Borgwarner Inc Q1 FY2026 Earnings Call

Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference Call. 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, Michael, and good morning, everyone. 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 on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the Events section of our IR page for a full list. 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 will 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 adjusted, that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we 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 Joe.

Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the first quarter of 2026 and provide an overall company update, starting on Slide 5. I wish to begin by thanking our employees, our customers and our suppliers for all of their trust, efforts and continued support. In the quarter, we achieved sales of $3.5 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were down approximately 3% year-over-year, in line with the decline in the market production. I am excited to report that our strong award activity has continued into the first quarter. To date, I'll highlight 12 business awards across our foundational products and e-products portfolios. These wins represent only a portion of the awards secured during the quarter, but I believe that they underscore the strength of our portfolio and the global demand for efficient powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business. And we are taking steps to grow our product capabilities for the data center and other industrial markets. I will share two additional products with you in a few slides. At the same time, our turbine generator continued to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value. During the quarter, we returned approximately $185 million to shareholders through share repurchases and our quarterly cash dividend. Looking back on our first quarter performance, I'm extremely proud of our team and our results. Once again, we executed at a very high level which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value through long-term profitable growth. Turning to Slide 6. I'd like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First, BorgWarner has secured three electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S-winding and ultra-short hairpin winding technology for hybrid vehicles. In South Korea, BorgWarner secured a new stator assembly business for an electric vehicle program. I believe these awards reflect the customers' confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia. Second, BorgWarner has secured a seven-year contract extension to supply eight families of engines, machines, power modules and battery management controllers to a leading off-highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications from construction vehicles and marine platforms to stationary power systems. I believe this contract expansion validates our position as a trusted long-term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured three turbocharger program extension awards and one turbocharger conquest award with a major European OEM. Our turbochargers will be utilized on a range of passenger car and van applications. The awards include variable turbine geometry, twin-scroll wastegate and regulated two-stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements, helping the customer meet demanding performance, fuel economy and emissions targets across a broad range of applications. I believe these business wins reflect BorgWarner's strong turbocharging technology, our competitive solutions and the trust we have built with this long-standing customer. Fourth, BorgWarner secured conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro VII compliant heavy-duty diesel engine platform. The award expands BorgWarner's product portfolio in the on-highway commercial vehicle sector and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. And finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with two new program awards. BorgWarner will supply a next-generation wet dual-clutch for a Chinese OEM SUV platform. BorgWarner also secured a conquest win for a torque-actuated VCT system for a Japanese OEM's next-generation hybrid vehicle. These new awards reflect BorgWarner's continued commitment to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high-performance, cost-competitive solutions for both combustion and hybrid powertrains. Next, on Slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. First, strong customer demand indicators continue with ongoing end-customer visits to our facility in Asheville. Next, I'm pleased to report that our first B-sample turbine generators are now being delivered to our customer. This is a very important step to allow our customers to move towards field testing our product. In addition, our teams have continued their testing processes, which are performing as planned. And as part of our production readiness, I'm also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production, currently expected in 2027. In the middle and right side of the slide, you'll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I'm really excited that this portfolio now includes battery energy storage systems and bi-directional microgrid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage and power conversion. First, I would like to highlight our battery energy storage system offering. You've heard BorgWarner speak about the possible application of our battery technology for various industrial markets, and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system is designed to be cell chemistry and form factor independent. I believe this is important given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular, lean and scalable with redundancy in our design. We believe this design can be deployed for applications including peak shaving, backup power and more. We believe our battery energy storage system will be production-ready in 2027 with ongoing customer validation and UL compliance in process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding a bi-directional microgrid inverter, or grid-tie inverter, to our portfolio for these markets, and we expect this product to be production-ready in 2027. Our grid-tie inverter features a power distribution unit, critical for efficient and flexible grid forming across microgrid applications. Our tie inverter is designed to enable a significantly reduced weight and size compared to traditional systems, efficient bi-directional power flow for seamless charge and discharge, high voltage conversion capability to support diverse energy systems, and fast dynamic response for improved microgrid stability and control. Our UL compliance for this new product is already underway as part of our product readiness. We're excited to share that the first grid-tie inverter B-sample units are being shipped to four customers, a major milestone for the program and a testament to the work behind it. To summarize, there are three key takeaways from today's call. First, BorgWarner's first quarter results were solid. Excluding the decline in our battery and charging sales, our sales performance was in line with industry production and is consistent with our full year outlook. Our adjusted operating margin expanded 50 basis points and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid and BEV architectures. And third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future. While the current environment remains challenging and uncertain, I'm confident in our team's ability to effectively navigate these conditions, which we clearly demonstrated in the first quarter. I also continue to firmly believe that we have the right portfolio, decentralized operating model and financial strength to deliver our full year 2026 guidance and drive long-term profitable growth. With that, I will turn the call over to Craig.

