Good morning. My name is Chelsea, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2023 Second Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. .

Thank you, Chelsea. Good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, on our homepage and on our Investor Relations home page.

With regard to our Investor Relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the Events section of our IR page for a full list. Before we begin to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K.

Our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods.

When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our growth compared to our market.

When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Lastly, starting in the third quarter of 2023, BorgWarner will no longer consolidate its Fuel Systems and Aftermarket segments.

Results of those segments for all periods prior to the PHINIA's spin-off reflected as discontinued operations. Our guidance relates to our continuing operations and our commentary on today's call will focus on those continuing operations, which includes looking at some results on a pro forma basis to reflect the spin-off.

We will not answer questions related to the performance of the Fuel Systems and Aftermarket segments. Please direct them to PHINIA who will conduct their earnings call on Monday, August 7. Please note that we've posted today's earnings call presentation to the IR page of our website.

We encourage you to follow along with these slides during the discussion. With that, I'm happy to turn the call over to Fréd. .

BorgWarner's second quarter results were strong. We delivered strong organic growth and margin performance. We expect another year of strong top line growth in 2023. Our top line guidance is also increasing modestly based on our industry outlook and customer pricing actions.

Looking beyond the near term, we believe we are successfully executing on our long-term strategy, Charging Forward 2027 has now laid out the path forward for BorgWarner for the next four years, and we plan to continue to share our successes along this journey. And with that, let me turn the call over to Kevin. .

Thank you, Fréd, and good morning, everyone. Here are the two key takeaways from our second quarter financial results. First, we reported double-digit organic revenue growth driven by higher industry production and outgrowth in Europe and China.

Second, our margin performance was strong, driven by solid conversion on higher revenue and customer recoveries of material cost inflation more than offsetting higher input costs coming from our suppliers. Let's turn to Slide 10 for a look at our year-over-year revenue walk for Q2.

Pro forma for the spin-off of PHINIA last year's Q2 revenue was just over $3 billion. You can see that the strengthening U.S. dollar drove a year-over-year decrease in revenue of approximately 1% or $33 million. Then you can see the increase in our organic revenue about 22% year-over-year.

That compares to an approximately 15% increase in weighted average market production. Finally, the acquisitions of Santroll, Rhombus and SSE added $18 million to revenue year-over-year. The sum of all this was just under $3.7 billion of revenue in Q2. Turning to Slide 11. You can see our earnings and cash flow performance for the quarter.

Our pro forma second quarter adjusted operating income was $369 million equating to a 10.1% margin. That compares to pro forma adjusted operating income of $258 million or 8.5% from a year ago.

On a comparable basis, excluding the impact of foreign exchange and the impact of M&A, adjusted operating income increased $126 million on $667 million of higher sales. The biggest positive driver of this performance was that we converted approximately 18% on our additional sales.

In addition, our customer recoveries in the second quarter, net of material cost inflation from our suppliers were an $11 million tailwind year-over-year. You'll recall that last quarter, we were incurring supplier cost inflation was very little in the way of customer recoveries to offset that headwind.

In Q2, we negotiated a number of settlements with our customers that contemplated recoveries of material cost inflation for both Q2 and Q1.

Because we essentially under-recovered inflation in Q1 and over recovered in Q2, when you think about the jump-off for our go-forward margin performance, you should really be looking at the total first half performance, not any individual quarter.

Pro forma for the spin-off of PHINIA, our adjusted EPS improved by $0.31 compared to a year ago, driven almost entirely by the increase in our adjusted operating income. Turning to free cash flow.

Excluding onetime costs, our free cash flow was a $42 million usage during the second quarter due to higher capital spending to support our growth in eProducts, and increased working capital related to our sequentially increasing revenue and the customer recoveries that we booked late in the quarter, but have not yet collected.

Now let's take a look at our full year outlook on Slide 12. First, as Pat mentioned, our full year guidance now reflects the spin-off of PHINIA and treats the prior period results of those particular segments as discontinued operations, which importantly is not reflected in many of the external estimates within the Street consensus.

Starting with foreign currencies. Our guidance now assumes an expected full year headwind from weaker currencies of $35 million. This is a headwind of $111 million in revenue versus our prior guidance with the Chinese yuan being the largest driver of the change in our outlook.

