BorgWarner delivered strong financial results for full-year 2025, achieving $14.3 billion in net sales, a 60 basis point expansion in adjusted operating margin to 10.7%, and 14% EPS growth year-over-year. The company generated over $1.2 billion in free cash flow, a 66% increase, and returned more than 50% to shareholders through buybacks and dividends. A major strategic highlight was the announcement of a Master Supply Agreement with TurboCell to supply turbine generator systems for the data center market, targeting over $300 million in sales starting in 2027 with mid-teens incremental margins. Despite a 23% increase in light vehicle e-product sales, the company faces headwinds from a declining battery business and softening industry production. Looking ahead to 2026, management guides for sales of $14.0 to $14.3 billion, adjusted EPS of $5.00 to $5.20, and continued margin expansion, demonstrating resilience and earnings power growth amidst market declines.
| Metric | Value | Change |
|---|---|---|
| Net Sales | $14.3 billion | +$200M YoY |
| Adjusted Operating Margin | 10.7% | +60 bps YoY |
| Adjusted EPS Growth | 14% | Up YoY |
| Free Cash Flow | $1.2 billion | +66% YoY |
| Light Vehicle E-Product Sales Growth | 23% | Up YoY |
| Capital Return | $630 million | 52% of FCF |
BorgWarner is executing a significant diversification strategy into the industrial power generation market. By signing a Master Supply Agreement with TurboCell to provide turbine generator systems for data centers, the company leverages its existing turbocharging, thermal, and power electronics competencies. Management estimates this market will grow at a mid-teens rate annually through 2035. The initial production year (2027) is expected to generate over $300 million in sales with mid-teens incremental margins and immediate EPS accretion. This move reduces reliance on the volatile automotive cycle and utilizes 65% vertical integration to control costs.
The company is successfully balancing its portfolio between foundational ICE products and electrification. Light vehicle e-product sales grew 23% in 2025, and the company secured a record number of new product awards (30 over the last four quarters). Key wins include a variable turbine geometry turbocharger for a European OEM's hybrid platform and an 800-volt IDM for a North American OEM's range-extended EVs. This 'agnostic' technology stance allows BorgWarner to capture share regardless of regional powertrain adoption rates (ICE, hybrid, or BEV).
Capital allocation remains a core pillar of shareholder value creation. In 2025, BorgWarner returned $630 million to shareholders (52% of free cash flow) through buybacks and dividends. The board authorized $400 million in repurchases during the year, leaving $600 million remaining on the authorization. Management emphasized a 'balanced, disciplined, and consistent' approach, signaling that shareholder returns will remain a priority even as they invest in the new turbine generator launch.
Operational discipline is driving margin expansion despite top-line pressure. BorgWarner expanded adjusted operating margins by 60 basis points in 2025 to 10.7%, driven by cost controls and corporate overhead reduction. For 2026, management expects another 10 basis points of expansion at the midpoint, even with organic sales declining, by targeting low double-digit decremental margins on the downside. The implementation of Generative AI in R&D and manufacturing is expected to further improve quality and reduce labor costs.
The battery systems business is experiencing a significant downturn, with sales down 35% to 40% year-over-year in Q4. Management expects this segment to remain a 150 basis point headwind to sales growth in 2026 due to a lack of North American incentives and weaker European demand. While cost actions are being taken to minimize losses, the unpredictability of near-term sales trends in this segment represents a persistent risk to revenue stability.
BorgWarner's 2026 guidance implies a contraction in top-line growth, with organic sales expected to be down 3.5% to 1.5% year-over-year. This decline is driven by expected industry production to be flat to down 3% and the continued drag from the battery business. While management is confident in margin expansion, a shrinking revenue base raises concerns about the company's ability to outgrow its core markets in the near term.
The new turbine generator opportunity carries execution and commercialization risks. Production does not ramp until 2027, requiring upfront capital expenditure (CapEx expected to rise to 4.5% of sales) before revenue materializes. Furthermore, management noted that permitting and data center rollout timelines can be industry headaches; while they are working with experienced partner Endeavor, the reliance on a new market segment introduces regulatory and adoption risks not present in their core auto business.
Management acknowledged that EV program volumes booked several years ago are currently lower than expected in the Western world. This has negatively impacted 'outgrowth' metrics, leading the CEO to admit, 'I'm not satisfied with the outgrowth we've been seeing.' This indicates that previous strategic bets on pure EV adoption are currently underperforming, forcing a pivot toward hybrids and foundational products to bridge the gap.
