INVESTOR PRESENTATION - FEBRUARY/MARCH 2021 - BORGWARNER
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Investor Presentation February/March 2021
Forward-Looking Statements This presentation may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management’s current outlook, expectations, estimates and projections. Words such as “anticipates,” “believes,” “continues,” “could,” “designed,” “effect,” “estimates,” “evaluates,” “expects,” “forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,” “outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this presentation that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance, and the Company’s actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: uncertainties regarding the extent and duration of impacts of matters associated with COVID-19, including additional production disruptions; the failure to realize the expected benefits of the acquisition of Delphi Technologies PLC that the Company completed on October 1, 2020; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to acquired businesses; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; future changes in laws and regulations, including, by way of example, tariffs, in the countries in which we operate; impacts from any potential future acquisition or divestiture transactions; and the other risks, including by way of example, pandemics and quarantines, noted in reports that we file with the Securities and Exchange Commission, including Item 1A, “Risk Factors” in our most recently-filed Form 10-K and in our most recently-filed Form 10-Q. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this presentation to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements. © BorgWarner Inc. 2
Propulsion Systems Leader, Well Positioned for the Future
▪ Executing balanced propulsion strategy
OUR VISION
A clean, energy-efficient world
▪ Track record of strong financial performance
▪ Consistent, sustained outgrowth
▪ Top quartile margins
▪ Strong cash flow generation
▪ Product leadership drives our business
© BorgWarner Inc. 3
2020 Finishes Strong
▪ Organic revenue and outgrowth
Net Sales Adj. EPS* Free Cash Flow* ahead of expectations
Outgrowth Ahead of
Guidance
Solid Year Despite
Global Pandemic
Above High End of
Guidance Range
▪ Decremental margin in line with
12.1% Adj. 9.7% Adj. expectations, while continuing
Op Margin* Op Margin*
to support future growth
$10,165
$10,168
$9,045
$4.13 $699 $743 ▪ Record free cash flow
generation
$2.76
630 BPS
Outgrowth ▪ Completed Delphi Technologies
acquisition
FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 ▪ Multiple new product awards for
Delphi Technologies Sales electrified vehicles
** Adj. operating margin, Adj. EPS and Free cash flow on this slide are non-US-GAAP measures. See reconciliation to US GAAP in Appendix.
© BorgWarner Inc. 4
Expect Global Markets to Rebound in 2021
BorgWarner Global Market North America Europe China
FY’20 FY’21
Actual Est.
11% to 14% FY’20 FY’21 FY’20 FY’21 FY’20 FY’21
Actual Est. Actual Est. Actual Est.
22% to 25%
11% to 14%
0.5% -2% to 1%
-16.0%
-21.5% -21.0%
Note: FY’20 Actuals are BorgWarner-weighted market assumptions based on January 2021 LV IHS and February 2021 CV On-Hwy IHS
© BorgWarner Inc. 5
Integration on Track – Moving Forward as One BorgWarner
$ in millions
Q4 2020 Sales & Adj.
Operating Margin Cumulative Cost
Synergies
9.6% Adj.
Op Margin*
3.8% to
5.0% Adj. SiC Inverters
Op Margin*
$1,120 $90
$950 to
$1,000
$15
Guidance Actual 2020 Mid-point 2021
Estimate GDi systems
Delphi Technologies
Synergies on Multiple program
Q4 results ahead of
schedule awards post signing
guidance
** Adj. Operating Margin excludes synergies of $15 million and $13 million of purchase price amortization.
© BorgWarner Inc. 6
2021 Expected Sales Walk and Guidance
$ in millions
Full-year Net Sales Outlook Net Sales Highlights
2020 net sales $10,165
▪ Global BWA LV/CV markets up ~11% to ~14%
▪ ~100 to ~300 basis points of outgrowth
Delphi Technologies
$2,628
pro forma impact
Earnings and FCF Highlights
2020 pro forma incl.
▪
8.3% Pro forma
Adj. Operating Margin $12,793 Incremental margins in the low 20% range before
Delphi Technologies**
synergies and purchase price amortization
FX $355
▪ Delphi Technologies cost synergies benefit expected
to be an incremental $70 to $80 million in 2021
Market change and
$1,182 $1,522
pricing ▪ Cumulative Synergies ~$85 to $95 million
Backlog, mix & change
$370 $630
▪ Adj. Diluted EPS ~$3.85 to $4.25*
in Aftermarket sales
▪ Free cash flow ~$800 to $900 million*
10.0% - 10.5%
2021 net sales Adj. Operating Margin* $14,700 $15,300 * Adj. operating margin, Adj. diluted EPS and free cash flow on this slide are non-US GAAP measures. See reconciliation to US GAAP in Appendix.
