Prepared remarks
Good morning. My name is Nick, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 Second Quarter Results Conference Call. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.
Thank you, Nick. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations homepage. With regard to our Investor Relations calendar, we will be attending investor conferences between now and our next earnings release. Please see the Events section of our Investor Relations homepage for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. In addition, during today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding noncomparable items.
When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our incremental margin performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe.
Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the second quarter of 2026 and provide an overall company update, starting on Slide 5. I want to begin by thanking our employees, customers and suppliers for all of their trust, efforts and continued support. In the quarter, we achieved sales of over $3.6 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were up modestly year-over-year, outperforming the decline in market production, primarily due to strong North American transfer case volumes. Our adjusted operating margin, adjusted earnings per share and cash flow performance was strong in the quarter. The company continued to operate at a very high level and delivered 100 basis points of adjusted margin expansion and 17% of earnings per share growth in a relatively flat year-over-year sales environment. This outstanding result was once again driven by our focus on cost controls across our business.
I'm excited to report that our strong award activity continued into the second quarter. Today, I'll highlight 7 new business awards across our foundational and eProducts portfolios. These wins represent only a portion of the awards secured during the quarter, but I believe they underscore the strength of our technology-focused portfolio, our deep customer relationships and the global demand for our efficient powertrain technologies around the globe. Equally exciting is the progress we've made in the quarter in taking meaningful steps in our product readiness across our data center and other industrial markets portfolio. I will share a detailed update in a few moments. Lastly, we remain focused on efficient deployment of capital to drive shareholder value. In the quarter, we returned approximately $134 million to shareholders through share repurchases and payment of a cash dividend. Additionally, our Board of Directors approved a $1 billion increase to our current share repurchase authorization, increasing our authorization to $1.35 billion or approximately 10% of BorgWarner's market cap.
These actions demonstrate our confidence in the long-term cash-generating ability of our business and our focus on driving shareholder value through a balanced capital allocation approach. As I look back on the second quarter and the first half of 2026, I'm very proud of our team and our results. Once again, we executed at a very high level, which I believe puts the company in a strong position to achieve our full year sales, margin, EPS and free cash flow guidance. Our strong first half performance has also allowed the company to increase our second half 2026 industrial R&D investment to accelerate our product readiness. We are doing this while delivering on our full year 2026 financial commitments. Turning to Slide 6. I'd like to highlight 7 recent product awards that demonstrate both the competitiveness of our technology and our ability to support our customers' powertrain needs in key markets.
Let's start with our foundational product awards. First, BorgWarner has been awarded a new eTurbo program with a major European OEM for an advanced hybrid passenger car application, further strengthening BorgWarner's leading position in electrified boosting technologies. Production is scheduled to begin in 2029. I believe BorgWarner's eTurbo innovation and leadership remains a core technology underpinning the industrial power generation product line, leveraging our automotive scale to disrupt the data center market. Second, BorgWarner has secured new business with a Chinese OEM to supply our torque-on-demand case with mechanical lock for a newly developed full-size SUV in China. We have built a 20-year relationship with this customer, and we're proud to continue supplying our all-wheel drive technology for their newest SUV. Start of production is planned for the fourth quarter of 2026. Third, BorgWarner continues to expand its variable cam timing business with new program awards in Europe and China.
These programs include a program life extension and significant volume increase for a leading European premium OEM's V6 engine family; and a complex win for a major Chinese OEM's 1.5-liter turbocharged gasoline engine family, replacing the previous incumbent supplier. These awards underscore the long-term competitiveness of our VCT portfolio across both hybrid and combustion engines. Switching now to our recent eProduct awards. First, BorgWarner has secured a new integrated drive module award with a global OEM. This iDM features BorgWarner's latest 3-in-1 integrated coaxial drive system, combining an advanced eMotor, gearbox and fully integrated Gen4 inverter in a compact high-performance package. I believe this award reflects BorgWarner's continued commitment to delivering advanced electrified drive solutions through the strength of our global technology portfolio and localized capabilities.
