Morningstar | BorgWarner Positioned for Growth From Globally Ubiquitous Clean Air Regulations
BorgWarner is well-positioned to capitalize on industry trends arising from global clean air legislation, consumers' demand for fuel economy, and the popularity of sport utility and cross-over vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies.In our opinion, BorgWarner is well positioned for the trends in the auto sector that will result in revenue growth in excess of the growth in global automobile demand. We estimate 6% average annual revenue growth over our five-year forecast, roughly 2-4 percentage points higher than our expectations for 1%-3% long-term growth in global light vehicle demand.We expect turbocharged four-cylinder gasoline engine penetration to accelerate, given more stringent clean air legislation around the world. We also think that an early demise to the diesel engine in passenger vehicle applications is over exaggerated by the market. Turbochargers, one of BorgWarner's products for which it commands an industry leading market share, are a cost-effective way for OEMs to improve engine efficiency, which increases fuel economy and lowers tailpipe emissions. BorgWarner is also well positioned for growth in hybrids and batter electric vehicles. Through its 2015 acquisition of Remy, the company possesses electric motor technology. Integrating electric motors with other BorgWarner technologies enables the company to capitalize on the increasing penetration of hybrids and battery electrics. Regardless of the powertrain automakers chose, we think BorgWarner revenue growth potential remains unchanged.BorgWarner's drivetrain business includes wet dual-clutch and torque transfer technologies. Dual-clutch transmissions, which contain eight or more gears compared with older technology automatic transmissions equipped with four gears, can generate 5%-15% in fuel savings. Torque transfer devices enable all-wheel drive and four-wheel drive for globally popular sport utility and cross-over vehicles.BorgWarner is a holding company. Through its subsidiaries, the company is a global product provider in technology solutions for combustion, hybrid and electric vehicles. The company manufactures and sells these products worldwide, primarily to original equipment manufacturers of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). The company's segments are: Engine, which provides turbochargers, eBoosters, timing systems, emissions systems, thermal systems, gasoline ignition technology, cabin heaters, battery heaters and battery charging; and Drivetrain, which provides rotating electrical components, power electronics, clutching systems, control modules and all-wheel drive systems.
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