BorgWarner, one of the industry's top two turbocharger manufacturers, wants to beef up its expertise in power electronics and is prepared to spend to get there through acquisitions.
That will put the supplier in a better position to penetrate the hybrid vehicle market, said BorgWarner CEO James Verrier.
"Today we have good power electronics inside the company, but I want more," Verrier said in an interview this month. "We'd like to build our capability."
He said BorgWarner earmarks about $400 million a year for acquisitions or stock buybacks. "But if the right deal is there and we have to go into debt, we will do so," he said.
The company took on debt when it agreed to acquire electronics supplier Remy International Inc. for $951 million in cash in July 2015, paying a healthy 44 percent premium for Remy.
Remy makes alternators, starters and hybrid motors, which BorgWarner has pitched to customers seeking to electrify their vehicles. Verrier said he now can supply components for electric vehicles, hybrids or internal combustion engines.
BorgWarner expects EV and hybrid parts to generate 16 percent of its sales by 2023, up from 1 percent or so this year. Remy will help make that possible, Verrier said.
IHS Automotive forecasts that global production of hybrid vehicles will reach 18 million units a year by 2025, up from 3 million this year.
Remy "was a great deal for us," Verrier said. "We're thrilled with it."
Now that BorgWarner has had a year or so to integrate the acquisition, Verrier said he's ready for another one.
"We have a robust pipeline of ideas," he said.
The election of a conservative U.S. government does not change Verrier's attitude. Many observers speculate that the incoming Trump administration will soften or even eliminate the 54.5 mpg U.S. (4.32 liters/100km) corporate average fuel economy target for the 2025 model year.
That would seem certain to hurt profits of suppliers that have invested heavily in fuel-efficient components.
But not to worry, Verrier said. The U.S. accounts for only 30 percent of BorgWarner's global sales. Regulators in China and Europe will continue to demand fuel-efficient vehicles.
And Verrier isn't ready to write off CAFE goals in the U.S.
"Is 54.5 mpg dead forever?" he asked. "Or will we just push it out beyond 2025? It's very early."
Verrier expects automakers to feel competitive pressure to improve fuel economy, CAFE or not.
"The push from automakers for better fuel economy will come independently of regulation," Verrier said. "It may not be as strong, but it definitely will be there."