Production is expected to begin in 2027. Second, BorgWarner has secured a major extension of two high-volume, high-voltage inverter programs with a major European OEM. These awards cover updated inverter designs for both plug-in hybrid and 800-volt battery electric vehicle applications, building on a trusted partnership in power electronics. I believe that extending several high-volume programs at the same time confirms BorgWarner's leading position in power electronics and the strength of our technology, in-house expertise and customer focus. Evolving our inverters generation by generation together with our customers for both hybrid and fully electric applications is how we build trusted long-term partnerships with the world's leading OEMs. Production is expected to begin in 2029. Importantly, all the eProduct awards I just highlighted include BorgWarner's inverter technology, and it speaks to the world-class technology leadership and scale BorgWarner has as high-powered inverters.
This expertise has been developed over decades of engineering effort and represent our product leadership in this area. Our automotive inverter competence is another great example of a world-class technology that BorgWarner can use as we continue to advance our product readiness to capture additional growth vectors outside of our core automotive markets. As I will discuss in a moment, the world is in need for more power and our highly efficient inverter is a solution that solves this growing problem. Next, on Slide 7, I would like to discuss the acceleration of our product readiness across our data center and other industrial markets portfolio. Let's discuss with an update on our turbine generator launch progress. I'm very pleased with the advancements that we've made over the past quarter. First, I'm excited to share that our testing has confirmed that we have achieved CARB-level emission standards.
I view this as an important milestone as we continue to expect our turbine generator to provide a lower emission solution relative to competing technologies. Our UL compliance process continues to progress well. UL component certification is expected to start in September, and our component level evidence books have already been submitted. Construction of the final assembly plant is quickly moving forward with the footprint largely complete. We expect our capital equipment installation to begin in the third quarter. And overall, I'm excited and pleased with the team's progress, which will position us well to meet the strong interest that we continue to see from end customers, including multiple hyperscalers. Turning next to our Battery Energy Storage system. Our energy storage solutions are intended to support a range of use cases in data center environments. We continue to position our Battery Energy Storage solutions to support data center, AI and mechanical loads.
Our product scope spans the entire energy power time requirement spectrum, offering high-energy, long-duration and/or high-power, short-duration solutions. We are working to widen our portfolio, which includes DC blocks, uninterruptible power supplies, high-power racks and controls. Our solutions are modular, scalable and cell-chemistry independent. Customer validation and UL compliance is advancing, and we expect to be production ready in 2027. Our quoting activity for our Battery Energy Storage systems continues, and I look forward to providing you with additional updates later this year. Turning to our microgrid inverter offerings. Initial customer feedback has been extremely positive. We believe that we have the right value proposition, including U.S. manufacturing and supply chain. Our automotive supply chain is increasingly being viewed as a differentiator and our decades-long experience in highly engineered, high-voltage power dense and liquid cooled power electronics is recognized and confirmed by potential customers.
Four customers now have BorgWarner samples and discussions with other potential customers are underway. With feedback already received, we are quickly moving to develop Gen2 designs. While we continue to see the move toward 800 volts supporting our entry into this market, we have now begun to develop a high-power portfolio spanning applications ranging from 400 volts to 1,500 volts as we see potential for volumes across this spectrum. I look forward to progressing toward customer quoting later this year. To summarize, I believe there are three key takeaways from today's call. First, BorgWarner's second quarter results were outstanding. Our sales remained strong at over $3.6 billion. Our adjusted operating margin expanded 100 basis points and adjusted EPS grew by 17% versus the second quarter of 2025. Additionally, we increased our full year adjusted EPS guidance, reflecting our continued focus on growing the earnings power of the company.
Second, we announced seven new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership and the need for our highly engineered solutions across combustion, hybrid and BEV architectures. Third, we further improved our product readiness across our data center and other industrial markets portfolio. We see strong customer demand and are confident that our mechanical and electronic core competencies will enable us to successfully capture growth outside of our core automotive market. This confidence in our strong first half 2026 performance has allowed us to increase our second half industrial R&D spending to further accelerate our industrial product readiness. And finally, we took meaningful steps to return capital to shareholders during the second quarter with approximately $134 million returned through our cash dividend and share repurchases.