Second, we expect organic growth of approximately 13% to 16% year-over-year compared to our prior guidance of 10% to 15%. The increase is driven predominantly by our higher production outlook, reflecting the stronger first half volumes. However, our assumption for inflation cost recoveries from our customers has also increased modestly.

As it relates to eProduct revenue, we're expecting to deliver between $2.3 billion and $2.4 billion in 2023, which is up from the approximately $1.5 billion we generated in 2022. As you can see, we've adjusted the high end of this outlook versus our prior guidance primarily related to two things.

First, we're experiencing a slower-than-anticipated ramp-up in our battery pack production. Demand for our commercial vehicle battery packs is increasing rapidly. However, our capacity installation to support that demand has progressed a little more slowly in 2023 than we planned.

Second, we're currently seeing lower customer volumes on a North American EV program that is already in production. Finally, the Santroll, Rhombus and SSE acquisitions are expected to add approximately $75 million to 2023 revenue.

Based on these expectations, we're projecting total 2023 revenue in the range of $14.2 billion to $14.6 billion, which compares to our prior guidance of $14.0 billion to $14.6 billion. Let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 9.2% to 9.6%, which compares to our 2022 margin of 9.4%.

Looking at the net impact of inflationary cost versus customer recoveries, our current expectations are that the net year-over-year impact of material cost inflation on full year margin is likely to be a 10 basis point to 20 basis point headwind.

As it relates to R&D, our full year 2023 guidance continues to anticipate a $60 million to $70 million increase in eProduct-related R&D. With our ongoing success securing new electrified business wins, we're continuing to lean forward by investing more in R&D to support our eProduct portfolio.

Excluding the impact of this planned increase in eProduct related R&D, our 2023 margin outlook contemplates the business delivering full year incrementals in the mid-teens. Based on this revenue and margin outlook, we're expecting full year adjusted EPS from continuing operations in the range of $3.50 to $3.85 per diluted share.

Turning to free cash flow. We continue to expect that we'll deliver free cash flow from continuing operations in the range of $400 million to $500 million for the full year, excluding approximately $150 million in onetime cash costs related to the spin-off of PHINIA. That's our 2023 outlook. Turning to Slide 13.

You can see an update for our ePropulsion segment. We were pleased with the sequential improvement in second quarter revenue as compared to the first quarter.

The improved margins you see on the slide benefited from that higher revenue, roughly flat eR&D sequentially and second quarter customer recovery of first half material cost inflation from suppliers. Despite a modestly lower full year revenue outlook for our ePropulsion segment, we continue to expect a slightly positive segment margin in Q4.

ePropulsion second half revenue growth is heavily weighted towards program launches and volume ramp up in the Chinese NEV market. As you can see on the right side of the slide, our Chinese NEV customer base is quite diverse as we supply many of the leading NEV manufacturers in the country.

This customer diversity is a critical element of why we believe will ultimately be successful in the world of electrification and it doesn't apply only to China. At BorgWarner, we currently have eProduct business with seven of the 10 largest global light vehicle manufacturers of electric vehicles and high-voltage plug-in hybrids.

So let me summarize my financial remarks. Overall, our second quarter financial results were strong. We achieved organic growth of approximately 22% year-over-year. We generated 10.1% adjusted operating margin based on a 19% all-in conversion on incremental revenue, and we delivered strong revenue growth year-over-year and bottom line adjusted EPS.

As we look ahead to the second half of 2023 and beyond, we continue to expect to deliver strong organic growth to drive improved profitability in our eProducts as we leverage our top line growth, and to continue to make the necessary investments to support the long-term profitable growth of our eProduct portfolio.

With that, I'd like to turn the call back over to Pat. .

Chelsea, we're ready to open up for questions. .

[Operator Instructions] Your first question comes from Colin Langan with Wells Fargo. .

Any color how should we think -- what does the second half seems to imply based on guidance a bit of moderation in margin? I think you're sort of running at 9.6% in the first half. And think to get to the midpoint of guidance should be more like 9.2% in the second half on which should be slightly higher sales.

Any factors that are driving that weakness? Are you including some risk from the UAW strike in second half? Any color there?.

