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BorgWarner to spin off 2 units, doubling down on EVs

Auto supplier BorgWarner Inc. will spin off its fuel systems and aftermarket segments into a separate, publicly-traded company. After the spin-off, the legacy BorgWarner would consist of two units, its electric propulsion and drivetrain division and air management segments. It's unclear whether the legacy unit or the new unit will move from its Auburn Hills, Mich., headquarters. The combined company employs roughly 49,000 in 22 countries. The electric propulsion unit manufactures electric motors, power electronics, control modules and software, among other components. The air management segment consists of a turbocharger unit and also emissions and thermal systems as well as battery charging units. The tax-free spin off is intended to be completed in late 2023, the company said Tuesday. Following the completion, current BorgWarner shareholders would own shares in both companies. The move is designed to untether the company's legacy internal combustion engine units from the growing electric vehicle segment as automakers continue to double down on an EV future. "The BorgWarner board believes a strategic spin-off of our fuel systems and aftermarket segments would be the best path forward to further the transformation of our company," Alex Michas, non-executive chairman of the BorgWarner board, said in a statement. "The intended separation supports optimizing our combustion portfolio and advancing our electrification journey while (the spin off) would be able to pursue growth opportunities in alternative fuels, such as hydrogen, and in aftermarket. Ultimately, we expect the intended separation to maximize shareholder value by having two focused and strong companies, each pursuing their respective strategies." BorgWarner executives believe the move would "ultimately achieve or exceed" its long-stated target of realizing 25 percent of revenue from EVs by 2025 with expectations to boost EV revenue to 45 percent of total sales by 2030. BorgWarner is already on track to achieve 22 percent of revenue from EVs by the target date, with the split expected to boost it above that an extra 3 percent, the company said. Through the first nine months of 2022, the supplier's air management segment generated revenue of about $5.5 billion with an adjusted operating margin of 13.7 percent, compared to the electronic propulsion and drivetrain segment, which generated revenue of about $3.9 billion and an adjusted operating margin of 6.9 percent. The units to be divested represent about 31 percent of the current company's total revenue. Through the first nine months of the year, the fuel systems segment generated revenue of approximately $1.7 billion with an adjusted operating margin of 11.3 percent; the aftermarket segment generated revenue of just under $1 billion with an adjusted operating margin of 14.5 percent. BorgWarner has been an expansion mode in 2022. In February, it completed a nearly $800 million deal to acquire German lithium ion battery maker Akasol. In October, CEO Frédéric Lissalde told investors during the supplier's third-quarter earnings call it is looking at expanding its U.S. footprint. Last week, BorgWarner announced the $37.3 million acquisition of Swiss power electronics engineering firm Drivetek.
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