Additionally, the $1 billion increase to our share repurchase authorization and $1.35 billion total authorization demonstrates our commitment to following a disciplined approach of consistently returning cash to shareholders to create value. Overall, I believe our year-to-date results illustrate the strength of our team, our product portfolio and the long-term earnings power of our business. I'm excited to continue our positive momentum into the second half of 2026. With that, I will turn the call over to Craig.
Thank you, Joe, and good morning, everyone. I'm excited to share the details of our second quarter financials by turning to Slide 8 for a look at our year-over-year sales walk. Last year's Q2 sales were just over $3.6 billion. In the second quarter of this year, stronger foreign currencies drove a year-over-year increase in sales of $54 million. And you can see the sales headwind from our battery business, which drove a year-over-year decrease in sales of $62 million. The remaining organic sales increase of $18 million, or 0.5%, was modestly ahead of the decline in light vehicle market production for the quarter. This increase was primarily driven by transfer case outgrowth in North America. Ultimately, sales were relatively flat year-over-year and remained strong at over $3.6 billion. Turning to Slide 9. You can see our earnings and cash flow performance for the quarter. Our second quarter adjusted operating income was $413 million, equating to a strong 11.3% adjusted operating margin.
That compares to adjusted operating income of $373 million or a 10.3% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $7 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income increased $28 million on $44 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Equally exciting was every business unit expanded operating margins in the quarter and lower corporate costs provided an additional tailwind to our strong results. Our adjusted EPS was up 17% compared to a year ago as a result of higher adjusted operating income and the impact of approximately $650 million in share repurchases or approximately 5% of our market capitalization over the past four quarters. And finally, we generated free cash flow of $492 million in the second quarter, which supported $250 million in share repurchases and $70 million in dividend payments in the first half of 2026.
I believe this once again demonstrates our focus on creating value with our consistent and strong free cash flow. Now let's turn to Slide 10 and take a look at our full year 2026 outlook. We are maintaining our full year sales, adjusted operating margin and free cash flow guidance. However, we are increasing our full year adjusted EPS guidance based on our share repurchases in the first half of 2026. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion compared to $14.3 billion in 2025. Starting with foreign currencies, our guidance now assumes an expected full year sales benefit of $175 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. This benefit is modestly lower than our previous guidance. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted light vehicle market, consistent with how we performed in the first half of 2026.
However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. We now expect this decline to represent roughly a 170 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market and consistent with our previous outlook. Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits.
At the high end, our outlook assumes we largely offset the impact of the organic sales decline through further cost controls similar to what we delivered in the first half of 2026. Our strong first half performance is enabling the company to increase our planned industrial R&D spending while maintaining our full year adjusted operating margins and guidance commitment. We continue to see strong customer interest in our growing industrial portfolio and believe BorgWarner's mechanical and electronic powertrain core competencies fit extremely well to serve the needs of a high-power industrial market. Given these factors, we are leaning forward and accelerating our R&D spending on these products by investing an incremental $10 million to $15 million to support our future growth. This is a great testament to the BorgWarner team's ability to execute at a high level in the short term to support our long-term sustainable sales growth in a growing market.
Importantly, we are making this R&D investment while maintaining our full year margin guidance. Based on this sales and margin outlook, we are now expecting full year adjusted EPS in the range of $5.05 to $5.30 per diluted share, which is an increase compared to our initial guidance range of $5.00 to $5.20 per diluted share. This increase is primarily due to the share repurchases completed during the first half of 2026. The midpoint of this adjusted EPS guidance represents approximately a 5% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving earnings expansion despite lower industry production. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that — that's our 2026 outlook. Now let's turn to Slide 11 and discuss our recently increased share repurchase authorization.
