BorgWarner Inc. (BWA) Earnings Call Transcript & Summary

Good morning. My name is Nick, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 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, Nick. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending investor conferences between now and our next earnings release. Please see the Events section of our Investor Relations home page for a full list. Before we begin a 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. In addition, during today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture about the core business of platforms and for comparison purposes with prior periods. We heartly adjusted that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We'll also refer to our incremental margin performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic car sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted earnings call presentation to the IR on-page or our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe.

Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the second quarter of 2026 and provide an overall company update, starting on Slide 5. I want to begin by thanking our employees, customers and suppliers for all of their trust, efforts, and continued support. In the quarter, we achieved sales of over $3.6 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were up modestly year-over-year outperformed the decline in market production primarily due to strong North American transfer case volumes. Our adjusted operating margin, adjusted earnings per share and cash flow performance was strong in the quarter. The company continued to operate at a very high level and delivered 100 basis points of adjusted margin expansion and 17% of earnings per share growth in a relatively flat year-over-year sales environment. This outstanding result was once again driven by our focus on cost controls across our business. I am excited to report that our strong award activity continued into the second quarter. Today, I'll highlight 7 new business awards across our foundational and e-products portfolios. These wins represent only a portion of the awards secured during the quarter, but I believe they underscore the strength of our technology-focused portfolio, our deeper relationships and the global demand for our efficient powertrain technologies around the globe. Equally exciting is the progress we've made in the quarter in taking meaningful steps in our product readiness across our data center and other industrial markets portfolio. I will share a detailed update in a few moments. Lastly, we remain focused on efficient deployment of capital to drive shareholder value. In the quarter, we returned approximately $134 million to shareholders through share repurchases and payment of a cash dividend. Additionally, our Board of Directors approved a $1 billion increase to our current share repurchase authorization, increasing our authorization to $1.35 billion or approximately 10% of BorgWarner's market cap. These actions demonstrate our confidence in the long-term cash generating ability of our business. and our focus on driving shareholder value through a balanced capital allocation approach. As I look back on the second quarter and the first half of 2026, I'm very proud of our team and our results. Once again, we execute at a very high level, which I believe puts the company in a strong position to achieve our full year sales, margin, EPS and free cash flow guidance. Our strong first half performance has also allowed the con to increase our second half 2026 industrial R&D investment to accelerate our product readiness. We are doing this while delivering our full year 2026 financial commitments. Turning to Slide 6. I'd like to highlight 7 recent product awards that demonstrate both the competitiveness of our technology and our ability to support our customers' powertrain needs in key markets. Let's start with our foundational product awards. First, Fort Warner has been awarded a new E-Turbo program with a major European OEM for an advanced hybrid passenger car application. Further strengthening Fort Warner's leading position in electrified boosting technologies. Production is scheduled to begin in 2029. I believe BorgWarner's E-Turbo innovation and leadership remains a core technology underpinning the industrial power generation product line leveraging our automotive scale to disrupt the data center market. Second, BorgWarner has secured new business with a Chinese OEM to supply our Torque-On-Demand transfer case with mechanical lock for a newly developed full-size SUV in China. We have built a 20-year relationship with this customer, and we're proud to continue supplying our all-wheel drive technology for their newest unit. Start of production is planned for the fourth quarter of 2026. Fort Warner continues to expand its variable cam timing business with new program awards in Europe and China. These programs include a program life extension and significant volume increase for a leading European premium OEMs V6 engine family. And a complex plan from a major Chinese OEMs 1.5-liter turbodarge gasoline engine family, replacing the previous incumbent supplier. These awards underscore the long-term competitiveness of our PCT portfolio across both hybrid and combustion engines. Switching now to our recent e-product awards. First, Fort Werner has secured a new integrated drive module award with a global OEM. This IBM features Board Warner's latest 3-in-1 integrated co-axl drive system, combining an advanced team or gearbox and fully integrated Gen 4 inverter in a compact high-performance package. I believe this award reflects BorgWarner's continued commitment to delivering advanced electrified drive solutions through the strength of our global technology portfolio and localized capabilities. Production is expected to begin in 2027. Second, BorgWarner has secured a major extension of 2 high-volume, high-voltage inverter programs with a major European