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5. BorgWarner Inc. Business Report FY ended Dec. 2019

BorgWarner Inc. Business Report FY ended Dec. 2019

Factors
1) Net Sales
-Net sales for the fiscal year ended December 31, 2019 decreased 3.4% from the previous year to USD 10,168 million. Excluding the negative effect of foreign currency translation and the net effects of acquisitions and divestitures, the Company’s net sales increased by 0.7%.

2) Operating Income
-The Company’s operating income for the fiscal year ended December 31, 2019 was USD 1,303 million, a 9.5% increase from the previous year. While net sales decreased during the fiscal year, the decreased cost of sales; a decrease in selling, general and administrative expenses from cost-control measures and stock-based compensation expenses; and the income gained during the fiscal year from traditionally non-income tax items.

3) Engine Segment sales
-In the fiscal year ended December 31, 2019, the Company’s Engine segment had sales totaling USD 6,214 million, a decrease of 3.6% over the previous year. Excluding the effects of foreign currency translation and the net impact of acquisitions and divestitures, net sales increased 1.3% over the previous year. Increased sales of light vehicle turbochargers and engine timing systems were partially offset by declining commercial vehicle markets globally.

4) Drivetrain Segment sales
-Net sales for the Company’s Drivetrain segment in the fiscal year ended December 31, 2019 decreased 3.0% over the previous year to USD 4,015 million. Excluding negative foreign currency translation effects, the segment’s net sales were level during the fiscal year.

Restructuring

<Completed selling transaction of thermostat business>
-The Company has agreed to sell its thermostat business to Arlington Industries Group Ltd.  The sale includes manufacturing facilities in Oberboihingen, Germany and Piracicaba, Brazil.  Completion of the transaction is expected in the first quarter of 2019. The thermostat business came with the exhaust gas recirculation valve business acquired from Gustav Wahler GmbH & Co. KG in 2014. While the thermostat product technology has been continuously developed to meet market demands, it is not core to the Company’s focus on propulsion systems for combustion, hybrid and electric vehicles. (From a press release on January 4, 2019)

-Arlington Industries Group Ltd has acquired the Wahler thermostat business from the Company, a move which complements their acquisition of Magal Engineering in 2017. Following Wahler acquisition, Arlington Industries will establish two new divisions under the Automotive side of the business. From factories in Germany, Brazil, China, USA, UK and France, Wahlerwill provide thermal management technology in combustion, hybrid and electric vehicles. (From a press release on April 3, 2019)

<Wholly-owned new company specializing in EV propulsion solutions for prototype>
-The Company announced that it formed Cascadia Motion LLC to acquire and combine assets and operations of the former Rinehart Motion Systems and AM Racing into one company that is wholly owned by the Company. Based in Oregon, Cascadia Motion specializes in the design, development and production of hybrid and electric propulsion solutions for prototype and low-volume production applications. Rinehart Motion Systems brings expertise in propulsion inverters and controls for electric and hybrid electric vehicles in professional motorsports, motorcycles, specialty road cars, bus, and heavy duty sectors, while AM Racing designs and manufactures single- and dual-core electric motors and gearsets used in the same market segments. (From a press release on February 19, 2019)
 

Joint Ventures

-The Company will form a 60/40 joint venture with Romeo Power Technology, a technology-leading battery module and pack supplier, with the Company as the leading partner. “This joint venture will not only complement our strong existing propulsion portfolio, but we expect it to fill a gap in the marketplace between battery cell manufacturers and hybrid and electric vehicle customers,” said Joel Wiegert, President and General Manager of BorgWarner Morse Systems. The battery modules and packs will include intelligent battery management systems with proprietary algorithms for enhanced performance and cycle life, and proprietary thermal engineering for active and passive cooling. The joint venture will encompass the mobility portion of the battery pack business, initially focused on performance and light vehicles. The Company will also take a 20% equity position in Romeo Power Technology and will fill two seats on its board. The equity investment and joint venture are expected to close in the second quarter of 2019. Romeo Power Technology was founded in 2015 by engineers from SpaceX, Tesla, and Samsung to build more efficient and effective battery packs for electric vehicles and stationary energy storage through improved energy density and battery management. (From a press release on May 7, 2019)
 

Recent Developments

-The Company announced that it has increased its B01 turbocharger production to meet Brazilian market demand. Currently equipping the entire Volkswagen TSI lineup, the Company is increasing turbocharger production in the Itatiba facility to match the automaker’s recent push to increase the supply of the all-new Volkswagen T-Cross SUV and other passenger cars. The Volkswagen Up! was the first to use the B01 unit, followed by the Golf, Polo and Virtus. The B01 turbocharger features include an aluminum compressor wheel, optimized bearing system, an electrically actuated waste gate and advanced noise reduction. (From a press release on July 11, 2019)

