Good morning, everyone. My name is Beau, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2024 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. Operator instructions. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Thank you, Beau. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and Investor Relations homepage. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our incremental margin performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. Our all-in incremental margin includes our planned investment in R&D any impact from net inflationary items and other cost items. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Please note that we've posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Fred.

Thank you, Pat, and good day, everyone. I'm very pleased to share our results for the second quarter of 2024 and provide an overall company update, starting on Slide 5. At approximately $3.6 billion, our Q2 sales were relatively flat year-over-year, outperforming a modest decline in production. For the first half of the year, we outgrew our market by about 350 basis points. Once again, the sales outgrowth shows the resiliency of our efficiency-focused portfolio, which is positioned to outgrow the market in any type of propulsion mix scenario. We secured multiple new product awards across combustion, hybrid, and electric for both passenger cars and commercial vehicles. Turning to our bottom line for the quarter. We delivered a very strong 10.4% margin, which was up 30 basis points versus prior year. We delivered EPS of $1.19 per share, which was a $0.13 increase versus prior year. Our first half 2024 margin and EPS performance has allowed us to increase our full year margin and earnings guidance, as Craig will detail later. We carried on our restructuring actions, now focusing our ePropulsion segment to adjust our cost structure to current market dynamics. We expect that these actions will result in annual run rate cost savings of about $100 million by 2026, with immediate positive impacts. We also introduced a new business unit structure, designed to maximize cost synergies, enhance our go-to-market global strategies, and bring further simplicity and clarity to our shareholders. Lastly, we remain focused on efficient deployment of our capital and announce our intention to repurchase $300 million of BorgWarner stock in the second half of 2024. Next, on slide 6, I would like to take a moment to highlight our 2024 sustainability report, which was published earlier this month. BorgWarner's vision is a clean, energy-efficient world. And I'm proud to lead a company where our business goals go hand-in-hand with our sustainability goals. At BorgWarner, sustainability means delivering value to all stakeholders for today and tomorrow. I would like to highlight just a few points of progress described in the report. First, BorgWarner has reduced Scope 1 and 2 greenhouse gas emissions by 32% from the 2021 baseline, making progress on our SBTI validated goal to reduce it 85% by 2030. Second, the company engaged our supply chain management and engineering teams to advance the company's goal of reducing Scope 3 emissions, 25% by 2030 compared to a 2021 baseline. And third, we performed above all benchmarks on employee sense of inclusion and belonging on the company's engagement survey. I would like to thank our entire team for their dedication and excellence in innovating products for cleaner mobility, making leaps towards achieving our climate and other sustainability goals, and investing in our people. Now, let's look at some new product awards on slide 7. First, BorgWarner has secured multiple contracts to supply its electric cross differential or exD to three major OEMs. The companies will incorporate BorgWarner exD technology into both rear and front wheel drives of electrified powertrain applications. Start of production is expected in 2024 and 2026. Our exD is part of our Electric Torque Management System, which offers a range of products that intelligently controls wheel torque to increase stability, provide superior dynamic performance, and improve traction during launch and acceleration. Next, BorgWarner secured awards to deliver high-voltage eFan systems for use on a major global OEM series of electrical commercial vehicles in North America. This marks the largest eFan business win in North America for us with expected start of production in Q4, 2027. BorgWarner's complete eFan system is comprised of three components, including a fan, an eMotor, and an integrated high-voltage inverter with the capacity to reach up to 10 kilowatts of power and 40-newton meters of torque. Lastly, BorgWarner has secured two EGR Cooler Awards with a prominent North American-based commercial vehicle customer. Start of production is expected to be in Q4, 2027 with implementation across various medium-duty commercial trucks. Our emissions reducing EGR solution offers high robustness against thermal fatigue and optimizes cooling distribution throughout the engine for increased performance. We continue to see strong interest across our EGR product portfolio, which supports the need for highly efficient combustion engines that meet increased fuel economy needs and stringent emission requirements across the world for combustion and hybrids. Now, let's turn to Slide 8, where I would like to discuss our new business unit structure. As we have continued to outgrow the market, and leveraged the leadership, robustness, and scale of our product portfolio, it is now the right time to align our business unit structure to further enhance our ability to execute on our strategy. We believe this will drive cost synergies, higher focus, and clarity for all stakeholders. As such, beginning in the third quarter, BorgWarner will reorganize its four business unit and associated financial reporting segments as follows; Our Turbos and Thermal Technology business unit is led by Dr. Volker Weng. This business unit is unchanged. Our Power Drive System, which today is our externally reported ePropulsion segment will continue to be led by Dr. Stefan Demmerle. This business unit is also unchanged. Our Drivetrain and Morse Systems businesses are now combined into one business unit and is led by Isabelle McKenzie. We've combined our Commercial Vehicle Battery and Charging businesses into one business unit, led by Henk Vanthournout. To summarize, the takeaways from today are this; BorgWarner's second quarter results were strong. Our sales performance once again outperformed the industry. Our adjusted operating margin was the highest since the PHINIA spin-off, and our cash generation was very strong and supported by our $300 million of intended share repurchase in the second half of the year. We secured multiple new business awards in the quarter, which we believe further demonstrate our product leadership position in all powertrain architectures. BorgWarner is focused on powertrain efficiency, which includes combustion fuel efficiency and electron efficiency, whether it is for Hybrids or BEVs. I believe BorgWarner can support any powertrain architecture. We are a world leader in efficient mobility with a product portfolio that we believe is uniquely positioned to outgrow industry production for years to come. This quarter, we took additional meaningful steps to manage our cost structure in response to the industry mix dynamics, as well as to provide increased clarity and transparency from a global product line organization. As we look forward, we expect to continue to secure global growth opportunities as the world transitions to more efficient mobility, thanks to our product leadership position in combustion, hybrids, and BEVs. At the same time, we will continue to appropriately manage our cost structure, as industry volumes and production mix outlook change while continuing to preserve our long-term profitable growth and technological edge. This will allow BorgWarner to continue to deliver sales performance through organic growth above market production, convert that growth into higher earnings, and create long-term value for our shareholders. With that, let me turn the call over to Craig.

