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5. BorgWarner Inc. Business Report FY ended Dec. 2018

BorgWarner Inc. Business Report FY ended Dec. 2018

Factors
1) Net Sales
-Net sales for the fiscal year ended December 31, 2018 increased 7.5% from the previous year to USD 10,529.6 million. Excluding the negative effect of strengthening foreign currency and the effects of acquisitions and divestitures, the Company’s net sales increased by 4.8%.

2) Operating Income
-The Company’s operating income for the fiscal year ended December 31, 2018 was USD 1,189.9 million, an 11.0% increase from the previous year. Despite the decrease in gross margin, a decrease in both selling, general and administrative expenses as well as other expenses as a percentage of net sales combined with increased net sales overall led to the increase in operating income.

3) Engine Segment
-In the fiscal year ended December 31, 2018, the Company’s Engine segment had sales totaling USD 6,447.4 million, an increase of 6.4% over the previous year. Excluding the effect of strengthening foreign currency translation and the impact of acquisitions and divestitures, net sales increased 3.6% over the previous year. Increased sales of light vehicle turbochargers, thermal products and engine timing systems combined with increased strength in global commercial vehicle markets all contributed to the segment’s growth.

4) Drivetrain Segment
-Net sales for the Company’s Drivetrain segment in the fiscal year ended December 31, 2018 increased 9.2% over the previous year to USD 4,139.4 million. Excluding the effect of strengthening foreign currency translation, the segment’s net sales increased 6.8%. The primary contributing factors to the segment’s growth consisted of increased sales of all-wheel drive systems and transmission components.

Business Partnerships

-The Company entered into a three-year strategic cooperation agreement with WM Motor, a Chinese automaker. The two parties will cooperate in the establishment of transportation models for future smart cities. The Company will provide a full range of advanced electric propulsion technologies and efficient electrical application systems, including its high-performance electric drive modules (eDM). (From a press release on September 25, 2018)

Recent Developments

-The Company’s REMAN program offers cost-effective solutions while protecting the environment and conserving natural resources. REMAN products offer same-as-new performance and durability for cost-conscious customers. The remanufactured solutions meet stringent Company quality standards. For the past 27 years the Company has been remanufacturing turbochargers in multiple plants on different continents. During this time, 14,300 tons of cast iron and 3,700 tons of aluminum have been saved by reusing 4.7 million housings. The Company's REMAN portfolio currently includes turbochargers and exhaust gas recirculation (EGR) valves. (From a press release on September 11, 2018)

Contracts

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

<Drivetrain Segment>

-The Company supplies a major global automaker across the world with its EGR system. Featured in one of their engines, the solution is used in several diesel vehicles to comply with the latest emission regulations. The EGR system is an effective and cost-efficient inside-the-engine method to reduce NOX emissions by recirculating a controllable proportion of the exhaust gas back into the intake air. With the capability to resist high thermal loads, the advanced all-in-one solution enables increased efficiency and durable performance with minimal coolant flow. The EGR module combines technologies such as an EGR cooler, a bypass and an EGR valve into a compact package. (From a press release on October 31, 2018)

-The Company has entered into two high volume contracts to supply its advanced High-voltage Coolant Heater (HVCH) to a leading European automakers and a major Asian automaker, with start of production beginning in 2020. (From a press release on September 20, 2018)

-The Company has been selected to supply its on-axis P2 drive module and electro-hydraulic control unit for hybrid-electric vehicles to two leading Chinese OEMs. With these two recent awards, the Company will now have content on 18 P2 hybrid transmissions by 2023 serving various global OEMs and spanning multiple vehicle platforms. The P2 on-axis hybrid module is a drive component with an electric motor placed between an internal combustion engine and a transmission, enabling low-cost hybridization on existing vehicle platforms. It can integrate up to three clutches, including a disconnecting clutch, and disconnect from the engine for fully electric driving, thus improving fuel efficiency. (From a press release on September 17, 2018) (From an article in the Nikkan Jidosha Shimbun on October 16, 2018)

