Frederic B. Lissalde
President, Chief Executive Officer & Director at BorgWarner
Thank you, Pat, and good day, everyone. Were pleased to share our results for the second quarter 2022 and provide an overall company update, starting on Slide 5. I continue to be impressed with the strength of our revenue relative to the overall industry. With approximately $3.8 billion in sales, we were up about 7% organically despite global production being down slightly and we outperformed in North America and Europe. From a margin perspective, our performance was negatively impacted by a planned increase in eProducts R&D investment, net material headwinds and sudden production shutdowns in China during this quarter. That said, we were able to partially mitigate these impacts through overall cost performance and progress on executing customer pricing actions with a number of key customers. You will see that our guidance implies a sequential improvement in margin into the second half of 2022, which is driven by volume improvements and our expectation of continued success in executing our customer pricing actions. We are pleased with the progress we made in Q2 on this front. However, there are still some other ongoing customer discussions that we expect to resolve in the back half of the year. We expect that the successful execution of these actions will position our financials more strongly heading into 2023. While navigating the near-term industry environment, we also took step to drive our long-term positioning during the quarter. First, we completed the acquisition of Rhombus Energy Solutions. In addition to deploying capital to fund our M&A investment, we opportunistically repurchased $100 million of stock. And lastly, we secured multiple new electrification program awards. Next, I would like to highlight our recent ESG report on Slide 6. In June, we released our 2022 Sustainability Report called Charging Forward Together. I am proud of the work of BorgWarner employees around the globe, delivering on our vision of a clean, energy-efficient world and embodying our beliefs of inclusion, integrity, excellence, responsibility and collaboration. And this comes across in the report. Together, we are accelerating the worlds transition to eMobility by empowering everyone to drive sustainably leave, by living cleaner, healthier and safer lives. Our Charging Forward target to generate 45% of our revenue from electric vehicles by 2030 is consistent with our environmental goals. We remain committed to cover neutrality in Scopes one and two by 2035. In addition, we have now introduced a target to reduce our greenhouse gas emissions by 85% by 2030. We have formalized our commitment to diversity, equity and inclusion with measurable targets. We continue to advance towards our vision and build our future each day with the industrys top talent. Our employees are changing the worlds mobility. I invite you to read more in our 2022 Sustainability Report on our website and join us on this journey. Next, I would like to highlight our eProduct portfolio for hybrids on Slide 7. Over the last quarter, weve been asked about the amount of revenue we were generating from these products on advanced hybrids. And as you can see on this slide, its actually quite sizable. We have a wide range of eHybrid products that are helping our customers bridge to EVs. To name a few, these include inductors, motors, advanced and efficient drive modules and high-voltage cooling heaters. The hybrid products help provide the bridge to EVs for many OEMs by pairing efficient gasoline engines with electric drivetrains. In many instances, and as I have mentioned before several times, the technical profiles of these products are very similar to the same eProducts used in a full electric vehicle. This is what allows us to drive additional scale and product capabilities that help improve our overall competitiveness in the world of battery electric vehicle. As you can see from the chart, we expect our eHybrid sales to be close to $1.1 billion by 2025. And this does not include our highly efficient combustion product that will also be used on many of these same hybrid vehicles. So this is a substantial revenue opportunity for BorgWarner and one that really reinforces our product leadership in electrification, which goes beyond pure battery electric vehicles. Now lets look at some pure BEV awards on Slide 8. First, Im happy to announce that we have secured two additional high-voltage coolant heater programs. One is for global OEM and the other is for an emerging electric vehicle brand in China. By offering consistent temperature distribution inside the battery pack and itself, BorgWarners high-voltage coolant heaters can be used for improving battery energy performance. They also allow comfortable cabin temperature to be generated in a short time, improving passenger experience. This is a great internally developed product success story at BorgWarner and one where weve quickly established product leadership. Second, BorgWarner has been selected to deliver battery systems for a European commercial vehicle OEM. This battery system will be utilized in the companys first range of heavy-duty electric trucks expected to announce in 2024.