Thank you, Fred, and good morning, everyone. Let's start on Slide 9 with a look at our year-over-year sales walk for Q2. Last year's Q2 sales from continuing operations were just under $3.7 billion. You can see that the strengthening US dollar drove a year-over-year decrease in sales of almost 2% or $62 million. Then, you can see a modest decrease in organic sales, which was 120 basis points above market production. Finally, the acquisition of Eldor added $6 million of sales year-over-year. The sum of all this was just over $3.6 billion of sales in Q2. Turning to Slide 10. You can see our earnings and cash flow performance for the quarter. Our second quarter adjusted operating income was $376 million, equating to a strong 10.4% margin. That compares to adjusted operating income from continuing operations of $372 million or a 10.1% margin from a year ago. On a comparable basis, excluding the impact of foreign exchange and M&A, adjusted operating income increased $22 million on $12 million of lower sales. This is a great result and reflects our ability to deliver profitability despite a declining production environment. This performance was partially helped by $15 million of favorable items, including the initial benefits from our ePropulsion restructuring, stock forfeiture related to a senior executive retirement and the timing of a supplier cost record. The net impact of Eldor was a $9 million drag on operating income year-over-year. Our adjusted EPS from continuing operations was up $0.13 compared to a year ago as a result of higher adjusted operating income, a decline in our effective tax rate, and the impact of recent share repurchases. And finally, free cash flow from continuing operations was $297 million during the second quarter, which was up $267 million from a year ago as a result of strong working capital and capital expenditure performance. Now let's take a look at our full year outlook on Slide 11. We are projecting total 2024 sales in the range of $14.1 billion to $14.4 billion, which is a reduction from our prior guidance of $14.4 billion to $14.9 billion. This reduction is due to weaker foreign currencies, a lower market production outlook, and eProducts coming in at the low end of our prior guidance range. Despite this revenue reduction, we expect the company to outgrow market production by 350 to 450 basis points, which once again demonstrates the resiliency of our technology-focused portfolio, that we believe is positioned to outgrow market production during any kind of propulsion mix environment. Starting with foreign currencies, our guidance now assumes an expected full year sales headwind from weaker foreign currencies of $175 million compared to 2023. This is also a sales headwind of $75 million versus our prior guidance, with the Euro, Chinese RMB, and Korean Won being the largest drivers of the change in our outlook. Within this guidance, our full year end market assumption has been reduced to down 2% to 3% versus flat to down 2.5% previously. Finally, the Eldor and SSE acquisitions are expected to add approximately $30 million to 2024 sales. Based on end market and eProduct headwinds, we expect organic growth of approximately 0.5% to 2.5% year-over-year compared to our prior guidance of 2% to 5%. However, our expected overall growth above market production remains strong at 350 to 450 basis points. Now let's switch to margin. We are increasing our full year margin outlook to 9.6% to 9.8% from our prior guidance of 9.2% to 9.6%. This is based on our year-to-date performance and the expected benefit of our ePropulsion restructuring actions. We believe this margin guidance increase reflects our ability to drive profitability against very volatile end markets. Excluding the impact of Eldor related losses in 2024, and the benefit of our ePropulsion restructuring, the high end of our second half outlook contemplates the business delivering an incremental conversion in the mid-teens, while the low end of our guidance provides a decremental conversion in the low