BORGWARNER INC (BWA)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. (collectively with its consolidated subsidiaries, the “Company” or “BorgWarner”) is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. BorgWarner’s products help improve vehicle performance, propulsion efficiency, stability and air quality. The Company manufactures and sells these products worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain tier one vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.

BorgWarner Strategy

The Company’s current strategy is to focus on profitable growth across its technology-focused product portfolio that supports electric, hybrid and combustion vehicles. This entails growing its product portfolio through organic investments and technology-focused acquisitions. The Company’s balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions. During the three months ended June 30, 2026 and 2025, the Company’s revenue from eProducts, which include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs, was approximately $663 million and $658 million, respectively, or 18% of the Company’s total revenue. During the six months ended June 30, 2026 and 2025, the Company’s eProduct revenue was approximately $1,260 million and $1,295 million, respectively, or 18% and of its total revenue.

Lawsuit Against PHINIA

On September 19, 2024, the Company commenced a lawsuit against PHINIA, Inc. (“PHINIA”), seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA received or expected to receive from governmental agencies as well as damages and interest. On October 15, 2025, the Company entered into a settlement agreement with PHINIA, pursuant to which PHINIA agreed to pay the Company $78 million. As of June 30, 2026, the Company had assets related to these VAT refunds of approximately $23 million in Receivables, net in the Company’s Condensed Consolidated Balance Sheet, which is due no later than December 1, 2026. Refer to Part 1, Item 1 of this report for more information.

Portfolio Actions

In February 2025, the Company made the decision to exit its charging business within the reportable segment formerly called Battery & Charging Systems. Production operations ceased during the second quarter of 2025. This decision was made following the Company’s continuing evaluation of its product portfolio and future investments. This action was expected to create a more focused portfolio and eliminate approximately $30 million of annualized adjusted operating losses by the end of 2026. In the first quarter of 2026, as a result of the aforementioned disposition, this reportable segment was renamed Battery Energy Systems. The name change reflects the segment’s revised focus after the divestiture. The change did not impact the composition of the segment or require recasting of prior period segment results. Prior periods continue to be presented as previously reported. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information.

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In February 2025, the Company also made the decision to consolidate its North American battery systems business, which is expected to align the business’ cost structure to current market dynamics. This action was expected to result in annual cost savings of approximately $20 million by the end of 2026.

Acquisitions

Acquisitions have been an integral component of the Company’s growth and value creation strategy. Refer to Note 3, “Acquisitions and Dispositions,” to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for more information, including a summary of recent acquisitions.

Key Trends and Economic Factors

Economic Conditions. The Company’s financial performance depends on conditions in the global automotive industry. Automotive and truck production is cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit and consumer spending and preferences. Government policies, such as the imposition of, termination or invalidation of or other changes in tariffs (including retaliatory tariffs), or the commencement or termination of consumer tax incentives, such as EV tax credits and programs to invest in infrastructure, including EV charging stations, may affect consumer preferences. Economic declines or impacts of tariffs that result in a material reduction in automotive or truck production would have an adverse effect on the Company’s sales. The weighted average market production, as estimated by the Company for the six months ended June 30, 2026, was down approximately 1% from the six months ended June 30, 2025. Weighted average market production reflects light vehicle production as reported by S&P Global, weighted for the Company’s geographic exposure, as estimated by the Company.

Tariff Refund Recovery. The Company continues to actively pursue the refund recovery of certain tariffs paid to the U.S. government, which were levied under the International Emergency Economic Powers Act and subsequently invalidated by the U.S. Supreme Court on February 20, 2026. Following this ruling, the Company has submitted, and expects to continue to submit, tariff recovery claims through the U.S. Customs and Border Protection (“CBP”) portal. While the Company has begun to receive, and may continue to receive, refunds of such tariffs, the ultimate recoverability, timing and amount of any such refund amounts remain uncertain and subject to CBP review and further legal, regulatory and administrative developments. As a result, the Company has not recognized a refund receivable as of June 30, 2026, as there remains significant uncertainty regarding the availability, amount and timing of such refunds. The Company will continue to monitor the refund process for further developments.