OEM. These awards cover updated and burner designs for both plug-in hybrid and 800 fold battery electric vehicle applications, building on a trusted partnership and power electronics. I believe that extending several high-volume programs at the same time confirms BorgWarner's leading position at power electronics and the strength of our technology in-house expertise and customer focus, involving our inverters generation by generation, together with our customers, for both hybrid and fully electric applications is how we build trusted long-term partnerships with the world's leading OEMs. Production is expected to begin in 2029. Importantly, all the product awards I just highlighted include BorgWarner's in further technology, and it speaks to the world-class technology leadership and scale or nor have and high-powered inverters. This expertise has been developed over decades of engineering effort and represents our product leadership in this area. Our automotive and burner competence is another great example of a world-class technology that BorgWarner could use as we continue to advance our product readiness to capture additional growth factors outside of our core automotive markets. As I will discuss in a moment, the world is a need for more power and our highly efficient inverter is a solution that solves this growing problem. Next, on Slide 7. As I would like to discuss the acceleration of our product readiness across our data center and other industrial markets portfolio. Let's discuss with an update on our turbine generator launch progress. I'm very pleased with the advancements that we've made over the past quarter. First, I'm excited to share that our testing has confirmed that we have achieved carbon-level emission standards. I view this as an important milestone as we continue to expect our turbine generator to provide a lower emission solution relative to competing technologies. Our compliance process continues to progress well. UL component certification is expected to start in September and our component level evidence books have already been submitted. Construction of the final assembly plant is quickly moving forward with the footprint largely complete. We expect our capital equipment installation to begin in the third quarter. And overall, I'm excited and pleased with the team's progress, which will position us well to meet the strong interest that we continue to see from end customers, including multiple hyperscalers. Turning next to our Battery Energy Storage system. Our energy storage solutions are intended to support a range of use cases and data center environments. We continue to position our battery energy storage solutions to support data center, AI, and mechanical loads. Our product scope spans the entire energy power time requirement spectrum, operate high energy long duration and/or high-power, short-duration solutions. . We are working to widen our portfolio, which includes DC blocks uninterruptible power supplies, high-power racks and controls. Our solutions are modular, scalable, and sell chemistry dependent. [indiscernible] 2027, our quoting activity for our battery energy storage systems continues, and I look forward to providing you with additional updates later this year. Turning to our microgrid inverter offerings. Initial customer feedback has been extremely positive. We believe that we have the right value proposition, including U.S. manufacturing and supply chain. Our automotive supply chain is increasingly being viewed as a differentiator, and our decades-long experience in highly engineered, high voltage power events and liquid cooled power electronics is recognized and confirmed by potential customers. Our customers now have BorgWarner samples and discussions with other potential customers are underway. With feedback already we received, we are quickly moving to develop Gen 2 designs. While we continue to see the move toward 800 volts supporting our entry into this market, we have now begun to develop a high-power portfolio, spanning applications ranging from 400 volts to 1,500 volts as we see potential for volumes across the spectrum. I look forward to progressing toward customer quoting later this year. To summarize, I believe there are 3 key takeaways from today's call. First, BorgWarner's second quarter results were outstanding. Our sales remained strong at over $3.6 billion. Our adjusted operating margin expanded 100 basis points and adjusted EPS grew by 17% to the second quarter of 2025. Additionally, we increased our full year adjusted EPS guidance, reflecting our continued focus on growing the earnings power of the company. Second, we announced 7 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership, and the need for our highly engineered solutions across combustion, hybrid, and architectures. Third, we further improved our product readiness across our data center and other industrial markets portfolio. We see strong customer demand and are confident that our mechanical and electronic core competencies will enable us to successfully capture growth outside of our core automotive market. This confidence in our strong first half 2026 performance has allowed us to increase our second half industrial R&D spending to further accelerate our industrial product readiness. And finally, we took meaningful steps to return capital to shareholders during the second quarter with approximately $134 million returned to our cash dividend and share repurchases. Additionally, the $1 billion increase to our share repurchase authorization and $1.35 billion total authorization demonstrates our commitment to following a disciplined approach of consistently returning cash to shareholders to create value. Overall, I believe our year-to-date results illustrate the strength of our team, our product portfolio and the long-term earnings power of our business. I'm excited to continue our positive momentum into the second half of 2026. With that, I will turn the call over to Craig.

