BorgWarner (BWA -0.27%), a global supplier of propulsion system components for automakers, reported results for Q2 2025 on July 31, 2025. The standout news was a notable beat on adjusted earnings per share ($1.21 vs. $1.09 estimate), driven by share reductions, and GAAP revenue of $3.64 billion, slightly exceeding consensus. The company also boosted full-year guidance across key metrics, including sales and profit expectations. This quarter reflected solid execution in electrification but highlighted ongoing pressure on margins due to tariffs and soft demand in legacy combustion businesses.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| Adjusted EPS (Non-GAAP) | $1.21 | $1.09 | $1.19 | 1.7% |
| EPS (GAAP) | $1.03 | $1.39 | (25.9%) | |
| Revenue (GAAP) | $3,638 million | $3,622.9 million | $3,603 million | 1.0% |
| Adjusted Operating Margin | 10.3% | 10.4% | (0.1) pp | |
| Free Cash Flow (Non-GAAP) | $507 million | $297 million | 70.7% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
BorgWarner makes key propulsion system products for automotive manufacturers. Its lineup includes combustion engine parts, electrified vehicle components, and advanced drivetrain technologies. Its business spans four areas: Turbos & Thermal Technologies, Drivetrain & Morse Systems, PowerDrive Systems, and Battery & Charging Systems.
Recently, BorgWarner's focus has been on accelerating electrification—mainly its eProducts for electric and hybrid vehicles—while managing the transition from its legacy internal combustion businesses. The company invests heavily in research and development, maintains strong relationships with original equipment manufacturers (OEMs), and adapts its manufacturing footprint across the globe. Mergers and acquisitions continue to play a role, especially as it seeks to expand in electrified propulsion while optimizing or divesting combustion-related assets.
GAAP net sales were up 1% to $3.64 billion, slightly ahead of expectations in Q2 2025. The modest sales increase was driven by strong performance in electric vehicle-related products, even though overall demand in light and commercial vehicle markets was stagnant. The company's light vehicle eProduct sales soared 31% year-over-year. PowerDrive Systems—the segment focused on electrification such as power electronics, inverters, and eMotors—grew its organic net sales by 23.5% year-over-year.
Despite this, organic sales as a whole were essentially flat, with underlying challenges in combustion-exposed products evident. Turbos & Thermal Technologies and Drivetrain & Morse Systems each recorded year-over-year organic sales declines of 4.2% and 2.5%, respectively, in Q2 2025. Battery & Charging Systems reported a 20.2% organic drop, shaped by lower battery prices, weak North America demand, and the previously announced exit from the charging business.
Gross margin was 17.6%, down from 19.0% in Q2 2024. This compression reflects ongoing headwinds from tariffs—cited as a 40-basis-point impact—and higher cost of sales. Adjusted operating margin, which excludes one-time costs, came in at 10.3%, nearly unchanged from the prior year. Growth in electrified products helped, but margin gains were offset by cost pressures and tariffs. Adjusted earnings per share rose approximately 2% year-over-year, chiefly due to a lower share count after buybacks. GAAP net income and earnings per share decreased, impacted by restructuring costs, impairment charges, and the effects of business exits.
Free cash flow (non-GAAP) jumped 70.7% to $507 million compared to Q2 2024. Cash and equivalents at quarter-end stood at $2.04 billion, supporting ongoing investments, dividends, and share repurchases. The company repurchased $108 million of stock. Notably, the board authorized an increase in the buyback program to $1 billion through 2028. The quarterly dividend was raised by 55%.
BorgWarner's electrification strategy continued to gain momentum. The company secured major new business awards for its eProducts, which include dual inverters (for hybrid vehicles), electric motors (for new energy vehicles), and high-voltage coolant heaters (for plug-in hybrids). More than 20 electrified product launches are ongoing, and management cited rising demand especially from Chinese OEMs, reflecting strong growth prospects in Asia. PowerDrive Systems delivered segment revenue growth but remained unprofitable, though losses shrank compared to last year.
Within legacy operations, Turbos & Thermal Technologies and Drivetrain & Morse Systems both recorded revenue and margin decline, aligning with industry trends as automakers shift investments from combustion platforms to hybrids and EVs. Despite shrinking demand in these segments, BorgWarner continued to win new and extended contracts—mainly for hybrid and sports applications—helping extend the runway of its core business. Management reiterated its intent to dispose of $3 to $4 billion in annual combustion revenue over time, but no new divestitures were detailed this quarter.
The Battery & Charging Systems segment showed continued softness, shaped by the company’s exit from unprofitable charging operations and the consolidation of battery manufacturing in North America. This move is designed to align capacity with current market demand and is expected to generate $20 million in annual cost savings by 2026. Ongoing restructuring and exit costs were recognized in the quarter's results but should improve profitability in future periods.
Relationships with global automakers remain a core asset. BorgWarner's ability to win contracts in electrified propulsion across regions demonstrates the value of its R&D investments and its extensive manufacturing footprint. The company continues to allocate about 5.2% of annual sales to research and development, fueling innovation in eProducts and core propulsion technologies. Recent wins, particularly in fast-growing markets like China, showcase the relevance and speed of its product and manufacturing strategy.
BorgWarner raised its full-year 2025 outlook, now projecting net sales of $14.0–$14.4 billion and adjusted earnings per share of $4.45–$4.65, both above the previous guidance. Management lifted expectations for adjusted operating margin and free cash flow. These improvements stem in part from higher anticipated industry vehicle production, favorable currency exchange rates, and ongoing recovery of tariff-related costs from customers.
Looking forward, investors should monitor the company’s ability to scale its electrification businesses into profitability, manage margin headwinds, and successfully balance the transition away from combustion-related revenue. Other key variables include the pace of OEM electrification programs, tariff and trade policy effects, and the competitive intensity of the automotive supplier space.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.