Thank you, Joe, and good morning, everyone. Let's jump into our first quarter financials by turning to Slide 8 for a look at our year-over-year sales. Last year's Q1 sales were just over $3.5 billion. In the first quarter, stronger foreign currencies drove a year-over-year increase in sales of $167 million. Then, you can see the sales headwind from our batteries, which drove a year-over-year decrease in sales of $54 million. The remaining organic sales decline of $95 million, or 2.7%, was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America, which was more than offset by foundational product headwinds in Europe and a timing-related e-product sales decline in China. The sum of all this was just over $3.5 billion of sales in the first quarter. Turning to Slide 9, you can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $372 million, equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of $352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $8 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income decreased $4 million on $149 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Our adjusted EPS was up $0.13 or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over $650 million in share repurchases over the past four quarters. And finally, free cash flow was a generation of $13 million in the first quarter, which was a $48 million improvement from a year ago. Now let's turn to Slide 10 and take a look at our full year 2026 outlook, which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion. Starting with foreign currencies, our guidance assumes an expected full year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market, excluding the decline in battery sales. Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls, just like we saw in the first quarter. We view this as strong underlying performance with our first quarter results providing a strong start to the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $5.00 to $5.20 per diluted share, which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving margin expansion despite lower industry production, battery sales declines and potential cost inflation. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that, that's our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance despite a challenging first quarter production in market. We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales. And our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrate the BorgWarner team's ability to deliver strong financial results in a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales are expected to decline in 2026. Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earnings power and execute a balanced capital allocation approach that rewards shareholders. With that, I'd like to turn the call back over to Pat.

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

And the first question today comes from James Picariello with BNP Paribas.

Good morning, everybody. So I'd like to hit on the company's non-auto industrial focus to start things off, which is clearly gaining momentum in terms of the company's strategy. For the battery energy storage product launch potential, how translatable is the company's competency regarding commercial truck battery packs to a proper energy storage system? Clearly, you're targeting the potential for production next year. Is there additional investment that we should anticipate within that Battery Systems segment this year? And how rich is the quoting pipeline?

Yes, James, so first of all, 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. From that standpoint, it's a really smart play for our teams and, as we mentioned, the battery energy systems are cell chemistry and form factor independent. So we think we're well positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers. So we're really pleased with the pipeline we're seeing.

Got it. And then as a segue, my follow-up: is there a natural synergy for battery energy storage through your turbine generator partner endeavor? As we think about the power generation business for data centers for BorgWarner, I know production starts next year, targeting $300 million plus in sales. It's early days, but are there any considerations to potentially expand your turbine generator capacity beyond the North Carolina plant? I know Endeavor and its subsidiary Turbocell have data centers active in Europe in addition to the U.S. So I'm just curious how the company might be thinking about that capacity potential and international expansion and then the potential synergy on the energy storage piece.

Yes, sure. So on the synergy question, there's definite synergy. If you think about the three offerings we show on Page 7—turbine generator, battery energy storage and power conversion—those are highly related products in the system, and they're all solving a major issue, which is lack of power. With respect to Endeavor, we have a great partnership with them and we see it continuing to grow over time. Even better news is these energy storage systems and power conversion have lots of opportunities outside of the Endeavor relationships. We're optimistic. There are many applications and potential customers out there for both energy storage and power conversion. Regarding the turbine generator, as we mentioned on the call, the progress is quite good and we're on track for a 2027 launch. This year, we will have to make a decision on whether we expand capacity further beyond the two gigawatts that we've installed in North Carolina, but we'll take that decision as we get closer to the second half.

And your next question comes from Emmanuel Rosner with Wolfe Research.

Great. Just one follow-up on the power generation side. Obviously, it's still early days and a lot to learn there from customers, et cetera. Are you able to give us some color on how you think about the value proposition that your solution offers? What do unit economics look like? How does that compare with the existing established solutions? Just trying to understand how the conversation with potential customers is going.

Sure. 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 five or six years. Our ability to leverage automotive scale and move quickly into the space provides speed that's well needed in this market. Second, the emission profile of these turbine generators raises the bar and meets stringent requirements in 2027 and beyond. From an emissions standpoint, it provides very clean power. Third, the total cost of ownership is very attractive. We feel really good about the value proposition of this into the space, especially right now.