Thank you, Joe, and good morning, everyone. I'm excited to share the details of our second quarter financials by turning to Slide 8 for a look at our year-over-year sales matter. Last year's Q2 sales were just over $3.6 billion. In the second quarter of this year, stronger foreign currency drove a year-over-year increase in sales of $54 million. Then you can see the sales headwind from our battery business, which drove a year-over-year decrease in sales of $62 million. The remaining organic sales increase of $18 million, 0.5% was modestly ahead of the decline in light vehicle market production for the quarter. This increase was primarily driven by transfer case outgrowth in North America. Ultimately, sales were relatively flat year-over-year and remained strong at over $3.6 billion. Turning to Slide 9, you can see our earnings and cash flow performance for the quarter. Our second quarter adjusted operating income was $413 million, equating to a strong 11.3% adjusted operating margin. That compares to adjusted operating income of $373 million or a 10.3% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $7 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income increased $28 million on $44 million of lower sales, this strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Equally exciting, with every business unit expanded operating margins in the quarter and lower corporate costs provided an additional tailwind to our sunsets. Our adjusted EPS was up $0.21 or 17% compared to a year ago as a result of higher adjusted operating income and the impact of approximately $650 million in share repurchases or approximately 5% of our market capitalization over the past 4 quarters. And finally, we generated free cash flow of $492 million in the second quarter which supported $250 million in share repurchases and $70 million in dividend payments in the first half of 2026. I believe this once again demonstrates our focus on creating value with our consistent and strong free cash flow. Now let's turn to Slide 10 and take a look at our full year 2026 outlook. We are maintaining our full year sales, adjusted operating margin and free cash flow guidance. However, we are increasing our full year adjusted EPS guidance based on our share repurchases in the first half of 2026. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion compared to $14.3 billion in 2025. Starting with foreign currencies. Our guidance now assumes an expected full year sales benefit of $175 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. This benefit is modestly lower than our previous guidance. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales to perform broadly in line with our weighted light vehicle market consistent with how we performed in the first half of 2026. However, we expect a sales decline in our battery business due to lack of North American incentives and weaker European demand. We now expect this decline to represent roughly 170 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market and consistent with our previous outlook. Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9%, and compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits. At the high end, our outlook assumes we largely offset the impact of the organic sales decline through further cost control similar to what we delivered in the first half of 2026. Our strong first half performance is enabling the company to increase our planned industrial R&D spending while maintaining our full-year adjusted operating margin and guidance comment. We continue to see strong customer interest in our growing industrial portfolio and believe BorgWarner's mechanical and electronic powertrain core competencies fit extremely well to serve the needs of a high-power industrial market. Given these factors, we are leaning forward in accelerating our R&D spending on these products by investing an incremental $10 million to $15 million to support our future growth. This is a great testament. The Board want our team's ability to execute at a high level in the short term to support our long-term sustainable sales growth in a growing market. Importantly, we are making this R&D investment while maintaining our full year margin guidance. Based on this sales and margin outlook, we are now expecting full year adjusted EPS and in the range of $5.05 to $5.30 per diluted share, which is an increase compared to our initial guidance range of $5 to $5.20 per diluted share. This increase is primarily due to the share repurchases completed during the first half of 2026. The midpoint of this adjusted EPS guidance represents approximately a 5% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving earnings expansion despite lower industry production. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that, that's our 2026 outlook. Now let's turn to Slide 11 and discuss our recently increased share repurchase authorization. As Joe highlighted in his opening remarks, we repurchased approximately $100 million in BorgWarner stock during the second quarter. This takes our share repurchases over the last 4 quarters to approximately $650 million and leaves $350 million remaining under our prior share repurchase authorization. Our Board of Directors approved an increase of up to $1 billion through 2029. When combined with the $350 million remaining under our prior authorization, management has the ability to repurchase up to $1.35 billion of the company's outstanding shares or just over 10% of our current market cap. I believe this authorization increase demonstrates the confidence we have in the long-term cash-generating strength of our business and our focus on driving shareholder value through a balanced capital allocation approach that rewards shareholders, so let me summarize my financial remarks. Overall, we were very pleased with our second quarter results. Our light vehicle sales performance was modestly stronger than industry production. We achieved a 100 basis point adjusted operating margin improvement and a 17% adjusted earnings per share increase on relatively flat reported sales. Our strong free cash flow performance supported a cash return of approximately $134 million to shareholders in the quarter. Q2 performance once again demonstrates the Board Werner team's ability to deliver strong financial results and a declining production environment. We believe this increased share repurchase authorization by our Board of Directors demonstrates our long-term confidence in the cash-generating ability of our business. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales will define in 2026 and an incremental $10 million to $15 million investment in industrial R&D to accelerate our long-term sales growth. With another year of anticipated strong free cash flow of $1 billion at the midpoint of our guidance, we expect to continue to deploy capital in a balanced approach that reward shareholders. By continuing to focus on near-term execution, growing the long-term earnings power of Kony through organic and inorganic investments and following a ballast deployment of our capital, we believe BorgWarner will create significant shareholder value for many years to come. With that, I'd like to turn the call back over to Pat.