** On October 1, 2020 BorgWarner completed its acquisition of Delphi Technologies PLC (Delphi Technologies). The 2020 pro forma unaudited quarterly
financial information included herein includes the pro forma combined results of BorgWarner and Delphi Technologies for periods prior to October 1, 2020. The
pro forma financial information has been derived from the unaudited consolidated financial statements included in BorgWarner’s and Delphi Technologies’
Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020 and does not give effect to the transaction on periods prior to October 1,
2020. The pro forma financial information is not necessarily indicative of either the actual consolidated results had the acquisition of Delphi Technologies
occurred on January 1, 2020 or of future operating results.
© BorgWarner Inc. 7
Awards Across Electrification Product Portfolio
800-volt Electric Motor 400-Volt Inverter High Voltage Coolant Heater
▪ with large global commercial ▪ with a major European OEM ▪ with major European premium
vehicle EV customer launching on next-generation BEVs OEM launching in 2023
in 2024 expected to launch in 2022
Integrated Drive Module (iDM) Electric Drive Modules (eDM) 800-Volt Inverter eTurbo™
▪ for Ford’s new all-electric ▪ for electric JMC-Ford and two ▪ with premium European OEM ▪ with two European-based
Mustang Mach-E SUV other NEV manufacturers in on next-generation BEVs OEMs expected to launch in
China expected to launch in 2024 2022 and 2023
© BorgWarner Inc. 8
Key European Inverter Wins Provide Scale
BorgWarner Competitive Advantage Inverters for 3 Key European OEM Programs
▪ Efficient speed to market with products ~1.1M
covering 400V SiC, 800V SiC, 48V
▪ Proprietary inverter power module design
▪ Vertical integration
▪ Power modules, integrated circuit
development and full software
capability in-house ~72K
▪ Scale in Electronics 2022 2023 2024 2025
Inverter wins expected to drive substantial future revenue growth
© BorgWarner Inc. 9
Significantly Higher Content Opportunities with Electrification
Combustion Hybrid Electric
2025 BorgWarner ~2.6X $$
Content Opportunity Per
Light Vehicle Summary ~2.0X $$
Including Delphi
$2,427
$1,921
$943
Market Volumes 52M 31M 11M
Addressable
$49B $59B $26B
Market
Sources: BorgWarner TAM; IHS Markit, KGP. Excludes: Romeo Power Battery JV opportunities, Service & Aftermarket
© BorgWarner Inc. 10Electric Component Vehicle Sourcing
Electric Drive Motor Gearbox
34%
42% Addressable Addressable
2025 2025
58% outsourced market: outsourced market:
$3.3B in 2025 66% $1.5B in 2025
OEM In-House Suppliers OEM In-House Suppliers
Inverter On-Board Charger, DC-DC Converter &
Battery Pack Controller
18% 17%
2025 Addressable 2025 Addressable
outsourced market: outsourced market:
$4.4B in 2025 $7.2B in 2025
82% 83%
OEM In-House Suppliers OEM In-House Suppliers
© BorgWarner Inc. 112025 EV Addressable Market Breakdown
$ in billions
▪ Power Electronics outsourcing strong
increasing trend
▪ Motor outsourcing relatively flat through
2025
▪ Sub-components insourced market
represent additional opportunity
More 70% of Electric Vehicle Addressable
Market Expected to be Outsourced
© BorgWarner Inc. 12Journey to Advanced Electrification and Propulsion
Complementing Organic Growth with Acquisitions
2015 2016 2017 2018 2019 2020
Acquired rotating electric Acquired industrial- Acquired propulsion 60/40 JV added battery
business to integrate with focused power inverters and controls packs and module
existing powertrain electronics portfolio businesses for HEVs / EVs management Acquired industry-leading power electronics, software,
technology in specialty and commercial capabilities calibration capabilities, and scale
vehicle sectors
Combined Inverter On Board Battery Pack
and DC/DC Converter Charger Controller
Acquired Capabilities
© BorgWarner Inc. 13Acquisition of Delphi Technologies Expected to
Strengthen Propulsion Systems Leadership
Pro Forma Adj. Margin Outlook
Meaningful EPS Accretion Expected
▪ Reinforces leadership in electrified
propulsion systems
