In February, Joe Fadool, the new CEO of BorgWarner, decided to reverse a strategic decision made by his predecessor, arguing that under current conditions, the company could not scale the business to meet its 15% ROIC target. This move is expected to save $45 million in cumulative operating losses over the next two years.
Joe Fadool, who became CEO in February, has made closing down BorgWarner’s electric vehicle charging business his first significant strategic move. Following an analysis of market conditions and financial projections, Fadool and his team concluded that ceasing operations was the best course of action.
During his initial earnings call, Fadool explained that the decision to exit the charging business was difficult but necessary, as it was not anticipated to create shareholder value within the company’s planning horizon. BorgWarner, known for its powertrain components business for passenger and commercial vehicles, manages based on a 15% targeted return on invested capital.
Previously under Frédéric Lissalde, BorgWarner aimed to expand its “Foundational Business” beyond combustion engines, providing components like dual clutch transmissions for fuel efficiency and exhaust gas recirculation systems to reduce pollutants.
With acquisitions like Rhombus Energy Solutions in the U.S. and Hubei Surpass Sun Electric in China, BorgWarner sought to capitalize on EV infrastructure demand. However, Fadool informed investors that the charging market was not expanding as expected in North America and Europe, and was highly competitive and fragmented.
As management realized they couldn’t scale the business quickly enough to meet their ROIC target, plans were made to shut down or sell five locations across three regions by the second quarter. This decision coincides with 17 states suing the Trump administration over withheld funds for EV chargers, as noted in a federal lawsuit.
Despite this move, BorgWarner remains optimistic about the electrification market, especially in China, where EVs and plug-in hybrids are thriving. The company sees growth opportunities in products like dual inverters, key components in power electronics for emerging domestic brands.
Fadool expressed confidence in BorgWarner’s overall growth, especially in China, after receiving positive feedback at the Shanghai auto show. However, the company has revised its North American industry outlook, anticipating a 7%-12% decline in vehicle production due to tariffs, compared to the earlier estimate of a 3%-4% drop. Though there was no current evidence of such a significant decline, the uncertainty surrounding tariffs prompted a conservative approach to forecasts.