As Joe highlighted in his opening remarks, we repurchased approximately $100 million in BorgWarner stock during the second quarter. This takes our share repurchases over the last four quarters to approximately $650 million and leaves $350 million remaining under our prior share repurchase authorization. Our Board of Directors approved an increase of up to $1 billion through 2029. When combined with the $350 million remaining under our prior authorization, management has the ability to repurchase up to $1.35 billion of the company's outstanding shares or just over 10% of our current market cap. I believe this authorization increase demonstrates the confidence we have in the long-term cash-generating strength of our business and our focus on driving shareholder value through a balanced capital allocation approach that rewards shareholders. So let me summarize my financial remarks. Overall, we were very pleased with our second quarter results.
Our light vehicle sales performance was modestly stronger than industry production. We achieved a 100 basis point adjusted operating margin improvement and a 17% adjusted earnings per share increase on relatively flat reported sales. And our strong free cash flow performance supported a cash return of approximately $134 million to shareholders in the quarter. Our Q2 performance once again demonstrates the BorgWarner team's ability to deliver strong financial results in a declining production environment. We believe this increased share repurchase authorization by our Board of Directors demonstrates our long-term confidence in the cash-generating ability of our business. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales will decline in 2026 and an incremental $10 million to $15 million investment in industrial R&D to accelerate our long-term sales growth.
And finally, with another year of anticipated strong free cash flow of $1 billion at the midpoint of our guidance, we expect to continue to deploy capital in a balanced approach that rewards shareholders by continuing to focus on near-term execution, growing the long-term earnings power of the company through organic and inorganic investments. And following a balanced deployment of our capital, we believe BorgWarner will create significant shareholder value for many years to come. With that, I'd like to turn the call back over to Pat.
Thank you, Craig. Nick, we're ready to open it up for questions.
Questions and answers
The first question will come from Chris McNally with Evercore.
Joe, could you maybe provide a little more color on some of the quoting progress you discussed for the AI initiatives? I think in particular, maybe you could give like a really quick 101 on Borg, Endeavour and TurboCell relationship, I think given most of us are keeping Claude kind of busy mapping out the different public entities such as Edged, which was also recently in the news. So one of the questions I think that would be great to answer is, will Borg announce every smaller DC win within the relationship? Or is it likely to batch them together as they become material? And then a follow-up.
Yes. Chris, as I mentioned in the remarks, we're really pleased with the progress we've made in the second quarter, and we remain on track, starting with the TG. As you know, we're launching that next year in 2027. A couple of data points on that business: customer interest remains really strong, including multiple hyperscalers. Endeavour provides value in this relationship, and the partnership continues to grow and strengthen. We achieved CARB-level emissions, which is a differentiator for us compared to what's out there. UL compliance is in process. From where I stand, we're on track to deliver. With regard to the Endeavour relationship, it continues to grow and get stronger as time passes. We won't commit to announcing every individual event. We try to share the important events and milestones with investors. With the recent news on Endeavour and their partner, Koch, we are aware of it. It's not unusual for financial partners to raise capital for data center growth. We don't think it materially changes anything between us and our relationship with Endeavour. The partnership is stronger than ever. We see a great fit between our companies and how we see the future of the world. If anything, this adds credibility to Endeavour and their Edged data center business. We're happy to be partnered with them.
The next question will come from Colin Langan with Wells Fargo.
Just a follow-up on the turbine generator. I think in the past, you commented that you'd consider announcing adding more capacity in the second half of this year. Is that still the plan? Any thoughts on the need to add more capacity given the customer interest? And if you do decide, how quickly can that new capacity come online? And just one question on the results today: your sales were up just $10 million, EBITDA up $40 million. That's quite a strong conversion. Even if I take batteries out, it's up $40 million on $70 million in sales. What is driving this extremely strong conversion on growth? You mentioned strong cost controls possibly continuing in the second half — what are those cost controls? And why wouldn't they continue since you have a couple of quarters of that under your belt?
Yes. Colin, we continue to see strong demand, and we're encouraged by that. We anticipate we'll have to make a decision in the second half of this year on capacity and also decide whether that capacity will serve this market or perhaps a different market, which we are also pursuing with our partner, Endeavour. No decisions have been made yet, but I am encouraged by the demand side of the equation, so more to come.