▪ Increases electronics and power
electronics scale, technology, talent and
adds to system capabilities
▪ Enhances combustion, commercial vehicle,
and aftermarket businesses, resulting in
more balance across light and commercial
vehicles as well as the aftermarket
© BorgWarner Inc. 14Strengthens Combustion Leadership
so so
Boosting Exhaust Gas Fuel Assembly / Engine / Transmission
Technologies Management Delivery Controllers
Air Path, Mechanical, and All Fuel Injection and
Wheel Drive Electronics
Representative Examples
© BorgWarner Inc. 15Strengthens Scale and Expertise in Electrification
Representative iDM Example
Mechanical, clutching, and Award-winning motors provide Leadership in power electronics,
hydraulic controls expertise industry leading technology software, and controls
eGearDrive® Transmission Electric Drive Motor High Voltage Inverter Integrated Drive Module (iDM)
Well positioned to take advantage of future propulsion migration
© BorgWarner Inc. 16Sustaining Top-Quartile Margin Performance
Pro Forma Adj. Margin Outlook
Pro Forma
12.1%
>11%(1)
7.2%
2019 Adjusted 2019 Adjusted Pro Forma with
Operating Margin(2) Operating Margin(2) Synergies
BorgWarner expects to remain among the strongest,
most profitable companies in our industry
1. Includes estimated purchase accounting of $55 million to $60 million for incremental depreciation and amortization related to acquired PPE and intangibles and includes $175 million of run-rate cost synergies.
2. Reconciliation of Adjusted Operating Margin in Appendix.
© BorgWarner Inc. 17Acquisition of Leading Battery Systems Provider
BorgWarner’s acquisition of AKASOL will strengthen its electric propulsion systems leadership
▪ Battery Systems is a key element of BorgWarner’s e-growth strategy
▪ AKASOL is a leader in high-performance battery system solutions for electric vehicles
▪ AKASOL has highly flexible battery technology across multiple cell architectures
▪ AKASOL has proven technologies and products with established manufacturing facilities already
in serial production today
▪ AKASOL has a strong order backlog of approximately $2.4B1 primarily from leading OEMs
▪ AKASOL products serve CV and Off-highway applications, which aligns with BorgWarner’s goal to
increase its electrification portfolio across both LV and CV markets
1. Backlog based on latest AKASOL public disclosure of €2.0B as of Q2 2020 using $1.20 USD to Euro exchange rate.
© BorgWarner Inc. 18Global Footprint with Production-Ready Capacity
State-of-the-art manufacturing facilities
Langen Darmstadt Hazel Park
Completed capacity expansion New HQ with 1 GWh of New US facility to support
to support future growth installed capacity North American customers
1.0 GWH 2020 2022 4.7 GWH
Production Output Production Output
© BorgWarner Inc. 19Flexible Battery Technology Across Cell Types
Integrated battery solutions for any kind of commercial vehicle
Cell Architectures
Pouch Cell / POC Prismatic Cell / PRC Cylindrical Cell / CYC
Cell System
Highly selective process allows AKASOL
to use only the top-tier quality cells Reliable and robust system design with
various industry compliances
Module
Highly functional and scalable module
design with liquid cooling Smart BMS
AKASOL’s BMS offers a complete
Accessories solution for monitoring and controlling
Development and supply of various complex battery systems
accessories
© BorgWarner Inc. 20Technology Leading Position in Energy Density
Ultra-High-Energy System in Gravimetric and Volumetric Energy Density
Gen X
(in development)
Gravimetric energy density (Wh/kg)
Gen 3 (Format Agnostic)
(SOP: Q4 2021)
Competitor #2
Competitor #4
Competitor #3
Competitor #2 Competitor #4
Competitor #3
Competitor #1 Gen 1 & 2 Track-records
Competitor #2 6,800 Produced 544,000,000 Km
Gen 2 Serial Systems Electric Range Sold
(SOP: 2020)
Latest model Previous models Volumetric energy density (Wh/l)
Note(s): Company information as of November 2020. Gravimetric represents amount of energy stored in given mass. Volumetric represents
amount of energy stored in given volume.