-The Company supplies its highly modular and robust 90mJ single spark ignition coil for Daimler’s new M260 and M264 4-cylinder in-line gasoline engines for the European and Chinese markets. Locally produced in Germany and China from 2017 and 2018, respectively, the Company’s ignition technology provides a robust solution for the premium automaker’s high-volume, 48V-equipped motor platform. The single spark ignition coil technology converts the battery’s low voltage to up to 40,000 volts needed to spark the ignition process. Featuring a bidirectional interface with an ECU, the ignition coils send diagnostic information to the engine control unit to optimize the combustion process. In order to provide a tailored solution for both combustion and hybrid applications, the ignition coils can easily be adapted to a variety of gasoline engines. (From a press release on April 24, 2018)

-The Company announced that it provides its Eco-Launch stop/start solenoid valve and hydraulic accumulator to Ford. The solution is available on the Ford 8-speed, front-wheel drive, mid-torque transmission used in a variety of North American models. (From a press release on March 13, 2018)

Awards

-Automotive News awarded the Company with the 2018 PACE Award for its groundbreaking S-wind wire forming process for electric motors and alternators. The manufacturing process enables high-volume production of high-voltage electric motors of up to 350 volts. Already in production on a 12-volt alternator for Hyundai Motor Company, the Company expects to launch the technology in a first-of-its-kind 300-volt S-wind motor for an on-axis P2 hybrid vehicle from a major global automaker in late 2019. (From a press release on April 10, 2018)

Outlook

-The Company is expecting that organic sales for the fiscal year ending December 31, 2019 will be in the range of a 2.5% decline through a 2.0% increase compared to the fiscal year ended December 31, 2018. As such, the Company expects that its net sales for the next fiscal year will be between USD 9.9 billion and USD 10.4 billion.

-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 approximately 4% of its net sales, or approximately USD 400 million into research and development in the fiscal year ending December 31, 2019.

R&D Facilities

-The Company announced the opening of a new USD 28 million, 100,000 square-foot technical center in Noblesville, Indiana, to support its growing hybrid and electric product portfolio. Combining operations from existing facilities in Anderson and Pendleton, Indiana, the new technical center features a 40,000-square-foot state-of-the-art lab which increases the company’s research and development capacity by expanding the prototype building and testing capabilities of its electrified products. Other testing capabilities include sound measurement rooms to evaluate NVH, and metal material testing analysis. The Noblesville location will be used to develop and validate a variety of power electronics products as well as motor, alternator and starter products. With capacity expected to be filled by 2020, employees from the existing facilities have already begun moving into the Noblesville Technical Center. (From a press release on June 14, 2018) (Detroit News article on June 14, 2018) (From an article in the Nikkan Jidosha Shimbun on June 22, 2018)

R&D Activities

-The Company presented a smart combination of its eBooster electrically driven compressor and its belted motor generator unit on a demonstrator vehicle. Easily integrated into existing propulsion systems, the cost-effective combination provides an ideal solution for 48-volt electrification. Benefits such as improved low speed engine torque along with engine downsizing, downspeeding and brake energy recuperation allow for significant fuel efficiency improvements. On the heavy pickup truck demonstration vehicle, the synergy between the components enabled energy efficient means to recuperate energy and provide added torque, faster engine response, and extended engine off operation among other features. (From a press release on October 25, 2018)

-The Company is increasing its exposure to the latest technologies and accelerating innovation in the mobility sector by partnering with Plug and Play, an accelerator ecosystem for startup companies and Franklin Venture Partners, a specialized investment team within Franklin Templeton Investments that invests in private investment opportunities. The Company expects first access to hundreds of early-stage technology and mobility companies both in and adjacent to the automotive industry. (From a press release on October 4, 2018)

-The Company presented its latest propulsion solutions optimized for vehicles using a 48V power supply at the annual Arctic Drive Winter Test in Arjeplog, Sweden. The 48V propulsion technologies provide enhanced vehicle dynamics and traction under extreme conditions. Among the innovations displayed in Arjeplog were the Company’s P2 hybrid modules, the electric Rear Drive Module (eRDM) for P3-type hybrids, the 48V electric All-Wheel Drive system for P4-type hybrids and the next-generation e-hydraulic AWD coupling. (From a press release on March 26, 2018)

Product Development

Technologies showcased at SIAT EXPO 2019
-The Company will display its extensive portfolio of clean and efficient products to help automakers meet future environmental standards at the SIAT EXPO 2019 in Pune, India. Its exhibits will include exhaust gas recirculation technologies, an advanced exhaust heat recovery system, variable turbine geometry turbocharger solutions and variable cam timing technology. (From a press release on December 14, 2018)