double-digits. We view this as strong underlying performance given the anticipated 3.5% to 5.5% decline in market production during the second half of the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $3.95 to $4.15 per diluted share. This increase compared to our prior outlook is being driven by the impact of our higher margin guidance and $300 million in share repurchases that we expect to execute before the end of the year. With an expected $475 million to $575 million in 2024 free cash flow, we expect to allocate all of our cash flow to shareholders through share repurchases and dividends. In summary, this is simply another example of the company utilizing its strong free cash flow to deliver value to shareholders. Let's turn to slide 12, and discuss our planned restructuring actions within our ePropulsion segment. As mentioned earlier, the initial benefits of these actions helped our second quarter results by $5 million. We continue to see short-term sales challenges in this business due to various individual platform shortfalls and other regional market dynamics. Therefore, it was critical to rightsize the ePropulsion cost structure to their current level of sales with restructuring actions that we started in June. We estimate cumulative cash restructuring costs of approximately $75 million that will extend through 2026. These actions are expected to generate cost savings of $20 million to $30 million in 2024 and approximately $100 million by 2026. The intention of this restructuring is to improve the near-term earnings of this business, but it also positions the business to be able to deliver mid-teens incremental margins on future growth. So let me summarize my financial remarks. Overall, we delivered a strong second quarter with sales performance better than market production. We delivered a very strong 10.4% margin, which was 30 basis points higher than 2023. And we generated $297 million in free cash flow, which was $267 million higher than 2023. And we did this despite declining market production in the quarter. I believe this once again demonstrates the resiliency of our technology-focused portfolio that is positioned to outgrow market production and to deliver strong profitability and free cash flow in any type of end market environment. Last quarter, I shared three financial goals for BorgWarner for 2024 and beyond. I would like to give you my view of these goals as it relates to our 2024 outlook. First, we outperformed market production by approximately 350 basis points during the first half of the year. And despite anticipated weaker second half production environment, we expect to outperform the market by 350 to 450 basis points for the full year. This is a reflection of our leading-edge technology that we believe is positioned to outgrow a very volatile powertrain mix environment. Second, our margin profile remained extremely strong through the first half of the year. When combined with our continued focus on profitable growth, including our planned ePropulsion restructuring actions, this allowed us to increase our full year margin outlook by 30 basis points despite a challenging production environment. Lastly, we generated strong free cash flow during the second quarter, and we have strong liquidity, which supports our intention to repurchase $300 million of additional shares during the second half of the year. This means that we expect all of our 2024 free cash flow will be returned to shareholders through the combination of a consistent quarterly dividend and share repurchases. The combination of our 2023 and intended 2024 share repurchases represents more than 7% of our outstanding shares post the finance spin-off. And we expect to do this while also continuing to invest in our business to support our focus on long-term profitable growth. As I look back at the first half of the year, I'm very proud of how we have performed, and I'm equally excited to see our results in the back half of the year. With that, I'd like to turn the call back over to Pat.