Contracts

-The tables below provides information on products the Company supplies for specific vehicle models.
<Engine Segment>

<Drivetrain Segment>

-The Company confirmed that it has received an order from a second OEM to begin producing turbochargers for flex-fueled light vehicles at its plant in Itatiba, Brazil beginning in the second half of 2020. The Itatiba plant currently only supplies turbochargers to Volkswagen, which it uses in EA 211 1.0- and 1.4-liter TSI engines produced in São Carlos, Brazil for the Up !, Polo, Virtus, T-Cross. and Golf models. Victor Maiellaro, general manager of the Itatiba plant, did not disclose the manufacturer which will use the turbocharger made in the plant, but said they will be used in flex-fuel 1.0- and 1.3-liter engines. In May, FCA announced an investment of USD 500 million to produce the T3 and T4 flex Global Small Engine turbocharged engines, based on 1.0- and 1.3-liter Firefly engines in Betim, Brazil. The Company also confirmed the production of starters for cars equipped with start-stop systems in its plant in Brusque, Brazil in the second half of 2020. Adson Silva, managing director of PowerDrive Systems division in Brazil, said that two major OEMs in Brazil will use the component in cars with 1.0- and 1.3-liter engines. (From multiple sources on November 29, 2019)

-The Company announced a partnership with one of China’s leading New Energy Vehicle brands to supply the fully integrated drive module (iDM) for their pure electric vehicle expected to go into mass production in 2021. This partnership is the Company’s first iDM project in China. Fully integrated, highly efficient and light weight, the iDM product family can satisfy both hybrid and pure electric applications, is available in three different power levels (iDM 90, iDM 120, iDM 160) and is easy to integrate either at the front or rear axle of electric vehicles depending on the architecture and application. Operating at 220 to 480 volts of direct current (VDC), iDM provides up to 150kW power and up to 3,000 Nm torque, which can be further extended to 160 kW and 3,800 Nm as needed for different vehicle platforms. (From a press release on October 29, 2019)

-The Company announced that a major European commercial vehicle manufacturer has chosen its High Voltage Hairpin (HVH) 410 electric motor for a plug-in hybrid electric truck to be launched in 2019. Generating 130 kW (174 hp) of power and 1,050 Nm of torque, the HVH motor will work in parallel with an inline five-cylinder engine that runs on hydro-treated vegetable oil or diesel. The HVH motor will also regeneratively charge the battery pack during braking or downhill coasting. The HVH410 electric motors are available as fully housed motors or as rotor/stator assemblies. Instead of conventional round wire windings, they use precision-formed rectangular wires and multiple layers of interlocking hairpins. The patented HVH technology enables the versatile and powerful electric motors to deliver a maximum torque of 2,000 Nm and a power output of up to 300 kW (402 hp) with peak efficiencies exceeding 95%. (From a press release on February 20, 2019)

Outlook

-The Company expects that its net sales for the fiscal year ending December 31, 2020 will be between USD 9,750 million and USD 10,075 million, as a result of an organic revenue change ranging from a 2.5% decrease to a 0.5% increase. This outlook does not include the effect of the Delphi Technologies acquisition.

-The Company held a business briefing for the press in Tokyo Japan. The Company explained its current business size and product lineup, while providing estimates for total sales and sales by category in 2023. For the fiscal year 2023, the Company plans to increase global sales to USD 14 billion (JPY 1.52 trillion), an increase of 42.9% from USD 9.8 billion (JPY 1.06 trillion) in FY 2017. The Company forecasts an annual profit growth of over 70%, with strong contributions from hybrid and electric vehicle propulsion systems The Company expects power drive systems for hybrid vehicles will become a key pillar for sales growth, as it is able to sell both exclusive parts and internal combustion engine parts. (From an article in the Nikkan Jidosha Shimbun on January 21, 2019)

-No individual R&D contract exceeded 5% of the Company’s net R&D expenditures in the previous three fiscal years.

-The Company expects to invest between approximately 4.3% to 4.5% of its net sales, or approximately USD 440 million into research and development in the fiscal year ending December 31, 2020.