© BorgWarner Inc. 21Potential for Significant, Long-Term Growth
Significant TAM Opportunities Projected Revenue
Global Lithium-ion Battery Systems Opportunity for Profitable
Market for Electric Vehicle in 2030E1 Growth
~$140B ~$1.0B
Near-term Focus on: ~$500M
~7% EBITDA Margin
70%+
Europe and North America ~$150M Booked
CV / Off-Highway2
~$10B 2021E 3 2024E 4 2030E 4
Source: IHS and management forecast.
1 Global EV and hybrid lithium-ion battery systems market for all vehicles in 2030E.
2 2030E estimate includes Class 4+ Truck & Bus, Material Handling, Construction & Mining, Rail and Marine segments.
3 2021E in line with average broker consensus as of 12 February 2021 using $1.20 USD to Euro exchange rate.
4 Based on BorgWarner’s diligence of AKASOL management plan for 2024 and BorgWarner’s estimate of 2030E using $1.20 USD to Euro exchange rate.
© BorgWarner Inc. 22Complements BorgWarner’s Electrification Capabilities
BorgWarner’s Product Offerings Across Full Suite of Electrification Capabilities
E-Motors & Gearboxes Power Electronics Battery Pack Systems
Combined
eGearDrive® Inverter and
Transmission DC/DC
Converter
Electric Drive On Board
Motor Charger
60/40 JV
Continued Organic and Inorganic Investments in Powertrain Electrification
Representative Examples
© BorgWarner Inc. 23Commitment to Sustainability
Create a cleaner, more Live the Partner with and report
energy-efficient world BorgWarner Beliefs to stakeholders
Products that drive clean mobility Fostering talent and diversity Responsibility in our supply chain
• > 80% revenue from electric, • CEO Action for Diversity & • Supplier sustainability training
hybrid, and emissions-reducing Inclusion™ signatory and assessment programs
combustion parts
• ~58,000 hours of employee
training in 2019
Leading environmental targets Top-quartile worker safety rate Transparency in our reporting
• 50% carbon and 37% energy • SASB, TCFD, and GRI aligned
• 75% improvement in total incident
intensity reductions by 2030 reporting
rate over the past decade
from 2015
Delivering our vision of a clean, energy-efficient world
© BorgWarner Inc. 24Sector-leading targets to reduce our
Create a cleaner,
more energy-
efficient world environmental footprint
Operations environmental goals
• 50% greenhouse gas intensity reduction GHG: 50% Reduction by 2030 Energy: 37% Reduction by 2030
by 2030 from 2015 baseline
• 37% energy intensity reduction by 2030
from 2015 baseline
• Maintain 100% ISO 14001 certification
at all of our manufacturing facilities
• Annual water risk assessment of
facilities and target high and extremely
high-risk locations
for reduction
• Benchmark and disclose our baseline
waste generation and establish a
diversion goal in 2021
© BorgWarner Inc. 25Appendix
Combined Capabilities Across Propulsion Types
Boosting All Wheel Drive & Engine Timing
Technologies Cross Axle Systems Systems
High Voltage Battery / eGearDrive® Battery Module
eBooster® electrically P2 Hybrid Modules
On / Off Axis Coolant Heater Transmission
driven compressor Integrated Belt Alternator
Starter Systems
Exhaust Gas Starters &
Management Alternators
Dual Clutch
Thermal Transmission Variable Valvetrain Electric All Electric Drive Power Electronics
Modules Turbochargers Power Electronics Electric Drive Motor
Management Technologies Systems Wheel Drive Module
Smart Remote
Fuel Assembly / Delivery Engine Controller Inverters Combined Units Battery Pack Controller Local Controllers Software & Calibration
Actuator
Transmission Controllers
Canisters Engine Air Control Valve DC-DC Converter On-Board Chargers Domain Controllers Power Modules Application-Specific
Integrated Circuits
Note: Representative selection of product portfolios.
© BorgWarner Inc. 27Fourth Quarter and Year-to-Date Reconciliation to US GAAP
Adjusted Earnings Per Diluted Share
The Company defines adjusted earnings per diluted share as earnings per diluted share adjusted to eliminate the impact of restructuring expense, merger, acquisition and
divestiture expense, other net expenses, discontinued operations, other gains and losses not reflective of the Company's ongoing operations, and related tax effects.
