BorgWarner has a wide range of 48-volt products. How will this market evolve?
Legislation has continued to reduce the required levels of CO2, especially in Europe and China. At the same time, diesel volumes have declined, and SUV numbers are growing. Since battery-electric and plug-in hybrid sales are growing at a pace that is not sufficient to close the CO2 gap, there is still a great need for efficiency improvements in conventional powertrains. Mild hybridization with a 48-volt system offers a way to improve the efficiency without adding a lot of cost or complexity. Initial 48-volt applications are primarily belt-driven motor-generators [P0 configuration], but the CO2 benefits of this architecture are limited. To get more efficiency improvement the electric machine must be able to recuperate energy and drive the vehicle without the engine rotating, which is why we are developing integrated modules in the P2, P3, and P4 positions, both at 48 volts and high voltage. The 48-volt versions will provide cost-effective solutions and will likely become the new standard base vehicle propulsion system for many segments, leading to higher volume and great economies of scale.
Will that extend the life of the internal combustion engine?
Yes, definitely, and it puts us in a really good position. Most of the 48-volt players are coming from the electric motor or inverter side. We come from the mechanical integration side, and automakers want more and more system integration, because they have a lot to do with all the other trends such as autonomous and connected cars.
How does your business break down by powertrain?
We will transition from slightly underweight on hybrids and nonexistent in electrics to on par with the market, and even slightly overweight on hybrids. Looking at IHS Markit's 2023 global production forecasts, 71 percent of powertrains will be internal combustion; about 67 percent of our revenue will come from internal combustion. Hybrids will be about 24 percent; we will be at nearly 27 percent. And electric vehicles will be at 5 percent, and so will we. It is like the stock market; you want to hedge your bets a little bit and you know where you want to put a little more risk. We are doing that with a large portfolio of products and balanced regional mix. In addition, by 2022-23 we expect our revenue to be evenly distributed among Europe, Asia and the U.S.
We are seeing a slowdown in global auto production. How will BorgWarner sustain its revenues?
We look at what we call our participation rate [the global percentage of cars with BorgWarner content] and our content per vehicle. Looking at internal combustion, our participation rate is expected to rise to 52 percent in 2023 from 47 percent now, and the average content per vehicle to $210 from $187. In hybrids, where production is increasing sharply, we expect our participation rate to go from 25 percent to 46 percent, and content per vehicle to go from $147 to $275. In electric, we will move from 13 percent to 33 percent, and the content per vehicle will be $340 -- even higher than hybrid or combustion.
Why is your content per vehicle highest in electric?
It's simply because we are moving up the food chain. What we sell for electric vehicles has more value-added. Many people associate electrification of the powertrain with full-electric vehicles, but this isn't really the case. The battery-electric vehicle will coexist with a vast variety of other propulsion architectures, with motors that can be used for hybrids as well as full-electric vehicles. It's really important for our growth to make sure we are considering all of the electrification possibilities and that we have a modular design, which will give us scale.
Is BorgWarner negatively affected by current trade disputes?
Relative to our peer group, we think we are in a slightly better position because we manufacture our finished products in the same region where our customers use them, so we are not shipping them from one continent to another. Where trade disputes affect us is in our own supply chain. We are working with our suppliers to see what can be done -- can they adjust pricing, absorb some of the tariffs, or can they relocate? On the other side, we are asking our customers to help. It's not the first time we have had to manage things like this.
We are seeing a slowdown in Europe, especially in Germany. How do you see the European market developing?
Our hypothesis is that it will be slightly down in the next year. We had a slowdown last year due to WLTP homologation, and we have new RDE (real driving emissions) testing this year and next year. It's making everybody's life a little more difficult to validate all the models, so we are being prudent about the European market.
What is your forecast for China?
About 22 percent of our current revenue comes from China, and it's growing. Our business there is about 50 percent with joint ventures and 50 percent with domestic automakers. Right now, the market there is down 16 or 17 percent from 2018. For the full year 2019 we should be close to minus 10 percent. We think the market will be stable in the next year. We are outgrowing the market there by about 10 or 12 percentage points because the utilization rate and our content is growing, so we are affected by the downturn a little bit. Right now, we are not betting on a resolution of the trade dispute between China and the U.S. If it comes it comes, but we have to run the company as if it won't.