Thank you, Craig. Nick, are to open it up for questions. .

[Operator Instructions] The first question will come from Chris McNally with Evercore.

Thanks, team. Joe, could you maybe provide a little more color on some of the quoting progress you discussed on the AI initiatives. I think in particular, maybe you could give like a really quick one-on-one on the BorgEndeavor Turbocel relationship I think given most of us are keeping cloud kind of busy mapping out the different public entities such as Edge, which is also recently in the news. So one of the questions I think that would be great to answer is will Borg announce every smaller DC win within the relationship? Or is it likely to back them together as they become material? And then a follow-up.

Yes. Chris. So as I mentioned in the remarks, we're really pleased with the progress we made in the second quarter. And we remain on track starting with the TG. So as you know, we're launching that next year in 2027. And a couple of data points here that business, first of all, the customer interest remains really strong, including multiple hyperscalers. And as you know, endeavor, that is their value in this relationship. So we're really pleased with that. We achieved the car level of missions, which is really a differentiator for us compared to what's out there. And then the UL compliance is in process. So from where I stand, we're on track to deliver -- with regard to the Endeavour relationship, it continues to grow and get stronger as time passes on. We won't decide do we announce every individual event. We try to share the important events and milestones with the investors. And then with the recent news on Endeavour and their partner in Coke. We're also aware of it. It's not unusual that these financial partners are constantly out raising money for the data center growth, which is out there. But we don't think it materially changes anything between us and our relationship with Endeavour. Partnership is stronger than ever. We see a great fit between our company and also how we see the future of the world. If anything, this has credibility to Endeavour. It adds credibility to their edge data center business that they're a fantastic player, and we're just happy to be partnered with them.

That's great. I agree. And I think the hyperscale wins obviously would be material by themselves. And -- so then just a quick follow-up is on the BFS side. You reiterated start of production '27. The quoting continues Nick, you even shared in your prepared remarks, more to share later this year, which is great, and I imagine aligns with RFP timing. Is there any order of magnitude for what a typical contract or win size maybe that you can give sort of rule of thumb. I know no contract is the same. But anything rule thumb because we're trying to start to think about what an average contract could be there.

Yes. I wouldn't say there's any type of rule of thumb. Every data center project is bespoke, what we find is important is that our TG and Turbo cell solution, our battery business and our power conversion all play a very important role in these future data centers. So any award in the battery space with hyperscaler obviously to be substantial. We continue to see a strong pipeline of quoting. We're progressing our product offering here. In fact, we're expanding the range of products that we're offering. So I'm really pleased with the progress we're making here, and we'll likely share more updates later this year.

The next question will come from Colin Langan with Wells Fargo.

Just a follow-up on the turbine generator. I think in the past, you commented that you'd consider announcing adding more capacity in the second half of this year. Is that still the plan? I mean, any thoughts on the need to add more capacity given the customer interest? And if you do decide how quickly can the new capacity come online?

Yes. Colin, so we do continue to see strong demand, as we have mentioned. So we're really encouraged by that. And as we've shared with you, we do anticipate we're going to have to make a decision in the second half of this year on capacity and also decide is that capacity going to serve this market or maybe a different market, which we're also active with our partner in Deveron. No decisions made yet, but I am encouraged by the demand side of the equation, so more to come.

And just 1 question on the results today. I mean if I look at your sales were up just $10 million EBITDA $40 million. That's quite a strong conversion. Even if I take batteries out, it's up $40 million on $70 million in sales. What is driving this extremely high sort of strong conversion on growth? And I think you mentioned strong cost controls sort of can possibly continue in the second half, would be the upper end of guidance. What are those cost controls? And why wouldn't they continue since you have a couple of quarters of that under your belt?

Thanks, Colin, for the question. It was great execution on all fronts across our business. 11.3% margin in the quarter, up 100 basis points. When you break down that 100 basis point improvement year-over-year, 60 basis points came from strong performance from our foundational businesses, TT and DMS great job by those teams. We had 20 basis points of enhancement through BES, the restructuring actions that they've taken in 2025 and 2026 as well as the exit of the charging business. Then the final 20 basis points came from strong cost controls. What I was most excited about was we expanded margins every business unit, and I was equally happy that corporate provided a nice tailwind. It was just strong execution across the board.

Next question will come from Luke Junk with Barrett.

Joe, curious to double click on one of your comments in the script around inverter efficiency. Just hoping you speak a little more to what you see as the company's motinverter efficiency, especially potential future applications that could stem from that? Do you have an ambition to expand the portfolio further there? And in terms of scope, maybe if you could just remind us also of some of the markers for efficiency the outline at the 23 Investor Day, I think you'd outlined a path to kind of industry-leading levels for automotive. .