Understood. My second question would be on the capital allocation. It looks like you have some opportunities to invest more capital into this industrial solution, you'll make a decision on the capacity for power gen, and then obviously you're trying to get into energy storage and power conversion. Is there any change at all in how you're thinking about capital allocation, either within CapEx in terms of increasing that or shifting that towards these solutions and away from autos? And then in terms of M&A versus buybacks, if you have so many organic opportunities, do you still have as much focus on M&A as you did recently?

So let me begin by saying our top priority will always be on driving organic growth, and we've shown that we're leveraging our entire portfolio, especially if you look over the last 18 months of wins. We want to continue with that winning strategy and the first priority for capital would be to invest in those projects. Nothing has changed in our capital allocation process beyond that. On the M&A topic, Craig can talk more about how we serve shareholders, but on M&A we continue to open up the aperture and have a very disciplined process and flow of targets we're looking at. There are three main criteria: one, leveraging core competence we already have so it needs strong industrial logic; two, we want any acquisition to be accretive; and three, we want to pay a fair price. We're sticking with that disciplined approach. We continue to have a good flow of targets inside auto and outside. You can expect Craig and I to stick to that game plan.

Maybe just to add to Joe's comments, our goal is to create value with our cash, and I think we've done that effectively over the past several quarters. Q1 was another great example with $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past five quarters, we deployed over $800 million of cash, which represents about 70% of our free cash flow. Joe and I are focused on discipline, consistency and how we're allocating capital across the business, including investing organically in the business. We feel really good about the actions we've taken over the last several quarters.

Your next question comes from Joseph Spak with UBS.

Thanks. Good morning, everyone. Back on the battery opportunity: I just want to be clear about what you're doing here. So you're, similar to what you're doing on commercial trucks, putting the pack together into a system with some software because it does say cell chemistry and form factor independent, which leads me to believe you're still not doing the cells here. The reason I ask is I keep going back to the FinDreams LFP announcement from 2024. I know that agreement said it was specifically for commercial vehicles, but I'm wondering if there's any leeway in that agreement to leverage that relationship as well.

Yes. Joe, so as you mentioned, we do have a strong partnership with FinDreams and our products are cell chemistry agnostic. We're in production today on NMC, but we're also working on future cell chemistries like LFP, sodium-ion and others. The great part about the pivot here is we're leveraging our existing technology for commercial vehicles and the current CapEx that's invested. That's one reason we can get to market quickly. We're moving forward with UL certification and quoting. As far as our content on it, it's very similar to CV or eBus in terms of procurement of the cells, design of the entire pack and system, the BMS and the final testing. The main difference is these will be for stationary applications versus mobility.

Okay. That's helpful. And then just to follow up to Emmanuel's question on capital: these opportunities are exciting but still relatively small today, though clearly potentially much larger in the future. Is there any rule of thumb about how investors should think about incremental investment dollars per revenue metric so we can understand the return profile going forward?

I think it's fair to say that the ROI and capital intensity will be similar to our light vehicle business. For example, our turbine generator project, although we're putting a greenfield site in for final assembly and test in Hendersonville, we're leveraging four existing auto plants for components and subassemblies. It's a great example of how we're leveraging our CapEx, capability and speed so that we can move quickly into these new markets.

And your next question comes from Colin Langan with Wells Fargo.

Just on the overall guidance to step back: production has come in a bit worse, raw materials have gotten better, and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX? And are any additional cost actions needed to offset some of the inflation we've seen in the market?

Yes, Colin. Overall, we think we can manage the inflationary impact at this point in our mid-teens decremental conversion. Let me walk you through the guide from a revenue and margin perspective at the midpoint. It's unchanged from our view. Q1 was a good start to the year. When we think about sales year-over-year, we ended last year at $14.3 billion. We see a headwind from industry production of roughly 1.5%. We see the battery business declining, but we see positive FX coming in as well as some modest outgrowth, and that's what gets us to $14.15 billion. Regarding margin profile, we're expanding margins at the midpoint and the high point of our guide despite market challenges. That's coming from a couple of areas: first, the exit of our charging business, that's about 10 basis points; additional cost controls like you saw in Q1, that's another roughly 10 basis points; and again, we're holding decremental conversion in the mid-teens, which includes possible inflationary pressures throughout the year. We're monitoring it closely, but we feel good that we can expand margins and expand EPS this year despite macro headwinds.

