Why Borg Warner's Q4 Turnaround Could Signal a Hidden Upside (or Danger)

Key Takeaways

• Losses narrowed to $262M from $405M YoY, signaling a possible earnings recovery.
• Revenue rose 3.9% to $3.572B, outpacing the broader automotive supply‑chain slowdown.
• Adjusted EPS of $1.35 per share flips the script on the headline negative EPS.
• Peers such as Tata Motors and Adani’s EV ventures are moving faster on electrification, pressuring BWA’s market share.
• Historical patterns suggest a 12‑month lag between power‑train earnings turnarounds and stock price re‑rating.

You missed the red flag in Borg Warner's latest earnings.

But missing it could be an opportunity if you understand why the numbers matter beyond the headline loss. Borg Warner (BWA) posted a Q4 loss of $262 million, a sharp improvement from $405 million a year ago, while revenue ticked up to $3.572 billion. More importantly, the company reported an adjusted earnings of $1.35 per share, a positive swing that many analysts ignored because the GAAP EPS stayed in the negative territory at $‑1.23.

Why Borg Warner's Q4 Loss Narrowing Beats Market Expectations

Investors often focus on GAAP (Generally Accepted Accounting Principles) figures, but adjusted earnings strip out one‑time items—stock‑based compensation, acquisition costs, and certain tax effects—giving a clearer view of core profitability. The $1.35 adjusted EPS suggests that the underlying business is finally shedding the cost‑inflation shock that hit the automotive supply chain in 2023. This is especially relevant as OEMs (Original Equipment Manufacturers) reset their procurement strategies after a two‑year parts shortage.

Revenue Growth Amidst Automotive Supply‑Chain Turbulence

Even a modest 3.9% revenue increase is noteworthy. While the global automotive sector saw a 1.5% contraction in Q4, Borg Warner managed to grow by leveraging its power‑train and electrification platforms. The company’s “Drive Systems” segment, which includes hybrid and electric drivetrain components, contributed $1.2 billion—a 12% YoY rise. This aligns with the industry‑wide shift toward EVs (Electric Vehicles) and hybrid models, where demand for high‑efficiency gearsets and power‑electronics is accelerating.

Competitor Landscape: How Tata Motors and Adani's Mobility Arms Are Positioning

Peers are not standing still. Tata Motors has accelerated its EV rollout, targeting 30% of its 2026 sales from electric models. Meanwhile, Adani’s newly formed Green Mobility subsidiary secured a $1.2 billion partnership with a major battery maker, aiming to capture a slice of the Indian EV market. Both firms are investing heavily in in‑house power‑train development, which could erode Borg Warner’s supplier moat unless BWA doubles down on its own R&D spend, currently at 6.5% of revenue versus Tata’s 8%.

Historical Parallel: What the 2020 Powertrain Pivot Taught Us

Back in 2020, Borg Warner announced a strategic pivot toward electrified drivetrains, resulting in a 14% earnings dip in FY21 before the market caught up. Share price lagged the earnings improvement by roughly 10 months, delivering a 45% upside for patient investors. If history repeats, the current earnings beat could translate into a multi‑year upside as OEMs accelerate EV adoption and as the adjusted margin improves.

Technical Terms Demystified: Adjusted EPS and Margin Compression

Adjusted EPS removes non‑recurring expenses, giving investors a cleaner view of operational profitability. Margin compression occurs when revenue growth is outpaced by cost increases, shrinking the profit margin. In Borg Warner’s case, the adjusted margin expanded from 2.1% to 3.8% YoY, indicating that cost‑control measures are starting to work.

Investor Playbook: Bull vs. Bear Cases for Borg Warner

Bull Case

• Adjusted earnings stay positive, indicating sustainable profitability.
• EV drivetrain market share rises to 15% by 2028, driven by OEM contracts.
• Strategic cost‑cut initiatives improve operating margin to >6% in FY27.
• Potential acquisition of a niche battery‑management firm adds a high‑margin revenue stream.

Bear Case

• OEMs delay EV rollouts, leaving BWA dependent on declining ICE (Internal Combustion Engine) components.
• Competitors out‑invest BWA in next‑gen power‑train technology, leading to market‑share erosion.
• Supply‑chain disruptions re‑emerge, inflating raw‑material costs and squeezing margins.
• Adjusted earnings revert to GAAP losses if one‑time credits expire.

Bottom line: Borg Warner’s Q4 numbers hint at a turning point, but the path forward hinges on execution in electrification and cost discipline. Investors who can tolerate short‑term volatility may capture the upside, while risk‑averse players might wait for a clearer trend in adjusted margins.