Yes. I think you have the numbers right there, Colin. It's 9.6% in the first half and the midpoint of the guide is about 9.2% in the second half of the year.

The biggest things that are happening, if you're really looking sequentially, like on a first half to second half basis, one is you have to look at the mix of our revenue as we go to this half of the year. Our eProducts revenue is ramping up in our guide about $450 million to $550 million first half to second half.

And so we're converting on that nicely, about 15% on an all-in basis, which is good for a business that's really ramping up and incurring the costs that you normally expect for a start-up of production.

At the same time, when you look at our revenue, keep in mind, our sequential outlook is that markets are effectively down first half to second half, about 6% and that's not unusual.

It's just the way that our market assumptions work, which means that underlying that, the rest of our revenue, our foundational revenue is seeing a decline first half to second half, and that tends to come with higher decrementals.

So when you look at that revenue mix going first half to second half, that's a bit of a drag on the margin that takes it down a bit. There's also a little bit of incremental inflation first half to second half, a little bit of incremental R&D, but that's really the overall picture.

The bottom line from our perspective, we're pretty pleased with the fact that we're driving 13% to 16% full year organic growth year-over-year and sustaining that 9.2% to 9.6% margin outlook. .

Got it.

And any UAW in the second half risk there? Or is that sort of not in the guidance?.

We haven't put anything in the guidance. I mean it's hard for us to sit here and guess with a crystal ball what that might look like, what I can tell you is just so you can dimension maybe your assessment of the exposure that we have. If we look at our North American exposure to Ford, Stellantis, and GM, across Mexico and U.S. as we supply them.

Our production runs about a little less than $250 million a month. So you can look at that, however you want in terms of assessing what you think some scenarios might be, but we haven't embedded anything in our guidance as it relates to potential strikes. .

Got it. And just lastly, you highlighted some slowing demand for at least one of your products in -- to one of your eProducts Obviously, there's some concerns from automakers about EV adoption slowing. And I think at your Investor Day, you talked sort of longer term sort of being derisked on the sort of sales versus margin.

But how should we think about that near term? If EV starts to slow into already, didn't see the high adoption into next year, does that but pressure on your overall profitability? How should we think about the puts and takes on sort of potential for EV to slow and impact you?.

Hey, Colin. So we've adjusted the topline. Two main reasons. First is we have issues keeping up with the demand on battery pack and despite a 350% year-over-year increase on our Gen 3 pack, we need more output. So we have all hands on deck, especially from a manufacturing engineering perspective.

And remember, 1,000 buses or trucks is a $100 million revenue for BorgWarner. Also, we see the production of the current North American EV output, not as high as expected. Those are the two main factors. If your question is around the change our long-term outlook are clear answers, absolutely not.

It's not going to be a steady up line, right? It is going to be with years or quarters going higher, some going not as high and still good growth, but don't expect a straight line from a or high-voltage plug-in a bit growth. .

Your next question will come from John Murphy with Bank of America. .

I just wanted to follow up on that question, Colin was asking. I mean, Fréd, as you think about this in the short run, EVs are ramping a little bit slower than folks were expecting, they're still ramping. So like the long-term strategy still makes -- obviously makes sense.

But I mean, could this benefit margins here in the short run as those EVs aren't produced in more ICE vehicles are produced and you're getting better margins there.

Just curious, in the next one, two years, if that might drive better cash flow and help reinvest into that transition into the future?.

What -- John, what I can tell you is that we see strong customer pool. We see a very steady drumbeat on product wins globally. And remember we both are on there and on hybrids and especially high-voltage plug-in hybrids, but I would agree with you.

This emphases the importance of maintaining strong margin on our foundational business and that's the third pillar of Charging Forward 2027. So that's what I would tell you. .

Okay. And then just a follow-up on the onsemi announcement.

I'm just curious what this means for the Wolfspeed deal? Or is this really just dual sourcing that might even go to triple sourcing over time? Is this sort of just sand or course? Or is there something specifically you're getting out of onsemi, you wouldn't get it with Wolfspeed or does it put the Wolfspeed deal at risk? And how should we interpret all of this?.

It's all about supply chain resiliency. We're happy with the Wolfspeed capacity corridor. Wolfspeed is our largest silicon carbide supplier and we are putting in place additional agreements. It's all about security and supply chain resiliency. .