For this exciting new project, our customer will benefit from the latest generation of our ultra-high energy battery system which provides a 50% increase in energy density over its predecessor. This upgrade increases vehicle range significantly, making it a great solution for long-distance electrified commercial transportation. Lastly, Im excited to share that the first units of the new BorgWarner fast-charging station, Iperion-120, have been installed in Italy. Weve been working on the organic development of charging capabilities at BorgWarner since 2017. And Im really pleased to see our investments in this space starting to bear fruit. We will look to accelerate our success in stationary charging with some inorganic investments as well which I will discuss on the next slide. This quarters award activity once again highlighted a wide range of products and our grid 2-wheel capabilities. Next, on Slide 9, I would like to discuss the acquisition of Rhombus Energy Solutions, which we announced this morning. We plan to accelerate charging business with particular focus on high-value DC fast charging hardware and enabling software. We believe that we can leverage the local knowledge and footprint of Rhombus to complement our existing BorgWarner charging capability to accelerate organic growth. Specifically, Rhombus will add North American regional presence to our existing European footprint. we plan to leverage BorgWarner synergies across product quality, engineering, supply chain, manufacturing and global sales. We also see potential synergies with battery system customers. In terms of revenue, we expect Rhombus to add approximately $10 million to our 2022 revenue over the next two quarters. We expect our combined DC fast-charging business to approach $175 million to $200 million in revenue by 2025. As a supplier to the auto and commercial vehicle market, we are not only delivering innovative products for electric drivetrain but we also care about supporting certain key elements of the infrastructure for electric mobility, especially charging. And as we look ahead, we believe that you will see further success as we continue to strengthen our capabilities in this area. As you can see, weve made progress on key aspects of our Charging Forward strategy. So lets look at what this means in the progress report on Slide 10. Starting first with organic electric vehicle revenue growth. With the awards secure as of this call, we now have electric vehicle programs that we believe account for about $2.9 billion of booked revenue in 2025.
This is a great achievement by the BorgWarner teams. Turning to M&A. We have now completed three acquisitions since the start of Charging Forward: AKASOL, Santrolls light vehicle eMotor business and Rhombus Energy Solutions. Based on our due diligence, we believe those businesses will generate $800 million of additional EV-related revenue in 2025. Were not done either. We expect to take additional M&A steps, and we are actively engaged with a number of potential targets, which could enhance various parts of our EV portfolio. So less than 18 months since the announcement of Charging Forward, were on track to achieve approximately $3.7 billion of electric vehicle revenue by 2025 based on new business awards and actions announced to date. So let me summarize our second quarter results and our outlook. Overall, our second quarter performance was solid. Our revenue once again outperformed the industry volume as we delivered strong organic growth. We also made key progress in the quarter on the pricing actions necessary to deliver our full year commitments. As Kevin will detail shortly, our full year 2022 outlook is unchanged from a top line and margin perspective despite industry volume pressure in our largest market in Europe and sizable [Indecipherable], our relative revenue performance outlook has improved and we believe we are on track to deliver double-digit organic growth this year. As I look beyond 2022, Im very proud of the continuing progress on Charging Forward. Were booking electric vehicle revenue across our portfolio and we are successfully executing our disciplined M&A process. Our booked organic BEV business and M&A completed to date puts us on track to achieve $3.7 billion in electric vehicle revenue by 2025. Combined with our eHybrid business, our total eProduct portfolio is now expected to reach approximately $4.8 billion in 2025 with what weve already achieved. To put that in context, this is nearly half the size of the company when I became CEO in 2018, but were not done. We intend to carry out on, on booking more, new business and acquiring great assets to become even stronger as the world continues to accelerate towards electrification. And I look forward to sharing the additional progress with you in the future. With that, I will turn the call over to Kevin.