Technologies showcased at EV Japan 2019
-The Company will display various technologies highlighting efficiency at the EV Japan 2019. The Company’s on-site portfolio covers both light and commercial vehicles and includes the integrated drive module (iDM), highly efficient P2 hybrid modules and thermal management components such as battery and cabin heater solutions. The iDM, available in three different sizes (iDM XS, iDM S and iDM M), is an all-in-one propulsion solution combines integrated power electronics, efficient bar wound stator technology and a powerful transmission system. (From a press release on December 13, 2018)

Technologies showcased at CTI Symposium
-The Company will present its leading-edge solutions for combustion, hybrid and electric vehicles at the CTI Symposium, held in Berlin, Germany, from December 3 to 6, 2018. The Company will showcase its expertise as a system supplier with its all-in-one solution for electric mobility, the integrated Drive Module (iDM). Other solutions shown will include its P2 hybrid module and its expanded line of power electronics such as the Gen5-S9 motor controller. (From a press release on November 29, 2018)

Organic Rankine Cycle waste heat recovery system
-The Company has developed an Organic Rankine Cycle (ORC) waste heat recovery system, which is new to the commercial vehicle sector. The Company developed a complete system, consisting of tailpipe and EGR evaporators, an exhaust flap bypass valve, a turbine expander, turbine expander power electronics and a condenser. The system generates electrical energy by converting energy from the fuel that would be wasted as heat. Thus, the system reduces CO2 emissions, improves fuel economy by 3 to 5% and supports mild hybrid commercial vehicles. (From a press release on September 13, 2018)

High voltage coolant heater
-The Company has developed an innovative high voltage coolant heater as part of its battery and cabin heater families. The technology improves battery performance by keeping the battery's operating temperature within an optimal operating range and providing a consistent temperature distribution inside the battery pack and its cells. Beyond providing comfortable cabin temperatures and reliable battery thermal management, the high voltage coolant heater extends the battery-powered driving range for hybrid and electric vehicles. (From a press release on September 12, 2018)

Dual volute turbocharger
-The Company has developed a dual volute turbocharger specifically engineered for gasoline engines in light-duty vehicles with aggressive transient response targets. The new turbocharger delivers a quicker engine response time when accelerating from low speeds. The dual volute geometry allows for the complete segregation of engine exhaust pulsations such that more exhaust energy is available to the turbine wheel, compared to traditional twin-scroll turbochargers. The Company began developing this new generation of dual volute turbocharging technologies for gasoline engines in 2012 and is now in production with an OEM on a full-size pickup truck, representing its first dual volute turbocharger for the light-duty vehicle market. (From a press release on September 6, 2018)

Technologies showcased at 2018 IAA Commercial Vehicles
-At the IAA Commercial Vehicles in Hanover, Germany, the Company will focus on solutions for hybrid and electric commercial vehicles while also presenting technologies for combustion-powered commercial vehicles. The Company’s solutions for hybrid and electric commercial vehicles include the award-winning S-wind wire forming technology for high-voltage electric motors and alternators. Its electric Drive Module combines High Voltage Hairpin electric motors and the advanced eGearDrive transmission, while the integrated Drive Module (iDM) features highly efficient power electronics. Leveraging its experience in engine cooling solutions, the Company has developed the 48-volt eFan. Its product portfolio features multiple technologies for combustion-powered vehicles and mild hybrids, such as the eBooster electrically driven compressor, the eTurbo electrically assist system, and its Organic Rankine Cycle (ORC) waste heat recovery system which enhances fuel economy while lowering emissions. (From a press release on September 4, 2018)

Exhaust heat recovery system for hybrid and plug-in hybrid vehicles
-On July 31, the Company announced that it will start producing an exhaust heat recovery system (EHRS) for hybrid and plug-in hybrid vehicles later this year. The new system will improve fuel economy by up to 8.5% and reduce emissions. The EHRS will enter production for vehicles from a major North American automaker. The EHRS is made up of an exhaust gas recirculation (EGR) system and waste heat recovery system (WHRS). During engine cold starts, an EGR valve controls the exhaust gas flow, routing it through a heat exchanger, where the thermal energy of the gas heats up the vehicle's subsystem fluids. As a result, the engine warms up faster, reducing emissions and improving fuel efficiency. (From an article in the Nikkan Jidosha Shimbun on August 1, 2018)