Three Months Ended Year Ended
December 31, December 31,
2020 2019 2020 2019
Earnings per diluted share $ 1.52 $ 1.06 $ 2.34 $ 3.61
Non-comparable items:
Restructuring expense 0.53 0.11 0.86 0.26
Merger, acquisition and divestiture expense 0.13 0.01 0.38 0.05
Intangible asset accelerated amortization 0.13 - 0.14 -
Amortization of inventory step-up 0.09 - 0.10 -
Asset impairment and loss on divestiture - 0.03 0.08 0.03
Net gain on insurance recovery for property damage - - (0.04) -
Unfavorable arbitration loss - - - 0.07
Officer stock awards modification - - - 0.01
Gain on derecognition of subsidiary - (0.02) - (0.02)
Unrealized gain on equity securities (1.26) - (1.36) -
Delayed-draw term loan cancellation - - 0.01 -
Pension settlement loss 0.02 - 0.02 0.10
Tax adjustments 0.02 (0.02) 0.23 0.02
Adjusted earnings per diluted share $ 1.18 $ 1.17 $ 2.76 $ 4.13
© BorgWarner Inc. 28FY’20 and FY’21 Free Cash Flow to Reconciliation to US GAAP
The Company defines free cash flow as net cash provided by operating activities minus capital expenditures, including tooling outlays. The measure is useful to both management
and investors in evaluating the Company’s ability to service and repay its debt.
Three Months Ended Year Ended
December 31, December 31,
2020 2019 2020 2019
Net cash provided by operating activities $ 376 $ 184 $ 1,184 $ 1,008
Derecognition of subsidiary - 172 - 172
Capital expenditures, including tooling outlays (179) (135) (441) (481)
Free cash flow $ 197 $ 221 $ 743 $ 699
Full Year 2021 Outlook
Low High
Net cash provided by operating activities $ 1,450 $ 1,600
Capital expenditures, including tooling outlays (650) (700)
Free cash flow $ 800 $ 900
© BorgWarner Inc. 29Adj. Operating Income Reconciliations
($ in millions)
Twelve Twelve
Months Ended Months Ended
BorgWarner December 31, Delphi Technologies December 31,
2019 2019
Sales $ 10,168 Sales $ 4,361
Operating income $ 1,303 Operating income $ 141
Operating margin % 12.8% Operating margin % 3.2%
Non-comparable items: Non-comparable items:
Restructuring expense 72 Restructuring expense 80
Merger, acquisition and divestiture expense 11 Separation and transformation costs 44
Officer stock awards modification 2 Asset impairments 35
Unfavorable arbitration loss 14 Pension charges 14
Gain on derecognition of subsidiary (177) Adjusted operating income $ 314
Asset impairment and loss on divestiture 7 Adjusted operating income margin % 7.2%
Adjusted operating income $ 1,232
Adjusted operating income margin % 12.1%
© BorgWarner Inc. 30FY’21 Adj. Operating Income and Adj Operating Margin
Reconciliation to US GAAP
Full Year 2021 Guidance
Low High
Net Sales $ 14,700 $ 15,300
Operating income $ 1,260 $ 1,450
Operating margin 8.6% 9.5%
Non-comparable items
Restructuring expense $ 200 $ 150
Merger, acquisition and divestiture expense 10 10
Adjusted operating income $ 1,470 $ 1,610
Adjusted operating margin 10.0% 10.5%
© BorgWarner Inc. 31FY’21 Adj. Earnings per Diluted Share Reconciliation to US GAAP
Full Year 2021 Guidance
Low High
Earnings per diluted share $ 3.23 $ 3.77
Non-comparable items:
Restructuring and other expense 0.58 0.44
Merger, acquisition and divestiture expense 0.04 0.04
Adjusted earnings per diluted share $ 3.85 $ 4.25
© BorgWarner Inc. 32Key Definitions
The terms below are commonly used by management and investors in assessing
ongoing financial performance:
▪ Organic Net Sales Change. BorgWarner net sales change year over year excluding
the estimated impact of foreign exchange (FX) and net M&A.
▪ Market. For 2020, light vehicle production weighted for BorgWarner's geographic
exposure as estimated by BorgWarner. For 2021, light and commercial vehicle
production weighted for BorgWarner’s geographic exposure as estimated by
BorgWarner.
▪ Outgrowth. For 2020, BorgWarner's “Organic Net Sales Change” vs. year-over-year
change in “Market”. For 2021 “Organic Net Sales Change” excluding Aftermarket
segment vs. year-over-year change in “Market”.
© BorgWarner Inc. 33You can also read