Your next question will come from Noah Kaye with Oppenheimer. .

I appreciate all the reconciliation details for the PHINIA spin.

Can you just update us on where net leverage actually sits post-spin and how much dry powder you have in your view for M&A?.

Yes. I mean what I'd say is you can see some of the metrics we have as of quarter end. But the one thing that doesn't get reflected in the quarter end numbers is that when we executed the spin-off there was an inflow of cash to BorgWarner, so effectively on July 3 of about $450 million.

And that was because PHINIA issued $800 million of debt and then retained about $350 million for its cash balances and remitted to the rest back to BorgWarner. So when you look at our balance sheet, you can see what the balance sheet looks like, and you have to think there's another $450 million out there.

From our perspective, the way we think about our leverage profile is we'll continue to manage that in a way that we drive toward keeping below 2x on a gross debt-to-EBITDA basis. And we'll look at whatever actions we might need to take over the coming quarters to get there.

But I think overall, what it means is it doesn't slow down our ability to execute from an M&A perspective opportunistically as we think see the opportunities that might be able to help strengthen our product leadership position in electrification. .

And a follow-up to that, I mean, good commentary on Eldor and you've done quite a lot of M&A over the last new year change. But just give us a view of the pipeline now. And there have been some comments on this call and others around what the puts and takes of a slower-than-expected EV adoption rate might mean for industry.

Curious to know how that might be impacting the pipeline in terms of potential candidates for acquisition?.

No. We continue to look at opportunities in a very disciplined way as we've done in the past. We're happy with the portfolio that we have. If those opportunities can strengthen our electrification capabilities and accelerate the EV transition we look at them again in a very disciplined way. .

Okay. Maybe just one more. You mentioned the pace of battery production ramp. I mean again, very high growth. So not necessarily getting to the full level you expected. But can you help us characterize that? I don't believe Seneca expansion was factored in that, right? I mean that's not until next year.

So what are the gating factors? Is it labor? Is it process equipment? Is it cathode or other materials? Just trying to understand the gating factors on production. .

It is equipment that is related to manufacturing equipment. It's going to take us about 18 to 24 months to get to the 2027 capacity that is required. We've announced about $1.3 billion of revenue in battery packs in 2027. And we're working on ramping that up as fast as we can for all our customers, especially in the Western world. .

Your next question will come from Emmanuel Rosner with Deutsche Bank. .

My first question is on the ePropulsion margin progression. It's good to see the sequential improvement as well as you've got confidence in getting to slight positive margins in the first quarter.

But will that benefit either from timing or recovery in the fourth quarter? Or can we think about it as sort of like solid exit rate on which to build further progress in 2024. .

Yes. I mean the way we're looking at it is achieving that breakeven actually positive margin at the end of the fourth quarter is a solid jump off into 2024. I mean you might remember, we talked about it before. If you look at our quarter end Q4 2022, ePropulsion was actually slightly positive.

But we know it was on the back largely of increased recoveries from an R&D perspective. And so at that moment, it wasn't really a sustained positive margin profile.

As we get to the end of this year, and achieve that positive margin profile, it's more because of the scale that we're generating in the business and the conversion on that incremental revenue. So I think it positions us to have a 2024 that's also positive and growing from there. .

That's very clear. And then 1 follow-up on the small change in the full year guidance. So the organic growth as outlook is somewhat better, thanks to better production. But then you left your operating margin range essentially unchanged.

What are sort of like some of the puts and takes in that?.

Yes. I mean we didn't move the upper end of the range. Obviously, we kept the $14.6 billion of revenue. So we didn't really move much there. We do have a little bit of incremental conversion coming on the increase at the bottom end of the range. But there's not a significant amount of movement to really comment on.

So our 9.2% margin at the bottom end of the range held. I mean if you're looking at it from a pure operating income perspective, you got a little bit of incremental conversion and then you have a little bit of FX headwind that's impacting us as well. .

Your next question will come from Luke Junk with Baird. .

Fréd, for starters, just be great to get your perspective on the competitive landscape power electronics outside of inverters.

If you could just talk about the fragmentation you see right now and the level of synergy that you would expect or even that customers have told you with the fact that you're already a major player in inverter in bringing that to things like onboard charger and other related products. .