Thank you, Craig. Bo, we're ready to open it up for questions.

Operator instructions. We'll go first this morning to John Murphy with Bank of America.

Good morning, guys. Just a main question here around the eProduct restructuring. One, why does it not include Europe? Why is it only North America and China? And is this just in response to program cancellations or push-outs, meaning that the business is just not materializing the way you're expecting? And it appears, just given the very quick savings that some of these programs may have been loss-making for you, even if they come through. So maybe just kind of confirm that. So, why not Europe? Is it just program cancellations and push-outs? And were the programs loss-making to start with? And maybe any other color around this?

Yeah, John, from an engineering and I see no footprint perspective, this business unit is essentially tilted to North America and China. That's where most of the restructuring will happen because this is where we have the weight. But it also touches some parts of Europe. The restructuring is sized so that when PDS carries on launching so many products for major OEMs globally, we're converting mid-teens the way up, and that's how we sized the restructuring. We're focusing on launching the products that we've booked, and we've also focused on very defined programs for long-term product leadership and enhanced product efficiencies.

Okay. And then maybe just a follow-up on the Seesaw on the ICE and potentially on the hybrid side. Are you seeing any benefits that might come to that side of the business where you're gaining a little bit of revenue that might come in at higher incrementals, that maybe it's this year or maybe it is as we go through 2025 and 2026 through the course of this program?

Yes. So the propulsion mix is volatile and unpredictable. And what we're doing at Borg is making sure that we are converting on the additional revenue wherever the revenue comes from. We're focusing on launching our new business that were booked, and this is what translates in the numbers and the updated guide.

Okay. And just one just Bob, most of this, it sounds like it's headcount on R&D. Is that a fair statement?

It is headcount and other types of spend. But it's more supply chain and operations than anything else, overall.

Got it. That's really helpful. All right. Thank you guys.

Thank you, John.

Thank you. We go next now to Colin Langan at Wells Fargo.

Thanks for taking my question and congrats on a great quarter. If I look at the midpoint of full year guidance, it does imply something like over a 30% decremental, if I go first half to second half on those lower sales, kind of at the higher end of conversion on lower sales. And on top of it, I think you mentioned there's actually a little bit of savings from the restructuring program into the second half. What is driving that? Is that just normal seasonality? How should we be thinking about first half, second half decremental?

Yes. So when we think about first half, second half, I think actually, the better way to look at it is year-over-year. And when you think about our margin 9.3% to 9.6% in the second half of the year, when you look at the high end of our guide, we're incrementing in the mid-teens. On the low end, we're decrementing in the low double digits. That's excluding the benefits of restructuring. So Colin, when you include restructuring, we're incrementing in the 30% range on the high end of our guide, and on the bottom end of the guide, we're holding flat. For us, I think that's really good underlying performance. And so that's how we're looking at it year-over-year.

Got it. And if I look at growth over market, I think it came down a little bit less than 100 basis points. It seems they're pretty small considering some of the issues. I mean, what is driving that side change? Is that all the EV delays? And is there any customer mix as other suppliers have reported? Or is that not an issue for you given your pretty strong position in China with domestic?

Yes, the outgrowth for Q2 is 120 basis points. This is mainly influenced by eProduct revenue being at the lower end of our guidance, as well as the underperformance of the BEV program in North America. I would consider a smooth outgrowth quarter-over-quarter as a good indication. I believe we aim for 300 basis points for the first half and around 400 basis points for the full year, which aligns with our targets.

I was kind of referring to the full year guide, growth of a market that was implied. It seems like it's slightly lower. Is that also all EV-related?

