we expect the leadless turbine generator. Obviously, we've announced that it's the most developed product and we're launching that with clear customer next year. We do expect to see some battery awards this year, as we've shared in the past. And then I would say the power conversion is a little bit behind that. And that's mainly due to the development is a little behind the energy storage side.”

asked by Rajat Gupta · answered by Joseph Fadool