Thanks, Colin, for the question. It was great execution on all fronts across our business. We delivered 11.3% margin in the quarter, up 100 basis points. When you break down that 100 basis point improvement year-over-year, 60 basis points came from strong performance from our foundational businesses, TTT and DMS. We had 20 basis points of enhancement through BES, the restructuring actions they've taken in 2025 and 2026 as well as the exit of the charging business. The final 20 basis points came from strong cost controls. What I was most excited about was that we expanded margins in every business unit, and corporate provided a nice tailwind. It was strong execution across the board.
The next question will come from Luke Junk with Baird.
Joe, curious to double-click on one of your comments in the script around inverter efficiency. Just hoping you could speak a little more to what you see as the company's inverter efficiency, especially potential future applications that could stem from that? Do you have an ambition to expand the portfolio further there? And in terms of scope, maybe if you could remind us also of some of the markers for efficiency that you outlined at the '23 Investor Day, I think you outlined a path to industry-leading levels for automotive.
Thanks for the question, Luke. When you think about efficiency, especially on the industrial side, power is the constraint. Any improvement in efficiency is important. We continue to see efficiency gains as we develop next-generation inverters. Sometimes that comes from silicon and silicon carbide technology; often, it comes from our proprietary power module, which we develop and produce ourselves. A lot of that has to do with how you cool the device as you drive a lot of power through it. Efficiency improvements from generation to generation tend to vary, but similar to fuel economy improvements, you may see a few basis points or, at times, a few hundred basis points with major steps forward. Our leading product to market is likely to be a microgrid-tie type of inverter—tying together power gen with other power sources and possibly the grid. That's what we're leading with, but we see other opportunities.
We've expanded the voltage range from 400 volts to 1,500 volts. Our team is evaluating other opportunities inside and outside the building, including rack-level power needs driven by next-generation AI chipsets. Regarding investment scope, incremental products like UPS and battery backup units are examples of what the additional R&D in the back half of the year will support. These incremental products are part of the portfolio expansion—energy storage and new power conversion products—and the $10 million to $15 million incremental R&D are intended to support them. A year ago, we weren't even talking about these products, and the progress our teams have made is significant. I'm excited to see what comes with this additional investment.
The next question will come from Joseph Spak with UBS.
So you came in about almost $40 million higher this quarter. You're raising R&D by $10 to $15 million. The other in OI is basically flat for the full year. So the other $25 to $30, is that just some higher costs? Maybe you could talk about that. And then just with this higher level of R&D, should we think of this as a more sustained pace into the future? Or is it something of a pull forward because you see some of these emerging opportunities that you alluded to in your prepared remarks?
Thanks for the question. It may be helpful to walk you through first half to second half revenue and then operating income or margin. Sales in the first half came in just under $7.2 billion. The midpoint of our guide puts us right around $7.0 billion from a top line perspective. We have three headwinds first half to second half: the battery decline, about $60 million; FX, about $80 million; and the rest is industry production, assuming a modest decline of about 1%. That takes us to $7.0 billion in revenue at the midpoint. On those lower revenues, we're decrementing at roughly 15% in the mid-teens. We're also leaning forward with that $10 million to $15 million in industrial R&D. If you exclude that step-up in R&D, our margin would be at 10.8%, effectively in line with the first half. If you include industrial R&D at the midpoint, we're at 10.6%. From our perspective, this makes sense, and we're excited to invest that extra $10 million to $15 million to enhance our portfolio.
On sustained investment, these opportunities are what's driving the R&D investment. As we continue to see more opportunities in the industrial space, we'll go after them. These products typically take 18 to 24 months to develop in general. When we start investing, you can expect some level of sustained spending. BorgWarner is efficient with how we spend our R&D, and in this case it is focused on attractive growth.
And maybe one other comment: we're executing in the short term. We're still expanding margins and EPS, and we're still generating significant free cash flow. At the same time, we're investing in our long term in a high-growth market. It's a great time to be at BorgWarner.
The next question will come from Andrew Percoco with Morgan Stanley.