It is.

All right. Thanks for taking my questions.

Thank you.

Thank you. We go next now to Chris McNally at Evercore.

Thanks so much, team. Maybe if I step back for the impressive guidance raise of 30 basis points. I mean, basically, the way I think about it is essentially given the organic revenue reduction of a little bit less than $300 million, you probably would have lost 20 or 30 basis points on normal incremental. So if you add those two, it’s about a 50 to 60 bps of operational sort of better-than-expected performance. And I think what we're all trying to work out is if you look at Q2 and a 10.4% margin, while you still have ePropulsion losses in the double digits. Can you just walk us through some of the contents why we can't propel out that 10% plus margin for 2025, 2026? Where obviously, where you've discussed lower what rolls off? Anything just qualitative, I know there's a lot of moving parts and one quarter doesn't make sort of a trend. But we're all trying to figure out if ICE is here for a little bit longer, what is the negative that trains that down? Because obviously, ePropulsion you will get better than this minus double-digit margins. It's a long question, but curious why we can't see more strength in the foundational business.

Looking at Q2, we achieved a margin of 10.4%. As I mentioned earlier, there was about a $15 million benefit in the quarter from certain items. Without that, the margin is roughly 10% for Q2. As we head into the second half of the year, revenue is expected to decrease by around $200 million primarily due to market factors, an additional $75 million from foreign exchange, and other reductions in our eProduct portfolio. Ultimately, the midpoint for operating income remains unchanged. The reason we can maintain this performance is due to our strong results in the first half of the year and the benefits from restructuring, which are helping to offset the sales decline. It's really as straightforward as that.

And then this idea is obviously, we're going to see pure ICE, right, so ex plug-in, ex-hybrid, ex-EV volumes decline over the next couple of years. Should we assume that if we were to be able to isolate that margin of business that's coming down, meaning they'll see decrementals, because also often at the end of life of a lot of these programs, you actually see R&D also come down. So that's one of the things that we're trying to figure out. If we were to isolate specifically ICE foundational programs, will they see margin decline as units go down over the next couple of years? And, obviously, then the question will some of these programs may be extended or volumes may come down less. But just if we were to think about it, not how you report but should we see margins on a like-for-like basis on pure ICE coming down?

Yeah. So I would say, first, a lot of our combustion products go into hybrids and are a key element of making the combustion side of hybrid lean and efficient. So I think when you think about BorgWarner, I don't think you should try and split combustion, hybrid, and BEV. Because our combustion product goes on combustion and hybrid, our eProduct also a very versatile item go on EV and hybrid. Those are the same products. And so we have the portfolio to play in all three segments, if you call that segment, and outgrow the segment and convert on outgrowth. It is as simple as this.

No, that's helpful. I know that's a tough one to isolate. As we look at the four new segments, some of the margin progression may actually be easier for the investment community to observe the trends in these areas where we see some interaction between ICE, EV, and Hybrid. Thanks so much. I really appreciate it.

Thank you.

Thank you. We go next now to Joe Spak at UBS.

Thanks. Good morning. Previously, you expected eR&D to be between $40 million and $50 million for the year. With this restructuring, which seems primarily focused on personnel, is it now more in line with a $20 million year-over-year pace? Or are there other savings from the restructuring?

Yes. Thanks, Joe, for the question. You're right. Yes, we said $40 million to $50 million starting the year. Now after this restructuring, it's going to be down to $20 million to $30 million. And how I look at it is our eProduct portfolio is still growing $0.5 billion. It's still going to be up about 25% year-over-year, and that $20 million to $30 million is supporting a lot of launches that are going to be happening in the future. It's really focused on application engineering, and that's really what that $20 million to $30 represents year-over-year.

So I guess just to follow on and more importantly, like how should we think about R&D there and capital investment on eProducts, given your new view of sort of how this market is going to evolve here?

On that growth, we're going to continue to support those programs with R&D, and we're still focused, as always, on 15% return on invested capital on all new programs.

