Chinese OEM Wins And Electrification Trends Will Drive Automotive Advancement

Key Takeaways

• Robust EV and hybrid demand, platform wins with major OEMs, and strategic capital allocation strengthen long-term growth and earnings stability.
  
• Operational restructuring and battery business consolidation support higher profitability, while increased investment in sustainable mobility enhances competitive positioning.
  
• Persistent dependence on combustion products and inorganic growth, coupled with electrification uncertainty and supply volatility, poses long-term risks to revenue visibility and margin stability.

Catalysts

Provides solutions for combustion, hybrid, and electric vehicles worldwide.

• Strong new business awards and accelerating RFQ (request for quotation) activity in both hybrid and electric vehicle (EV) product lines demonstrate robust demand for BorgWarner's electrified propulsion systems, positioning the company to capitalize on the industry-wide transition to hybrid and electric vehicles, and supporting sustained top-line revenue growth as electrification continues to outpace ICE declines.
  
• Expanding platform wins, particularly with major Chinese OEMs for inverters, electric motors, and differential technologies, reflect deeper integration into next-generation EV architectures and can drive higher content per vehicle, strengthening long-term earnings visibility through recurring, higher-margin supply contracts.
  
• Ongoing operational restructuring and cost controls, alongside battery business consolidation measures, are yielding improvements in adjusted operating margins and free cash flow, indicating enhanced profitability and the potential for structurally higher net margins as the company pivots to electrified products.
  
• Balanced capital allocation-with a disciplined approach to accretive M&A and substantial increases in both dividends and share repurchase authorizations-demonstrates management's confidence in long-term cash generation and earnings, while also providing downside protection and potential EPS accretion through buybacks.
  
• Heightened investments in sustainable mobility and smart transportation (exemplified by increased R&D focus, rapid-cycle product launches, and scalable technology in growth markets like China) point to improved long-term industry stability for advanced component suppliers like BorgWarner, bolstering the outlook for sustained revenue and margin expansion.

BorgWarner Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BorgWarner's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 6.4% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $5.03) by about September 2028, up from $220.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.4x on those 2028 earnings, down from 43.0x today. This future PE is lower than the current PE for the US Auto Components industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 1.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

BorgWarner Future Earnings Per Share Growth

Risks

• Continued dependence on foundational/combustion product lines, especially turbochargers, increases risk that long-term shifts away from internal combustion engines and possible regulatory bans or phasedowns on ICE will suppress future revenue and limit organic growth, even as the company attempts to outgrow a structurally declining market.
  
• Multiple references to headwinds in the Battery and Charging Systems (BCS) segment-including ongoing near-term and potentially prolonged declines, volatility in customer demand, and lack of clear signs of imminent stabilization-raise concerns that BorgWarner may experience sustained pressure on both revenue growth and segment margin improvement if electrification trends falter or delays persist.
  
• Winning significant new business in hybrid and combustion platforms could expose BorgWarner to the risk of OEMs shifting future capex and sourcing preferences toward pure battery electric vehicle (BEV) solutions or vertically integrating components, thereby undermining the longevity and profitability of these multi-year contracts and threatening long-term revenue visibility.
  
• Heavy reliance on inorganic growth through M&A for portfolio transformation and scale expansion brings risk of overpaying for assets, integration challenges, or inadequate near-term earnings accretion, potentially leading to dilution, reduced net margins, and long-term pressure on return on invested capital.
  
• Tariff-related cost volatility and global supply chain challenges-evident in both current headwinds and guidance-highlight exposure to international trade tensions, protectionist policies, and cost/supply instability of critical EV materials, all of which could unpredictably impact input costs, compress margins, and diminish earnings stability over time.

Valuation

• The analysts have a consensus price target of $43.467 for BorgWarner based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $52.0, and the most bearish reporting a price target of just $37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.0 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 8.8%.
• Given the current share price of $43.69, the analyst price target of $43.47 is 0.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.