BorgWarner Inc. 10-Q Summary: Period Ended June 30, 2026
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026, and the six months ended on that date. BorgWarner Inc. 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 Energy Systems. Notably, the company exited its charging business in early 2025, renaming the segment "Battery Energy Systems" in Q1 2026 to reflect a revised focus.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2026 | Six Months Ended June 30, 2026 |
|---|---|---|
| Net Sales | $3,648 million | $7,181 million |
| Gross Profit | $721 million (19.8% margin) | $1,398 million (19.5% margin) |
| Operating Income | $370 million (10.1% margin) | $706 million (9.8% margin) |
| Net Earnings (Attributable to BorgWarner) | $277 million | $519 million |
| Diluted EPS | $1.34 | $2.50 |
| Operating Cash Flow (6 months) | $738 million | |
| Cash and Cash Equivalents | $2,448 million (as of June 30, 2026) | |
| Total Debt | $3,868 million ($5M short-term, $3,863M long-term) | |
| Liquidity | $4.4 billion (Cash + $2.0B undrawn credit facility) |
Material Changes vs. Prior Period
- Revenue: Net sales were relatively flat year-over-year for both the quarter (+$10M) and six months (+$28M). This stability masked significant underlying dynamics: a ~$221M favorable impact from foreign currency fluctuations (stronger Euro/Renminbi) and ~$43M in tariff recoveries were offset by a ~$236M decrease due to unfavorable volume, mix, and lower market production (-1%).
- Profitability: Operating income increased significantly ($81M for the quarter; $180M for six months) driven by improved gross margins (up 220 bps for the quarter) due to purchasing savings, restructuring savings, and manufacturing efficiencies.
- Restructuring: Restructuring expenses decreased to $39 million for the six months ended June 30, 2026, compared to $48 million in the prior year period. Charges were primarily for employee termination benefits related to individually approved actions.
- Segment Performance:
- Turbos & Thermal Technologies: Sales down 2% (6 months); Adjusted Operating Income down $23M due to lower volumes in Europe.
- Drivetrain & Morse Systems: Sales up 3% (6 months); Adjusted Operating Income up $34M driven by North American volumes and tariff recoveries.
- PowerDrive Systems: Sales up 10% (6 months); Adjusted Operating Loss narrowed to $(65)M from $(76)M.
- Battery Energy Systems: Sales down 35% (6 months) due to the exit of the charging business and lower battery pack sales; Adjusted Operating Loss significantly improved to $(4)M from $(34)M.
Guidance, Outlook, and Risks
- Outlook: Management expects global industry production to be flat to down 3% year-over-year in 2026. Total sales for 2026 are expected to decline year-over-year (excluding foreign currency impacts), primarily due to negative sales impacts from the Battery Energy Systems segment.
- Strategic Investments: The company remains committed to new product development for electrified vehicles. Power generation industrial solutions sales are projected to reach approximately $300 million in 2027.
- Tariff Recovery: Following a U.S. Supreme Court ruling in February 2026 invalidating certain tariffs, the company is actively pursuing refunds. However, no receivable has been recognized as of June 30, 2026, due to uncertainty regarding timing and amounts.
- Legal Contingencies: The company settled a lawsuit with PHINIA Inc. regarding VAT refunds in October 2025. As of June 30, 2026, approximately $23 million in receivables related to this settlement remains outstanding, due by December 1, 2026.
- Pension Plan Termination: The company is terminating a U.S. defined benefit pension plan, expecting to recognize a non-cash settlement loss of $70 million to $80 million in 2026.
Investor Verification Checklist
- Tariff Refund Timing: Verify the progress and expected cash inflow from the U.S. Customs and Border Protection tariff refund claims initiated after the February 2026 Supreme Court ruling.
- Battery Energy Systems Trajectory: Monitor the continued decline in sales for this segment and the timeline for achieving the targeted $30 million in annualized adjusted operating loss elimination.
- Pension Settlement Loss: Confirm the final amount of the non-cash settlement loss ($70M-$80M range) to be recognized in 2026 related to the U.S. pension plan termination.
- PHINIA Settlement Collection: Track the collection of the remaining $23 million receivable from PHINIA due by December 1, 2026.
- Capital Allocation: Review the execution of the $1.35 billion remaining share repurchase authorization and the impact of increased capital expenditures (3.2% of sales) on free cash flow.