Okay. Just one more quick question about eProduct, specifically regarding the lower end. Is the battery ramp still on track? I believe you're targeting that to be around $700 million to $800 million. So, is the decrease mostly in some of those other products, or was there also a revision on the battery side?

Yes. Back to your prior question, I just want to add that we're incrementing mid-teens, including the year-over-year additional $20 million eR&D spend. On battery, it's on track. Seneca is doing a great job, and they're now food in production. We are on track also for Europe. And the battery business performance is, of course, contributing positively to the incremental margins that we are delivering for the first half and also an important part of our guiding up for the full year.

Thank you. I’ll pass it on.

Thank you. We’ll go next now to Dan Levy at Barclays.

Hi, good morning. Thank you for taking my question. I wanted to begin with the drivetrain and Battery Systems segment, which has had another very strong quarter. Could you help us break down the margin strength? How much of this comes from the core foundational piece compared to the battery side? You mentioned it briefly earlier, but it's clearly ramping up.

Yes. The quick answer is that we are experiencing strong growth this quarter from both our Battery business and our Foundational business. We are also converting that extra sales while focusing on costs through productivity actions, supplier savings, and restructuring, which are all contributing to the benefits reflected in our financial results. In short, the growth is coming from both sides of the business.

Is there a specific region or product within the drivetrain sector that is showing positive trends? I'm trying to understand how sustainable these results from the drivetrain foundation are, especially considering the shifting segments and the margins.

Yes, the drivetrain, the foundational side, we're seeing good strength out of Asia.

Got it. Maybe just as a follow-up, maybe you can help us understand on the forward assumptions on the end markets. We've obviously seen the negative revisions. But maybe what you're seeing in terms of a customer mix standpoint, how much conservatism you might be including because we've seen a number of reductions to the end market outlook, talk about production cuts, your views on customer mix and the conservatism schedules, please?

Dan, our guide reflects what we see in the market, and we expect the market to be down 2%, 3% year-over-year, with the biggest reduction being in China, followed by North America and Europe. In China, we see a bit of a weaker consumer demand now impacting production rates. In North America, we're seeing some customers working to address their inventory level. And in Europe, there is also a bit of a weaker demand and depletion of backlog. But all that is embedded in our guide, both on the top line and bottom line.

Great. Thank you.

We'll go next now to Mark Delaney at Goldman Sachs.

Yes, good morning and thanks very much for taking the question. Wondering, I was hoping to better understand was eProduct within China, and that's a market where EV sales have held up better than some of the other regions. And the company has spoken about some good design wins within eProduct with the domestic Chinese OEMs. So, maybe you could speak a little bit more around what you're seeing in the China market with the eProduct? And to what extent, if at all, are some of the incremental tariffs that the U.S. and Europe based on Chinese imports having an effect on your eProduct business for Chinese domestic OEMs?

Hey Mark. eProducts are involved in both hybrids and BEVs, and in China, NEVs include both hybrid and BEV. The fastest growth in China is seen in hybrids. We are introducing many new products in China, with about 95% of our eProducts being developed in collaboration with major Chinese car manufacturers. Additionally, many of our products are designed for potential exports and localization. We are quite pleased with our business in China. Regarding the impact of the tariff, it's a bit early to make any predictions. However, China is definitely a region where we are achieving scale, which is beneficial as we promote our eProducts that support hybrids and BEVs in other global markets.

That's helpful. My other question was on capital allocation. And I understand that the plan for the balance of this year is for capital allocation to be prioritized for shareholder returns, and you spoke about the $300 million of share repurchases. As you think beyond 2024, can you help us better understand how you're thinking about allocating capital? We've seen the company use tuck-in M&A in recent years to bolster the capabilities. Is that something you think may be part of the calculus going forward? Or would you think the preference for shareholder returns and buybacks will be more of the uses of capital as you're looking out into 2025? Thank you.