Look, we're all -- what we're doing with inverters, with onboard chargers with DC convert, DC/DC converters and also from a charging perspective is power conversion. You can convert DC to AC, AC to DC, DC to DC, but at the end of the day, the core is power conversion.

So the synergies from an engineering perspective, a purchasing perspective and a product similarity perspective is fairly high. .

Okay.

And then for my follow-up, just wondering if you've commented or could comment on what the geographic mix of eProduct revenue looks like sitting here in 2023, I guess, I'm thinking of the downside risk, say, customer delays in North America, which showed up in the revision numbers this morning relative to China pushing higher in the back half of the year? How should we just think about that mix between, I guess, broadly North America, Europe and China in eProduct?.

Yes. I would say what we're really seeing is, particularly as you look at that $450 million to $550 million of ramp-up going first half to second half in eProducts, an important piece of that ramp-up is really coming in the ePropulsion segment, which is really being driven by product launches and ramp up in China.

So we have a healthy mix of product revenue across the globe. But as we ramp up here in the back half of 2023, China is a big piece of that ramp-up. .

Your next question will come from Dan Levy with Barclays. .

Wanted to first just start with a question on your growth dynamics. And I know you have walked away from providing an explicit growth over market target, but the implied number for the year is 9% to 12%. You just did 7% in the second quarter.

So if you could maybe just give us a sense of what's driving acceleration into the back half of the year? It sounds like part of it is eProducts.

But to what extent is it also that you're seeing further traction on the foundational business?.

Dan, you're right. At the midpoint, outgrowth is 1,000 basis points or 1,050 basis points. It's driven by eProduct, it's a significant driver for this outgrowth and actually, second half is even higher than the first half. 2021 was also above 1,000 basis points outgrowth and it's difficult to time it.

Customer pricing plays also overall on a full year basis with 170 basis points. So this is what I would tell you, and eProducts plays a significant role in this, and you see that also first half to second half. .

And the foundational business, is that playing any role here? Or this is purely driven by eProduct?.

I mean the foundational business is continuing to outperform overall as well. But the biggest driver of why the second half is so much stronger than the first half, if you do the math of what's underlying outgrowth, it's that $450 million to $550 million increase sequentially first half to second half and eProducts revenue.

I mean keep in mind, we're making that -- that's what we're expecting when sequentially, if you're looking at it that way, markets are actually down globally during that period, but revenue in eProducts is up $450 million to $550 million. So it's a big driver of outgrowth. .

Okay. Great. And then as a follow-up relatedly, I was wondering if you could just talk about your hybrid business within the foundational piece. We heard last week from one of your large customers that they're taking efforts to accelerate hybrids outside of the plug-in hybrid.

So maybe you can give us a sense for the latest that you're hearing on hybrids within the foundational piece, how accretive that is to CPV, how accretive it’s to margin? But maybe if you could just frame within foundational, how large it is today?.

I don't think we've disclosed that. But what we've disclosed is $1.3 billion of hybrid in 2025 on the e-side. And on the foundational side that would come on top.

Most of the next-generation or current generation high-voltage plug-in hybrids that make a difference from meeting the regulatory environment especially in Europe and in China do carry turbos, do carry EGR and other products that we're making.

So it is an important part, and we've always told you that the products that we retain play a key role into the growth of hybrids, especially high-voltage plug-in hybrids, which are part of the NEV environment in China also. .

Is the extended range EVs? Is that somewhere where you play, meaning the non-plug-in?.

We play in all kinds of hybrids. We play more in high-voltage plug-in hybrids, which are making a bigger difference from should efficiency over a fuel efficiency standpoint. But we do play into what we can call range extenders, whatever you call those types of powertrain. .

[Operator Instructions] And your next question will come from Rod Lache with Wolfe Research. .

Wanted to ask maybe just two strategic questions. One is, a week ago, we saw a platform sharing agreement between Volkswagen and XPENG. I know that XPENG is a significant customer of yours. Stellantis on their earnings call also talked about countering the Chinese invasion of Europe with better utilization of low-cost country sourcing.