Okay. So there's no incremental cost or unexpected raw material pressure that you're not going to offset with cost savings actions?

At this point, we feel like we can manage that appropriately.

Okay. And then on the data center and storage: one, are you more capacity constrained on the power generation side? And on storage, can you size that market—potentially is it as big as the turbine generator opportunity? Lastly, do these businesses together help you market to customers? For example, hyperscalers have storage requirements as they build out data centers. Does the combo create an added opportunity to win business?

When you think about Page 7—power gen, storage and power conversion—those are highly related and all solve power availability issues. Yes, there's synergy between those three and we do find customers that want more of a system solution or at least a partner that understands the complete system across these complex product segments. Bringing storage to market fits well within the same data center growth across all three platforms. From our view, we're talking mid-teens CAGR for the next ten years or more. The backdrop and the demand are very strong and actually increased over the last 12 months.

And your next question comes from Chris McNally with Evercore.

Thanks so much, team. Some of these will be really questions in the tenor of the call on the industrial extensions. I want to phrase it differently: focus on the power generation opportunity over the next couple of years. Would you characterize it as supply constrained, capacity constrained, or signing up customer by customer? It's a new business, deal by deal. I'd love to know what a capacity ramp looks like. Does it require multiple years lead time or as deals come in capacity will follow? What is the bottleneck looking out a couple of years?

Sure. The market starts massively with demand. The demand for power gen, especially behind the meter, is driven by the fact that many utilities have a four-, five- or six-year lead time to get the power to serve data centers. On top of that, the growth of Gen AI is creating a massive demand challenge. Over the last 12 months we've seen supply constraints of existing turbine generators and other behind-the-meter solutions, which has made the challenge bigger. We're fortunate to come in with a product that has a lot of value to the customer. Regarding capacity we have installed and how we go about selling that: as a reminder, we've installed two gigawatts of capacity; the $300 million next year is the initial launch and revenue that we're planning, which is a subset of that capacity. We feel good about the two gigawatts installation—we wouldn't have installed that much if we didn't feel there would be a backlog. As mentioned earlier, we'll likely decide whether to add additional capacity based on demand and purchase orders placed. That additional capacity could be installed in this market, but we also see demand in Europe and other markets, so we'll decide on location as well.

I know we tried to do the math last call and we won't get specific pricing, but ballpark, two gigawatts is multiples of $300 million of revenue—is that fair to say?

Yes. We haven't provided pricing, so thinking in multiples is a fair way to consider it. If you look at pricing for power gen, especially behind the meter, you get a range that's increased over time, which might give you an indication of where we're at.

That was the check on the math. Last follow-up: with behind-the-meter and battery storage, could you have lead-in from some of the auto customers on the battery storage side since there's excess battery capacity in the market? Is that helping on cross-sell specifically for those two businesses?

Yes. It's adding significantly to our play. Our strategy is more about serving these industrial markets directly, not just through automotive customers. Clearly, we have relationships with auto customers and where we can work together we will, but these plays are focused on relationships with industrial customers.

And your next question comes from Dan Levy with Barclays.

Thanks for taking the questions. Continuing on the data center side, more of a supply chain question: I know you've talked about two-thirds of the turbine generator content coming from you and that you're heavily leveraging the automotive supply chain. But we've heard that one of the key supply constraints out there is around turbine blades and vanes with very large lead times. It usually takes only one or two components to create a bottleneck. Could you walk us through your confidence that when you look across the supply chain there won't be issues getting what you need for the turbine generator system and that if you're going to expand capacity the supply chain can keep up with you even on the most limited components?

Thanks, Dan. A couple of points. First, our turbine generator system leverages our supply base and our technology. Our turbo products are radial turbos; many large turbines are axial turbos. So it's different technology and different material selections; our requirements align more with commercial vehicle and passenger car components. Second, about 80% of the supply base for the turbine generator is already a BorgWarner supplier. They know how to work with us from development to launch and production, which is a big risk reduction. Third, global supply chain management is a core competence of BorgWarner—we have teams around the globe that manage suppliers across many commodities. From time to time you do see a constraint, but as a global company we can get boots on the ground to address constraints and minimize impact on customer deliveries.

Great. As a follow-up, on the core business today: you reaffirmed the guidance with market growth flat this year, but you've shown a nice set of component wins. Can you give an update on line of sight for reacceleration of the rest of the portfolio? Is it content gains, new program launches? What's driving the expected uptick in growth in the core portfolio in 2027?