Great. I want to come back to some of the comments you made on the turbine generator product and the hyperscaler interest that you're seeing. Can you provide some context on whether they're looking at this product on a primary power basis or a backup power basis? Also, if you can provide any insight in terms of whether the economics look different from your perspective on whether they end up using it as prime versus backup?
Our turbine generator can serve both primary and backup. When we started this project a few years ago, we thought the majority of applications would be backup. Over the last 12 months, that has shifted, and we now see more prime use. That reflects the speed to compute and the shortage of power generation generally. The TurboCell unit using BorgWarner TG serves both use cases and has lower emissions and lower noise than some competitors. Speed to market is important. In terms of the economics, overall we're pleased with the terms and the agreement we have with Endeavour across all use cases.
Okay. That's helpful. You mentioned time to power being very important. As you scale production in 2027—what's your targeted order-to-delivery conversion timeline? What are you advertising to customers about delivery timing once you have capacity?
We've announced we're installing 2 gigawatts of capacity and in the initial year next year about $300 million of revenue. We are quoting through Endeavour lead times to deliver these units. Standing up automotive production and supply chain at speed is a competitive advantage. The order time is within the lead times of our capacity and suppliers. We haven't disclosed specific lead times and won't do so today, but our main focus is launching the unit in 2026 and we'll share more as we progress into 2027.
The next question will come from James Picariello with BNP Paribas.
Koch Industries has been mentioned amid recent news flow of Koch potentially looking to sell its stake in Edged at a $15 billion valuation, but my question is, within the contractual relationship you have with Edged by way of TurboCell, are there any change-in-control triggers involved? Anything that could affect the $300 million plus in revenue that you have slated for next year?
There is nothing in our agreement that triggers on change in control. Keep in mind there are several Edged legal entities. The one we directly deal with is 100% owned by Endeavour, and that's not what's being discussed publicly. The discussions are more about how Koch can raise additional money to support growth. We don't see this as a material issue. We're excited to be partnered with Endeavour and their Edged business unit; partners like Koch raising capital adds credibility to what they're doing.
On battery systems, losses through the first half totaled only $4 million. I know there are charging exit and battery plant consolidation savings in play. But if we scrub for those, the underlying performance is still far better than the company's targeted mid-teens decremental. Can you shed light on what's driving that? And directionally, how should we think about the first half to second half bridge for this segment?
We're really pleased with BES and their performance. They've taken many restructuring actions in 2025 and continue to in 2026 to get the cost structure right. On top of that, we have the benefit from the exit of our charging business. Ultimately, as you move from first half to second half, we expect to manage in that mid-teens decremental conversion, and that's what we're focused on executing.
The next question will come from Emmanuel Rosner with Wolfe Research.
You've been announcing a significant number of awards consistently every quarter, another seven today. Any way to help us frame what this could do for your growth over market on a go-forward basis and the timing of it? Can we expect it to be positive in 2027? Where could it trend over time as you launch a lot of these businesses?
I'm pleased with the booking strength we've had over the last two years across product lines. I do expect these bookings to support improvement in our outgrowth across the portfolio in 2027. We announced $300 million of new growth associated with the industrial business. These bookings take time to come to production, but we expect they will improve the company's outgrowth. As those volumes move through launch and into peak volumes, we anticipate continued improvements and will share more in 2027.
On the industrial side, can you help us dimension the inverter opportunity for you, not just addressable market but how much capacity you're planning to have? For turbines you know initial capacity. For energy storage you have an idea from existing battery pack investments. But for inverters, what's the facility investment and capacity plan?
We haven't announced capacity plans for inverters yet. We'll move to quoting at the end of this year, which will guide whether we leverage existing capacity investments or need new capacity. One key point: our grid-tie inverters are majority designed in the U.S., and we plan U.S. manufacturing. There's a lot of opportunity on that product line, but it's early days in quoting. We'll likely be in a position to share more in 2027.
The next question will come from Dan Levy with Barclays.