Overall: Management conveyed a highly confident and disciplined tone throughout the call, emphasizing the company's ability to expand margins and grow EPS despite a challenging demand environment. There was a palpable enthusiasm regarding the new data center opportunity, which they framed as a validation of their core competencies, while remaining transparent and accountable about the headwinds in the battery segment.
Confidence: HIGH - Management provided specific financial targets, detailed margin expansion strategies, and concrete revenue figures for new business wins. Their language was decisive ('outstanding,' 'extremely excited,' 'well-positioned'), and they successfully defended their ability to grow earnings even while forecasting a decline in organic sales for 2026.
$14.0 billion to $14.3 billion
Down 3.5% to Down 1.5%
10.7% to 10.9%
$5.00 to $5.20
$900 million to $1.1 billion
>$300 million (first year)
Hedging & Uncertainty: Management generally used assertive language regarding financial targets ('we delivered,' 'we expanded') but employed more hedging when discussing future market demand and the battery business. Phrases like 'roughly in line with,' 'expected to be,' and 'difficult to predict' were used to frame the 2026 outlook and battery segment performance. However, they reduced uncertainty regarding the new data center product by providing specific figures ('$300 million,' 'mid-teens incremental conversion'), signaling high confidence in this specific growth vector.
In my view, our 2025 financial performance was outstanding and positions us for continued momentum into 2026. - Joseph Fadool, CEO
I'm not satisfied with the outgrowth we've been seeing. - Joseph Fadool, CEO
We expect our weighted end markets to be flat to down 3% for the year. - Craig Aaron, CFO
We believe this product could open up an additional avenue of significant profitable growth outside of our core automotive markets. - Joseph Fadool, CEO
We're going to continue to keep those criteria in front of us... we've passed on some deals that didn't meet one or more of those criteria. - Joseph Fadool, CEO
Near-term sales trends are a little bit difficult to predict. - Joseph Fadool, CEO
Analyst Sentiment: Analysts were highly inquisitive about the new data center opportunity, asking detailed questions about margins, competition, and the total addressable market. There was also significant focus on the headwinds facing the battery business and the sustainability of the Power Drive Systems margins following recent recoveries.
Management Responses: Management was transparent and specific in their responses, particularly regarding the financial profile of the turbine generator system (mid-teens margins) and the difficult outlook for the battery segment. They effectively used the Q&A to reinforce the discipline of their capital allocation strategy and the strategic rationale behind leveraging core competencies for new industrial markets.
Deep dive into the Turbine Generator System economics, including margin profile (mid-teens), vertical integration (65%), and the nature of the agreement with TurboCell/Endeavor.
Discussion on the Battery Systems business decline (35-40%) and the expected 150 basis point headwind in 2026, with management highlighting cost structure adjustments.
Clarification on Power Drive Systems (PDS) margins and the sustainability of growth, with management confirming mid-teens incremental margins going forward.
M&A strategy inquiries, where management reiterated a disciplined approach focused on core competencies, near-term accretion, and fair pricing.
The impact of AI on operations, with management citing specific use cases in visual inspection and R&D specification generation.
BorgWarner is demonstrating strong financial resilience by expanding margins and generating robust free cash flow in a challenging demand environment. The strategic pivot into data center power generation via the TurboCell agreement is a game-changer, leveraging existing automotive competencies to capture share in a high-growth industrial market with mid-teens revenue potential. While the battery business and near-term auto production volumes present headwinds, management's disciplined capital allocation and focus on 'earnings power' suggest the company is well-positioned to deliver shareholder value. The valuation support from buybacks and the clear path to EPS growth in 2026 despite top-line declines indicate a compelling risk/reward profile.
Management expects global light vehicle production to be flat to down 3% in 2026, reflecting a broader slowdown in the automotive industry.
The power generation market for data centers is expected to grow at a mid-teens annual rate through 2035, driven by AI and grid capacity needs.
EV demand in the Western world has softened, with volumes on previous programs coming in lower than expected, impacting BorgWarner's battery and e-product sales.
Chinese OEMs are increasingly expanding internationally, with exports hitting over 7 million units, providing a growth avenue for BorgWarner's China-based business.