BorgWarner, the U.S.-based driveline specialist, began to reinvent itself to succeed in an electrified world with an ambitious M&A program, including the acquisition of Delphi Technologies in 2020 at a $3.3 billion valuation. BorgWarner took another big step in December, announcing it would spin off its aftermarket and fuel systems businesses into a separately traded company. Paul Farrell, BorgWarner executive vice president and chief strategy officer, spoke with Automotive News Europe News Editor Peter Sigal about why the move makes sense for BorgWarner as it focuses on new propulsion technologies.
BorgWarner just announced that it would spin off its aftermarket and fuel systems units as a separately listed company. Why this move, and why now, with so much economic uncertainty?
When we announced our Charging Forward strategic plan in 2021, it included dispositions of $3 to $4 billion in combustion revenue by 2025. The spinoff is part of that strategy. Our view is that now is the right time. The electrification business at BorgWarner is accelerating. We have booked $3.1 billion in organic 2025 EV revenue. We have got another $900 million in EV-related 2025 revenue associated with acquisitions we have made since we announced Charging Forward. We are well positioned as a leader in electrification. On the other side, if we look at NewCo [the as-yet unnamed spinoff company], it is financially strong, margins are good, and they have improved significantly since BorgWarner took over the business [after the acquisition of Delphi Technologies]. The business is performing well in a challenging environment. And NewCo has a nice, balanced business mix -- light vehicle, commercial vehicle and aftermarket.
This gives us a great opportunity to form two more-focused companies that are both going to be financially strong, and each can then pursue the strategies that they need to succeed. BorgWarner can focus on electrification, and NewCo will have the opportunity to pursue its priorities.
Before BorgWarner acquired Delphi Technologies, it was split off from Delphi Automotive, along with Aptiv. Are there any takeaways or lessons that can be applied?
Five years ago, we were going through the same process. I look at it as another step in the evolution of the automotive propulsion market. Delphi Technologies was spun out of Delphi Automotive to give it more freedom to pursue the strategies it needed to pursue. That was done with a recognition at the time that the propulsion market was changing, and that the company would be better able to navigate that change if it had more control over its own destiny.
In this case, it’s a similar situation with the Fuel Systems and Aftermarket businesses. It may look like a similar play, but nobody said, "Delphi did this, let's go do that." That wasn’t the case. For me, it's really just reflective of the larger changes that are happening in automotive propulsion that lead to the realigning of assets to best serve customers and create value.