Commodities and Other Inflationary Impacts. During 2025, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. The Company currently expects commodity prices and other input costs to show a higher level of volatility in 2026 compared to 2025. Commodity markets are influenced by geopolitical instability, which can contribute to supply chain fragmentation, higher logistics costs and increased price across energy, metals and other critical inputs.

Outlook

The Company expects global industry production to be flat to down 3% year-over-year in 2026. In particular, the Company expects a negative sales impact from declining sales in the Company’s Battery Energy Systems reportable segment. As a result, at the mid-point of its outlook, the Company expects total sales in 2026 to decline year-over-year, excluding the impact of foreign currencies.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are

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several trends that are driving the Company’s long-term growth that management expects to continue, including adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards that support demand for the Company’s products that drive vehicle efficiency as well as power generation industrial solutions growth. The Company expects its power generation industrial solutions sales to be approximately $300 million in 2027.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2026 vs. Three Months Ended June 30, 2025

The following table presents a summary of our operating results:

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Net sales

Net sales for the three months ended June 30, 2026 totaled $3,648 million, an increase of $10 million, which was relatively flat compared to the three months ended June 30, 2025. The change in net sales for the three months ended June 30, 2026 was primarily driven by the following:

•Fluctuations in foreign currencies resulted in a year-over-year increase in sales of approximately $54 million, primarily due to a strengthening of the Euro and Chinese Renminbi, partially offset by a weakening of the Korean Won, in each case relative to the U.S. Dollar.

•Customer recoveries relating to tariffs increased sales by approximately $11 million.

•Unfavorable volume, mix and net new business decreased sales by approximately $55 million, primarily due to a decrease of approximately 1% in the weighted average market production as estimated by the Company and a decrease in the Battery Energy Systems reportable segment.

Cost of sales and gross profit

Cost of sales and cost of sales as a percentage of net sales were $2,927 million and 80.2%, respectively, during the three months ended June 30, 2026, compared to $2,998 million and 82.4%, respectively, during the three months ende

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. (collectively with its consolidated subsidiaries, the “Company” or “BorgWarner”) is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. BorgWarner’s products help improve vehicle performance, propulsion efficiency, stability and air quality. The Company manufactures and sells these products worldwide, primarily to original equipment

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manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). The Company’s products are also sold to OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain tier one vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia and is an original equipment supplier to nearly every major automotive OEM in the world.

BorgWarner Strategy

The Company’s current strategy is to focus on profitable growth across its technology-focused product portfolio that supports electric, hybrid and combustion vehicles. This entails growing its product portfolio through organic investments and technology-focused acquisitions. The Company’s balanced portfolio is particularly critical as the automotive industry continues to see electric vehicle adoption volatility across different regions. During the years ended December 31, 2025, 2024 and 2023, the Company’s revenue from eProducts, which include all products utilized on or for electric vehicles (“EVs”) plus those same products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in or for EVs, was approximately $2.6 billion, $2.3 billion and $2.0 billion, respectively, or 18%, 17% and 14% of its total revenue, respectively, and the Company’s revenue from Foundational products, which include all products utilized on internal combustion engines plus those same products and components that are also included in hybrid powertrains, was approximately $11.7 billion, $11.8 billion and $12.2 billion, respectively, or 82%, 83% and 86% of its total revenue, respectively.

Lawsuit Against PHINIA

On September 19, 2024, the Company commenced a lawsuit against PHINIA, seeking to recover from PHINIA approximately $120 million of value added tax (“VAT”) refunds that PHINIA received or expects to receive from governmental agencies as well as damages and interest. These refunds consisted of VAT paid by the Company in periods prior to or directly related to the spin-off that established PHINIA as an independent company. PHINIA responded to the lawsuit and also asserted counterclaims against the Company. On October 15, 2025, the Company entered into a settlement agreement (the “Settlement Agreement”) with PHINIA, pursuant to which PHINIA agreed to pay the Company $78 million, resolving the lawsuit and certain other matters relating to the spin-off. In connection with the Settlement Agreement, the Company and PHINIA also entered into an amended and restated tax matters agreement that, among other things, limits the Company’s responsibility to certain defined tax obligations. As a result, the Company recorded a net charge of $40 million during the year ended December 31, 2025, for the reduction of VAT-related receivables, the elimination of certain Company liabilities under the amended and restated tax matters agreement and related legal fees, which is included in Other operating expense, net in the Company’s Consolidated Statements of Operations. As of December 31, 2025, after giving effect to the Settlement Agreement and the $31 million payment received during the fourth quarter of 2025, the Company had assets related to these VAT refunds of approximately $47 million included in Receivables, net in the Company’s Consolidated Balance Sheet in Item 8 of this report.