Technologies showcased at Auto China 2018
-The Company will present its product portfolio at the 15th Beijing International Automotive Exhibition (Auto China 2018). Echoing the theme of “Steering to a New Era,” the Company will show technology solutions for combustion, hybrid and electric vehicles. The Company will present P0 and P2 modules for hybrid vehicles, electric drive modules (eDM), integrated drive modules (iDM), electric motors, thermal management technologies for battery and cabin heating, eBooster electrically driven boosting technology and exhaust heat recovery systems. The Company will also showcase power electronics technologies after acquiring former Sevcon, the UK-based new energy vehicle control device and battery charger manufacturer. (From a press release on April 25, 2018)

Technologies showcased at Auto Expo in New Delhi
-The Company will present its product portfolio at the 14th Auto Expo in New Delhi. It will show solutions to help automakers work with stricter emission standards. For combustion engines, the Company will focus on technologies that help optimize engine efficiency and performance while reducing emissions. The Company will also showcase its mild hybridization expertise with the eBooster electrically driven compressor and 48V eFan. For hybrids and pure electric vehicles, the Company will show systems including silent chains for P3-type hybrids, low pressure exhaust gas recirculation (EGR) modules and the electric Drive Module (eDM). (From a press release on February 5, 2018)

P2 module for hybrid vehicles
-The Company debuted its P2 module for hybrid electric vehicles at the 2018 North American International Auto Show. By uniting all required components in a compact package, the module enhances pure electric driving and hybrid functionalities such as stop/start, regenerative braking and supplemental electric propulsion. The P2 module enables both mild hybrid architectures with 48V power supplies and conventional high-voltage applications. (From a press release on January 16, 2018)

Patents

-As of December 31, 2018, the Company has approximately 6,930 active patents and patent applications pending.

-The Company expects to have capital expenditures between USD 575 million and USD 625 million in the fiscal year ending December 31, 2019.

Investments outside U.S.

<India>
-The Company celebrated the opening of its expanded facility in Kakkalur, India. With a leading-edge production line for advanced engine timing and variable cam timing (VCT) systems, the expanded plant meets the increasing demand of the growing Indian automotive market, while preparing to supply the growing Southeast Asian automotive market. With a total area of 4,023 square meters, the facility now includes engineering, manufacturing and office areas. And warehouse space. An in-house engineering team supports customers from initial design through production, enabling the production of high-performance engine timing and VCT systems. In the newly built area of the plant, the Company will begin a new production line for VCT technology. (From a press release on September 21, 2018)

<China>
-The Company held an opening ceremony of its new plant at the Economic and Technical Development Zone in Caidian, Wuhan, on August 28, 2018. The new plant is a new comprehensive manufacturing base that integrates production, engineering, quality, sales, logistics, general affairs, and finance operations on a 48,600-square-meter site. Its main products are drive motors, P2 motors, 48V starter motors with integrated controllers, starters, alternators, and other related components. The Company acquired Remy Electricals Hubei Co., Ltd. in 2015 and integrated that facility into the development of the new plant. The new plant has hired more than 300 new workers, and will hire 300 more by 2023. (From a release on August 29, 2018)

-The Company’s wholly owned subsidiary, BorgWarner Emissions Systems (Ningbo), celebrated the inauguration of its new design and manufacturing facility in Jiangshan, China. With a total area of 50,000 square meters, the new facility will produce gasoline and diesel exhaust gas recirculation (EGR) systems, ignition coils, exhaust heat recovery systems (EHRS), high/low-voltage air heaters and high-voltage liquid heaters, to meet growing demand for emissions and thermal management technologies in the Chinese automotive market. (From a press release on March 15, 2018)

<Thailand>
-The Company announced that it celebrated the inauguration of its newest production plant in the Eastern Seaboard Industrial Estate of Rayong, Thailand. With a total area of 6,500 square meters, the facility includes a leading-edge production line for advanced turbocharging solutions. The Company invested THB 438 million in to the Rayong plant and expects to produce one million turbochargers a year. The Company designed the plant to meet growing demand in the expanding Southeast Asian automotive market along with global automakers based in the region. (From a press release on March 8, 2018) (From a Bangkok Post article on April 23, 2018)