Business Context and Reporting Period
Company: BorgWarner Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: BorgWarner is a global supplier of clean and efficient technology solutions for combustion, hybrid, and electric vehicles. The company operates through four reportable segments: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems, and Battery & Charging Systems. In 2025, the company exited its charging business and consolidated its North American battery systems business to align costs with market dynamics.
Key Financial Metrics
| Metric | 2025 (in millions) | 2024 (in millions) |
|---|---|---|
| Net Sales | $14,316 | $14,086 |
| Gross Profit | $2,674 | $2,648 |
| Gross Margin | 18.7% | 18.8% |
| Operating Income | $536 | $546 |
| Net Earnings (Attributable to BorgWarner) | $277 | $338 |
| Diluted EPS | $1.28 | $1.63 |
| Operating Cash Flow | $1,648 | $1,382 |
| Total Liquidity | $4,313 | N/A |
| Total Debt (Long-term + Short-term) | $3,899 | $4,498 |
Note: Liquidity as of Dec 31, 2025, comprised $2,313 million in cash and cash equivalents and $2,000 million in undrawn revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 2% to $14.3 billion, driven by favorable foreign currency fluctuations (+$154 million), customer tariff recoveries (+$80 million), and volume/mix improvements, partially offset by the exit of the charging business (-$56 million).
- Profitability Decline: Net earnings attributable to BorgWarner decreased 18% to $277 million. This was primarily due to significant non-cash impairment charges and higher tax rates.
- Impairment Charges: Total impairment charges were $624 million, including a $423 million goodwill impairment in the Battery & Charging Systems segment due to EV adoption delays and customer dual-sourcing actions.
- Restructuring: Restructuring expenses increased to $101 million (from $74 million in 2024), primarily related to employee termination benefits and footprint realignment in PowerDrive Systems.
- Effective Tax Rate: The effective tax rate rose to 36% (from 21% in 2024), largely due to a $126 million tax impact from non-deductible goodwill impairments.
Guidance, Outlook, and Risks
Outlook and Guidance
- 2026 Sales Outlook: Management expects global industry production to be flat to down modestly. Consequently, total sales in 2026 are expected to decline year-over-year (excluding foreign currency impacts) due to the negative impact from the Battery & Charging Systems segment.
- Strategic Focus: The company remains committed to profitable growth in eProducts and Foundational products, with a focus on cost competitiveness and new product development.
Key Risks and Contingencies
- EV Adoption Volatility: Slower-than-expected electric vehicle adoption in North America and dual-sourcing actions by customers have negatively impacted the Battery & Charging Systems and PowerDrive Systems segments.
- Trade and Tariffs: New U.S. tariffs on imports from the EU, Canada, Mexico, and China have increased raw material costs. While the company has secured some customer recoveries, future tariff impacts remain uncertain.
- Legal Settlements: A $40 million net charge was recorded in 2025 related to a settlement with PHINIA (the spun-off entity) regarding VAT refunds and tax matters.
- Customer Concentration: Sales to Volkswagen (13%) and Ford (12%) accounted for a significant portion of revenue. The top ten customers represented 71% of total sales.
Investor Verification Checklist
- Impairment Sustainability: Verify the assumptions used in the $423 million goodwill impairment for Battery & Charging Systems, specifically regarding EV adoption rates and customer dual-sourcing risks.
- Tariff Pass-Through: Assess the extent to which the company can continue to recover tariff-related costs from OEM customers in 2026.
- Charging Business Exit: Confirm the realization of the projected $30 million in annualized adjusted operating loss elimination from exiting the charging business.
- PowerDrive Systems Turnaround: Monitor the progress of the $75 million restructuring plan in PowerDrive Systems aimed at achieving $100 million in annual cost savings by 2026.
- Liquidity Position: Review the company's ability to fund operations and debt service given the $3.9 billion debt load and the expectation of declining sales in 2026.