I wanted to start with a question on capital allocation. You issued a new $1 billion buyback authorization and have been buying back stock. How are you thinking about capital allocation in light of this new growth opportunity? Is there more that can be done on accelerating spend, be it R&D or CapEx, to accelerate the growth opportunity? Is M&A in play? How are you thinking about spending to accelerate the industrial opportunity?
We are focused on growing the earnings power of the company and creating value with our cash. We balance inorganic opportunities, organic investments and share repurchases, and we review this every quarter. Over the past year, we repurchased $650 million, about 5% of our market cap. The new authorization gives us flexibility—about $1.35 billion total, roughly 10% of market cap. That demonstrates our confidence in future cash generation. Ultimately, our goal is to drive the earnings power of the company and we'll use every lever at our disposal to do that.
To add: we will always prioritize organic investments when we see growth opportunities, both R&D and CapEx. In terms of M&A, we stick to three criteria: leverage the company's core competencies, ensure near-term accretion, and avoid overpaying. We continue to look both inside and outside mobility, but we've raised the hurdle for any acquisition decision.
From a technology perspective on the new growth opportunities, do you have everything you need in-house, or is there something you still need to acquire to strengthen the portfolio?
We're moving from a position of strength. Our portfolio and investments over the last decade enable these new industrial product lines to leverage a lot of existing competence. There may be opportunities through inorganic growth to strengthen or improve our market position. For any M&A, we'll apply our three criteria and be disciplined.
The next question will come from Alex Perry with Bank of America.
For the core auto business, you noted organic sales were slightly lower and aligned with the low end of production. Can you talk about what you're seeing in schedules? Specifically, what's happening in China? It's been a more challenging market for many suppliers. How are customer schedules looking there compared with Europe and North America?
Globally, production views are largely unchanged. We still see schedules holding up. Regionally, China may be down 4% to 7%, Europe down slightly, and North America has a wider range, from up 1.5% to down about 2.5% to 3%. There is some volatility, especially in passenger cars, but not major changes. Chinese OEM exports were very strong in the first half; they could export 9 to 11 million units, a large year-over-year increase. For us, our strong position with leading Chinese OEMs and customer diversity tends to wash out many mix issues others may see.
On power generation, you've earmarked $300 million for next year. How fast can you scale power gen sales with existing capacity? What could that scale to over time, and any sense on expected EBIT contribution as this builds?
We're focused on a successful launch and executing flawlessly. We announced $300 million of revenue for next year and are comfortable with that number. Right now we are focused on meeting quality milestones and operational milestones to serve requirements. We haven't shared revenue-to-capacity ratios yet; we may do so in the future. Demand is not the constraint—hitting quality and operational milestones is the key.
We have time for one final question, and that question comes from Rajat Gupta with JPMorgan.
I wanted to follow up on the hyperscaler opportunity. You mentioned earlier that an award in the battery space would be substantial. Can you frame the range of outcomes? What comes first with that kind of an award: the turbine, the storage system, or the inverter? How will sequencing work and impact capacity decisions?
For clarity, the turbine generator is a product we've developed and are supported by Endeavour; we go to market through Endeavour. On the battery side and power conversion side, we can serve the entire market directly. Regarding sequencing, we expect to lead with the turbine generator—the most developed product launching next year. We expect to see some battery awards this year, and power conversion is a bit behind energy storage, so it will close toward the end of this year. That sequencing will inform capacity decisions.
On the 2027 start of production with $300 million, what are the remaining gating factors? Everything has been tracking per plan; what are the final one or two steps before shipments?
There are additional milestones: qualification testing to meet all requirements, reliability testing, and ramp-up to ensure quality and cycle time targets. Those are internal checkpoints where we may need to adjust. BorgWarner conducts many launches each year, and this phase is familiar to us. It's a lot of work and focus on execution. We're pleased with progress to date.
With that, I'd like to thank everyone for their questions today. If you have any additional follow-ups, feel free to reach out to me or my team. With that, Nick, you can go ahead and conclude today's call.
This concludes the BorgWarner 2026 Second Quarter Results Conference Call. You may now disconnect.