Product Development

Technologies showcased at EV Japan 2020
-The Company will unveil its latest portfolio of cutting-edge technologies for highly efficient electrified vehicles at 11th EV Japan 2020. The Company formed a joint venture with Romeo Power Technology in May 2019 to develop battery packs for electric vehicles. These packs feature standard cylindrical cells in compact designs for exceptional energy density. Developed with proprietary thermal engineering and battery management expertise, the Company’s integrated drive module combines specially developed power electronics with an electric motor and transmission technology in a fully integrated systems solution. The on- and off-axis P2 hybrid modules provide vehicle manufacturers with the flexibility to convert existing combustion vehicles to hybrid applications without changing the motor or transmission by placing the electric motor in existing space within the compartment. Being showcased alongside these innovations is the eTurbo, a turbocharger with integrated power electronics and a motor-generator attached to the same single shaft as the turbine. (From a press release on December 12, 2019)

High Voltage Hairpin 146 motor
-The Company is expanding its electric motor offerings with the introduction of its new High Voltage Hairpin (HVH) 146 motor, which is expected to go into production on a light-duty hybrid passenger car with a major OEM in early 2020. This electric motor joins the family of patented HVH Series motors, available as fully-housed motors or rotor/stator assemblies. The HVH 146, an interior permanent magnet electric motor, best suited for belt-drive integration at P0 in hybrid electric vehicle applications, where a traditional alternator would be placed. It is mounted to the front of the engine through a high-tension belt system. Beyond being used as a stop/start device, it also can be used for regeneratively charging the battery pack when the vehicle is braking or coasting. The HVH 146 electric motor delivers 35 kW of peak power and 65 Nm of peak torque. Initially launching on a light-duty hybrid passenger vehicle, the HVH 146 also can be applied to commercial vehicles. (From a press release on December 5, 2019)

Torque vectoring system for electric vehicles
-The Company has developed an innovative torque vectoring system for electric vehicles which enables the use of just one electric motor instead of the traditional two that are typically found on electric vehicles. Start of production will begin in the first half of 2022 for an electric vehicle of a major, global OEM. The Company’s Torque-Vectoring Dual-Clutch unit features two clutches - one inner and one outer - that replace the conventional differential in an electric driveline. The system has a capacity of up to 2,600 Nm per clutch and has a feature that disconnects the rear-axle when all-wheel drive isn’t needed. (From a press release on October 28, 2019)

Technologies showcased at IAA 2019
-The Company will demonstrate its components and systems competence for hybrid and electric vehicles at IAA 2019. The Company will exhibit its latest battery packs, P2 hybrid modules and the eAxle iDM alongside the eTurbo technology. As for battery packs, they feature standard cylindrical cells in compact designs for exceptional energy density. The Company will also showcase its integrated drive module, iDM. This system solution combines specially developed power electronics with an electric motor and transmission technology in a single compact package. It will present on- and off-axis P2 hybrid modules which provide vehicle manufacturers with the flexibility to convert their existing combustion-powered vehicles to hybrid applications without having to change the engine or transmission. The eTurbo development being shown alongside these innovations is a turbocharger with an e-machine motor-generator attached to the same single shaft as the turbine. (From a press release on August 27, 2019)

AWD coupling with a compact brushless direct current motor
-The Company announced that the latest generation of its AWD coupling has been optimized with a compact brushless direct current (BLDC) motor and highly integrated electronics. The resulting actuator unit has very high durability and weight savings of approximately 15% in comparison to a conventional AWD coupling, offering enhanced vehicle handling, stability and traction through better response times, torque density and accuracy. At the core of the coupling is a patented 6-piston centrifugally controlled piston pump that both creates and controls system hydraulic pressure. The new AWD coupling operates independently of the differential speed between two axles, providing locking torque, depending on road conditions and vehicle load distribution. When a vehicle is in Eco mode, the motor can be completely shut off, reducing the energy consumption. Other key advances include an integrated ECU which reduces cost and improves packaging. (From a press release on August 22, 2019)

Onboard Battery Charger
-The Company introduced its state-of-the-art Onboard Battery Charger (OBC), which uses pioneering silicon carbide technology and is best-in-class for power density, power conversion efficiency and safety compliance. The OBC is installed in hybrid or electric vehicles to convert alternating current from the power grid to direct current for charging batteries. The technology accepts an extended range of AC inputs including 7.4 kW, 11 kW and 22 kW power ratings with DC-to-DC converter rating integration from 2.3 kW to 3.6 kW as an option, and is compatible with all battery chemistries and voltages of 400 volts, 650 volts and 800 volts. (From a press release on May 16, 2019)