And I was hoping you might just if it's relevant, just talk about whether this is significant for BorgWarner, whether you see this as a global or a local phenomenon, just the utilization of these Chinese -- lower-cost Chinese platforms and whether that actually has implications for you?.

Rod, one of the key element of the strategy was to scale it fast. And I think we've done a pretty good job there. And we've done a pretty good job in China. You see we're producing eProducts for the BYD, Changan, Chery, XPENG, the Li Auto, the Great Wall, et cetera, in this world.

And this -- we're also big in North America and Europe, and I'm not going to comment more. But this thing is going to be, I think, beneficial for suppliers that have technology and scale, which I believe we are part of. .

So just to clarify that, Fréd, these kinds of platform sharing agreements, does that represent an expansion of your existing business? Or is it does it have no effect on you? And is it kind of a global thing? Or is this more of a China local thing?.

I think is in the detail on your question, Rod, it depends on the platform and I don't think we have the granularity of what will happen across those different OEMs from the platform sharing standpoint. And we'll let you know if we can and when we can. .

Okay. And then just maybe at a high level, just given all the focus on UAW discussions now.

Just taking a step back, how are you thinking about the implications of higher labor costs for these OEMs? Do you see that as a net positive from an outsourcing perspective over time? Or is it kind of unclear because OEMs ultimately have to commit to greater union labor utilization. .

Rod, I'm not going to comment on this stuff. .

Our last question will come from James Picariello with BNP Paribas. .

Can you just confirm what the net commodities impact was in the quarter and what you're now baking in for the full year? And then also with respect to the new slate of restructuring efforts that you outlined at the Analyst Day targeting $60 million to $70 million in savings by 2025, tied to your ICE operations.

Is there anything hitting in the second half here?.

Yes. With respect to the commodities impact in Q2, net when you take pricing, minus the net material inflation costs coming from the suppliers, it was a net positive of about $11 million in the quarter. And remember, that's because in Q2, we were recovering for Q1 as well because we had very little in the way of recoveries in Q1.

So that's why it was a net positive number in Q2. And overall, the pricing element of that in Q2 was a little bit north of 2.5% of our revenues. So obviously had a meaningful impact on the quarter and contributed about 10 basis points to margin when you cut through that math.

When you look on a full year basis, we expect pricing -- the pricing side of the equation to be somewhere between 1.5 points to 2 points of pricing all in year-over-year. And we expect the net impact on our P&L to be a 10 basis point to 20 basis point headwind in all in year-over-year.

So that's the way to think about net material inflation cost impacts for us. In terms of the restructuring, there's nothing unusual as you look in the back half of the year.

We're progressing along the trajectory of what we laid out in the June Investor Day and generating some of the savings each quarter this year associated with what we laid out on that slide.

Got it. And then just a high-level question. If automakers begin to slow down their EV ambitions in some fashion over the coming years, whether it's demand related or production constrained. I don't imagine BorgWarner seeing any change in OEM intentions as of now.

But if this does play out, would the simple response be for the company to flex R&D spend? Could this entail complexities and inefficiencies down the road for BorgWarner? Just curious on your high-level thoughts here on a topic that's gaining some traction. That's all. .

James. The first thing I would tell you is that we play as a global player. You've seen the impact that we have in China, in Europe, in North America. So we looked at the acceleration of EV and electrification overall on the global scale and on a global scale, we see momentum.

Again, if you think this is going to be a straight line, I think it's a wrong assumption. And we're ready to flex. We are also ready to maintain strong margin on our foundational business, which is absolutely part of one of the 3 simple pillars of Charging Forward, and this is going to be important no matter what. .

And maybe the last thing I would add to that, James, it's why we laid out the scenarios at Investor Day like we did is because while we have our expectations on how the market is going to evolve over the coming years and we're marching toward that, we recognize that there could be some additional upside to the e-markets growing and additional downside to that.

And that's why as you look at the portfolio and the way we've constructed it, it's resilience on any of these scenarios and drives operating income performance that we think is relatively comparable under lots of different outcomes like that. So that's why the portfolio is constructed the way it is. .

With that, I'd like to thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Chelsea, you can go ahead and conclude today's call. .

Thank you, ladies and gentlemen. This does conclude the BorgWarner 2023 Second Quarter Results Conference Call. You may now disconnect..