Yes. It's fair to say we're still working through some overhang from certain EV programs from a couple years ago. For 2027, we like to point to product wins across the portfolio. Over the last 18 months we've announced over 30 awards publicly across various regions and product lines. In this quarter alone we announced 12 wins, three of which were conquest wins. The strong will not only survive but thrive in this type of market, and we're starting to see that in program wins. As those programs launch, we'll start to see revenue beginning in 2027.

And our next question comes from Luke Junk with Robert W. Baird.

Maybe you could put a finer point on how you're thinking about capital allocation as a way to potentially accelerate the data center and industrial story inorganically. Is that something you're intentionally looking at in terms of building the acquisition funnel and deploying capital towards these efforts?

Luke, the capital allocation story hasn't changed. Over the last 12 months we've continued to open the aperture of what we're looking at—not only automotive and commercial vehicle space but also the data center space. But the three acquisition criteria remain: leverage our competence, be accretive, and pay a fair price. We're leaning further into data center with R&D investment and we will look at things that might accelerate the journey. You can count on us being disciplined about it.

Stay tuned there. Second, maybe an unfair question, but you mentioned confidence in the path to achieve full year guidance—why not raise the displayed margins, especially given Q1 performance? Is it just too early in the year, or are there investments tied to these incremental products we're seeing this morning?

I think we had a really good Q1, but there's still a lot of uncertainty in the overall environment. When you look at our implied guide, Q2 through Q4 last year were about $3.6 billion per quarter with roughly 11.0% margin. What's implied in our guide this year is revenue a little lower—about $3.54 billion per quarter—largely due to contraction in our battery business, but margin stays right around 10.9%. We're managing decremental conversion in the mid-teens, which is what we've communicated consistently. Given the uncertainty, we feel we're on the right path to create value by executing our guide rather than raising targets now.

And your next question comes from Andrew Percoco with Morgan Stanley.

I want to come back to the power generation side one more time. I know you're in an exclusivity with Endeavor for this turbine cell product. Given this capacity-constrained market, have you evaluated an opportunity to develop a product on a stand-alone basis or work through Endeavor to look outside their captive universe of customers to deploy this product?

Andrew, it is true we have an exclusive relationship with Endeavor to bring that turbine generator to market. We're hyper-focused on a successful launch in 2027. Endeavor and the entity we're working through, Turbocell, sell internally for their own data center use but they also are able to sell to other customers and users. They understand the market and want to leverage their relationships and know-how. We're more of the design and manufacturing partner to help them deliver. Regarding the other two products—battery and inverters—we're actively quoting outside of Endeavor and the inverters are already in testing with four customers, which shows momentum across the three product segments.

Okay, that makes sense—so Endeavor could sell the turbine cell outside of their own data center applications if there was demand. Quick follow-up on battery storage: can you bracket your content as a percentage of potential ASP? And on the service angle—these customers have high uptime requirements—what investment needs exist on the service side to support that?

On content, the battery energy storage content is very similar or slightly incremental to what we serve on the CV side. We buy cells, design complete packs, assemble those packs, provide BMS and control systems, software development, and final testing and shipping. The main difference is these are stationary applications rather than mobility, so the structure is a bit different, but the product scope is similar. Regarding service, these industrial customers do require strong support and uptime, and we will provide the necessary testing, validation and service capabilities, leveraging our existing global support infrastructure and relationships.

We have time for one final question, and that question comes from Mark Delaney with Goldman Sachs.

One on the power gen business as well. Joe, you mentioned BorgWarner may need to expand capacity there, and you're going to have to make that decision soon. Several hyperscalers have been quite robust in their capital guides this earnings season. Given that backdrop and based on your customer engagements and discussions with Endeavor, should investors think about BorgWarner shipping the full two gigawatts in 2028?

We haven't shared that level of detail publicly. As we get into early 2027, we'll start to provide more color on sales and a longer-term view on the business. It's true recent hyperscaler announcements show increased capital investment, which is favorable for the entire data center space. We'll provide more details as we get into late '26 or early '27.

Okay. My other question was on the auto business and China. The company spoke about a little bit of growth in the market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past wins you've discussed.

Sure, Mark. Generally speaking, we are very strong in the China market. We continue to win business there and it remains very important for us. The domestic market was down in the quarter but overall was buoyed by export sales, and much of that export market has added content. We remain optimistic about China. It's hard to read too much into one quarter, but generally, Chinese OEMs continue to grow their share globally, and we're well positioned as they localize more in those markets.

Thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can conclude today's call.

This concludes the BorgWarner 2026 First Quarter Results Conference Call. You may now disconnect.