Thanks. Yes, acquisition, together with organic product development has allowed us to create that very unique portfolio that we're growing organically. Acquisition may remain an important part of the strategy over the long term. But I can tell you that I would classify our approach as being even more stringent and prudent than in the past. And I don't see M&A highly likely to be announced over the next couple of 2, 3 quarters, thus our intention to repurchase $300 million of stock is pretty much giving back to shareholders 100% of our cash generation. That's what I would tell you Mark.

Thank you.

Thank you. We go next now to Adam Jonas of Morgan Stanley.

Thanks, Freddie and team, I have a couple of questions. BorgWarner ranks around 490 out of 500 companies in the S&P in terms of PE multiple. It is by far the cheapest auto supplier in the S&P 500, which is quite remarkable given, in my opinion, and perhaps yours too, Freddie, that this is one of the most accomplished engineering firms in the industry, and possibly in the world. Your custom alloys and the tolerances and pressures that your products endure are very advanced. What do you believe the market is saying about your capital allocation strategy? I'm curious about your thoughts on today's share price reaction, particularly in comparison to other trends— it seems like the market is penalizing investments in eProducts and rewarding capital return instead. Do you share that outlook, or do you have a different perspective? I have a follow-up after this. Thank you.

Adam, I think we need to focus on what we can control. And what we can control is create a great product that is versatile across different production mix scenarios. Outgrow the market, generate cash and be smart about the cash utilization. As I mentioned before, in Mark's prior question, M&A was essential and helped us together with organic product development to create that very unique portfolio. Now, I think we have a great portfolio, and we're focusing on growing it organically and going back to the BorgWarner basics of outgrowing, converting generic in cash.

Okay, that's great. My follow-up is a simple question. What is the rationale behind advertising the share buybacks? It seems to me like telling someone you want to buy their house and then making a bid later. Why promote the target, in this case, your own stock, in a way that could make you vulnerable to your own circumstances? I just don't get the reasoning. Can you explain why you do that? Thanks.

I think for us, it's about transparency to our shareholders. When you look at the second quarter, we were blacked out for the majority of the second quarter, and we wanted to provide clarity to the investment community that we wanted to allocate all of our free cash flow to shareholders. It was the right time given Fred's comments earlier about M&A. So we wanted to provide clarity and transparency.

Okay. My only feedback is you can do that in real time and you don't always have to have the forward time horizon with the amount. But that's just feedback and you guys run the business. I appreciate you taking the time to answer the questions.

Thank you, Adam.

Thank you. And we do have time for one final question, and that will come from James Picariello of BNP Paribas.

Hi, everyone. eProduct sales are currently approaching $2.5 billion for the year, with the first quarter concluding at $500 million according to your 10-Q filing. Can you provide insights on how the second quarter is performing? Additionally, what can we expect for the second half? Regarding AKASOL, I've heard from another supplier with significant commercial vehicle BEV exposure that they have significantly reduced their commercial sales expectations for the year. Although this supplier does not directly compete with Ford, is BorgWarner experiencing similar trends in your Battery Systems business? Thanks.

Okay. Thanks, James. And I'll confirm Q2 sales were $576 million. You'll see that in our 10-Q later today, and I'll turn it over to Fred on your other question.

Yeah. I think our numbers in commercial vehicles have been adjusted a little bit in the prior quarter. The impact of eProduct is essentially linked to light vehicles at this point in time. I would just remind you that we're growing 25% year-over-year on eProducts from about $2 billion to about now about $2.5 billion, which is, if you take a step back, in our growth versus what you see in powertrain electrification.

Understood. And then just last, can you provide color on how Eldor losses are now slated to trend for this year? I believe the prior guidance, call it, the $45 million or so. And will your reproposing restructuring actions also include future efforts at Eldor? Thanks.

Right now, Eldor is unchanged, and that's how you should think about it. Obviously, we're focused on the total business and targeting $100 million in cost savings by 2026.

With that, I'd like to thank you all for your questions today. If there are any follow-ups, feel free to reach out to me or my team. Beau, you can go ahead and conclude today's call.

Thank you, Mr. Nolan, and again, ladies and gentlemen, that will conclude today's BorgWarner second quarter earnings call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.