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Portfolio Actions

In February 2025, the Company made the decision to exit its charging business within the Battery & Charging Systems reportable segment. Production operations ceased during the second quarter of 2025. This decision was made following the Company’s continuing evaluation of its product portfolio and future investments. This action was intended to create a more focused portfolio and is expected to eliminate approximately $30 million of annualized adjusted operating losses by 2026. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information.

The Company also made the decision to consolidate its North American battery systems business, which is expected to align the business’ cost structure to current market dynamics. This action is expected to result in annual cost savings of approximately $20 million by 2026.

North Carolina Facility Hurricane

On September 26, 2024, a hurricane made landfall in North Carolina disrupting operations at the Company’s facility in Arden, North Carolina (the “Arden Plant”). The Arden Plant was largely untouched, but the Company experienced some loss or damage to the Company’s assets amounting to less than $10 million. The Arden plant resumed full operations during the fourth quarter of 2024. The Company’s insurance policies (less applicable deductibles) covered the repair or replacement of the Company’s assets that incurred loss or damage and provided coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that were incurred related to the damages and losses sustained. For the year ended December 31, 2025, the Company recorded committed insurance recoveries of approximately $9 million, which are included as a reduction of Cost of sales in the Company’s Consolidated Statements of Operations in Item 8 of this report and were fully collected.

Acquisitions and Dispositions

Acquisitions have been an integral component of the Company’s growth and value creation strategy. Refer to Note 2, “Acquisitions and Dispositions,” to the Consolidated Financial Statements in Item 8 of this report for more information, including a summary of recent acquisitions.

Key Trends and Economic Factors

Economic Conditions. The Company’s financial performance depends on conditions in the global automotive industry. Automotive and truck production and sales are cyclical and sensitive to general economic conditions and other factors, including interest rates, consumer credit and consumer spending and preferences. Government policies, such as the imposition of, termination of or other changes in tariffs (including retaliatory tariffs), or the commencement or termination of consumer tax incentives, such as EV tax credits and programs to invest in infrastructure, including EV charging stations, may affect consumer preferences. Economic declines or impacts of tariffs that result in a material reduction in automotive or truck production would have an adverse effect on the Company’s sales. The weighted average market production, as estimated by the Company for the year ended December 31, 2025, was approximately flat from the year ended December 31, 2024. Weighted average market production reflects light and commercial vehicle production as reported by S&P Global, weighted for the Company’s geographic exposure, as estimated by the Company.

Commodities and Other Inflationary Impacts. During 2025, prices for commodities showed a lower level of volatility in comparison to what the Company had experienced from the beginning of 2021. The Company expects commodities and other costs to be relatively flat in 2026. However, the Company has experienced impacts from commodity pricing, inflation and tariffs over the last several years. Volatility in these areas and other factors could cause actual costs to be materially higher than expected in 2026.

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Outlook

The Company expects global industry production to be flat to down modestly year-over-year in 2026. The Company expects a negative sales impact from declining sales in the Company’s Battery & Charging Systems segment. As a result, at the mid-point of its outlook, the Company expects total sales in 2026 to decline year-over-year, excluding the impact of foreign currencies.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to enhance its product leadership strategy. There are several trends that are driving the Company’s long-term growth that management expects to continue, including adoption of product offerings for electrified vehicles and increasingly stringent global emissions standards that support demand for the Company’s products that drive vehicle efficiency.

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RESULTS OF OPERATIONS

A detailed comparison of the Company’s 2023 operating results to the Company’s 2024 operating results can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s 2024 Annual Report on Form 10-K filed February 6, 2025.

The following table presents a summary of the Company’s operating results:

Net sales

Net sales for the year ended December 31, 2025 totaled $14,316 million, an increase of $230 mill

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