Technologies showcased at JSAE Congress
-The Company will display some of its innovative electrification solutions at the JSAE Congress in Japan. It will showcase newly developed Onboard Battery Chargers (OBC) for the first time in Japan, which uses highly efficient silicon carbide technology for hybrid or electric vehicle for battery charging. The Company will display its eAxle iDM for electric mobility and the eBooster electrically driven compressor. The eAxle consists of a custom HVH electric motor, power electronics module and gearbox in an optimized system solution. The eBooster electrically driven compressor, developed to address the needs of the growing 48-volt electric vehicle trend, delivers boost on demand until the turbocharger takes over, improving boost at low engine speeds and nearly eliminating turbo lag. Complementing 48-volt technology, the Company will also display its Motor Generator with Integrated Electronics (MGI), which provides higher system efficiency and improved energy recovery capability to meet increasing power demands. The VTG turbocharger will also be shown as the Company expects the penetration for turbocharged internal combustion engines will increase from 20% to 67% per vehicle by 2027. (From a press release on May 8, 2019)

HY-VO chain drive systems on hybrid and electric vehicles
-The Company announced that its HY-VO (High Velocity Chain on Involute Profile Sprockets) chain drive systems can be applied to hybrid and electric vehicles. Commonly applied in transfer cases and transmissions, the HY-VO chain, a patented, inverted-tooth, silent chain technology, is being applied to P2 off-axis (where the electric motor is located between the engine and transmission), P3 (where the electric motor is located after the transmission output) and P4 (where the electric motor is located at the rear axle) hybrid systems. The chain drives are easily integrated into transmission designs for these hybrid applications. HY-VO chains in transmissions and transfer cases have proven to quieter and more efficient than two-mesh gear systems. The Company also manufactures bush chains and roller chains. (From a press release on April 30, 2019)

Intelligent cam torque actuators
-The Company introduced its next generation of intelligent cam torque actuators (iCTA) for increased fuel economy and reduced emissions. Blending the best attributes of cam torque actuation and torsional assist phaser technologies, BorgWarner’s proprietary iCTA technology performs well across all engine architectures and the full range of engine speeds. iCTA is especially effective when applied to I4 engine applications with varying cam torque energy. This technology is expected to first appear on a variety of vehicles from two major vehicle manufacturers in China and North America in 2019 and 2020. (From a press release on March 12, 2019)

Technologies shown at 2019 Arctic Drive Winter Test
-The Company will showcase its latest powertrain and propulsion innovations on snowy terrain and frozen lakes during the annual Arctic Drive Winter Test in Arjeplog, Sweden, from February 25 to March 8, 2019. Advanced 48V solutions such as the Company’s P2 modules, the eBooster electrically driven compressor and High Voltage Hairpin electric motors will be on display. “At BorgWarner, we are constantly improving our technologies. This enables us to offer vehicle manufacturers advanced e-mobility solutions that offer advanced temperature insensitivity,” said Dr. Stefan Demmerle, President and General Manager of BorgWarner PowerDrive Systems. (From a press release on February 21, 2019)

Integrated drive module (iDM)
-The Company announced its fully integrated drive module (iDM), featuring specially developed power electronics, as the next evolution of its electric drive module, which has entered serial production. The newest product family is available in three different versions (iDM XS, iDM S, iDM M) and is easy to integrate either at the front or the rear axle of passenger cars and light commercial vehicles depending on the architecture and the application. Alongside pure electric vehicles, the solution is also suitable for P4 hybrid vehicles, where the motor is located at the rear axle of the front-wheel-drive vehicle. The solution integrates highly efficient power electronics with an advanced transmission system and industry-leading drive motor technology featuring the Company’s efficient bar wound stator solution. (From a press release on January 24, 2019)

Patents

-As of December 31, 2019, the Company has approximately 6,430 active patents and patent applications pending.

-The Company expects to have capital expenditures between USD 525 million and USD 575 million in the fiscal year ending December 31, 2020.

Investments outside U.S.

<India>
-The Company announced the opening of its expanded facility in Kakkalur, India. With its leading-edge production line for advanced engine timing and variable cam timing (VCT) systems, the expanded plant will meet the increasing demand on the Indian automotive market for meeting BS VI norms, while preparing to supply the growing Southeast Asian automotive market. With a total area of 43,300 square feet (4,023 square meters), the facility now includes engineering, manufacturing, office areas and warehouse space. In the new area of the plant, the Company will begin a new production line in the expansion area to help vehicle manufacturers improve fuel economy, reliability and engine efficiency. A highly skilled in-house engineering team supports customers from initial design through production, enabling the production of optimized, high-performance engine timing and VCT systems. (From a press release on January 29, 2019)