Yes. So thanks for that question. So when you think about efficiency, why is that important, especially on the industrial side, power is the constraint. So any improvement in efficiency is important -- we continue to see efficiency gains as we develop next-gen inverters. Sometimes that comes from the silicon and silicon carbide technology, often, it comes from our proprietary power module, which we produce and develop ourselves. And a lot of that just has to do with how you cool the device as we're driving a lot of power through it. So efficiency numbers from generation to generation, they tend to vary. But similar to the fuel economy improvements, you tend to see a few basis points or even a few hundred basis points at times with major steps forward.

Yes. And then just in terms of the investment in scope, I think if I think Microcat inverter, I mean there certainly could be other places in the gray space or even getting more into the transformation of power. Just how should we think about the scope of opportunities that you might be looking at in inverter type things? .

So our leading product to the market is like they're going to be a microgrid tie type of inverter. So tying together power gen, with all the other power sources and possibly even the bid, which of course, is outside the building. So that's what we're leading with. But we see other possible opportunities here. So on the grid side, we've started to expand our range. We were leading with 800 volts, and it's likely that will be the first award. But -- we've expanded the range from 400 volts to 1,500 volts. And then secondly, our teams evaluating other opportunities in the gray space and inside the building, as you know, with the next-generation NVIDIA chipsets there's a high demand for power at the rack level, and this plays very well into the work we do on the automotive side.

And then for my follow-up, Joe, could you just maybe give us some additional color on the new product your website that you briefly touched on the script, things like UPS battery backup units and similar sort of what the incremental R&D that you're putting in the back half of the year is pointing to?

Little incremental products are some of the examples when we talk about expanding the portfolio, whether it's energy storage, like you mentioned, on boundary backup, or some of the new power conversion products, which I just mentioned. And those are the areas where the $10 million to $15 million incremental R&D are to support. So we're really excited about that. A year ago, we weren't even talking about these products. If you can imagine the progress our teams have made, especially in the first and second quarter, I'm just extremely pleased with that. So excited to see what comes with this additional investment.

The next question will come from Joseph Spak with UBS.

So you came in about almost $40 million higher this quarter. You're raising R&D said by 10% to 15%. So -- the other in OI is basically flat, so -- for the full year. So the other $25 million to $30 million, is that just some higher cost. Maybe you could just talk about that. And then just with this higher level of R&D, should we think of this as a more sustained pace into the future? Or is it something of a pull forward because you see some of these emerging opportunities that you alluded to in your prepared remarks?

Yes, thanks for the question. So I think it would be helpful to walk you first half to second half revenue and then operating income or margin. When you think about sales, sales in the first half came in just under $7.2 billion. The midpoint of our guide puts us right around $7 billion from a top line perspective. We have 3 headwinds, first half to second half. First is the battery decline. That's about $60 million. FX is a headwind, it's about $80 million, and the rest is industry production, we're assuming a modest decline in industry production of about 1%. That, again, takes us to $7 billion of revenue at the midpoint. On those lower revenues, we're decrementing at 15%, call it mid-teens -- and then we're leaning forward with that $10 million to $15 million in industrial R&D. If you were to exclude that step-up in R&D, our margin would be at 10.8% that's effectively in line with first half if you include industrial R&D, at the midpoint, we're at 10.6%. So from our perspective, this makes a lot of sense, and we're excited to invest that extra $10 million to $15 million to enhance our portfolio.

And Joe, I can answer the question on sustained investment. So from my standpoint, these opportunities that are what's driving the R&D investment. So as we continue to see more opportunities in the industrial space, we're going to go after them these products, keep in mind, they think probably 18 to 24 months to develop in general. So when we start investing, you can expect to have some level of sustained spending, but I think we know that BorgWarner is pretty efficient with how we spend our R&D and in this case, focused on really attractive growth.

And Joe, maybe just 1 other comment. We got to step back and think about we're executing in the short term. We're still expanding margins. We're still expanding EPS. We're still generating a significant amount of free cash flow. And at the same time, we're investing in our long term in a high-growth market. It's a great time to be a worried. Yes.

No, absolutely. Second question, maybe just sort of turning back to the automotive business. One of the things that has clearly come a little bit more into focus is some of the vehicles being exported from China and similarly, some of the maybe European luxury programs into China. Can you remind us like what you think your exposure is to I guess, China export this as a percent of your overall China business? And then have you seen any impact from some reduced demand of, let's say, legacy European vehicles in China?

So maybe to frame that a bit. So China is about 20% of BorgWarner's global sales. We don't break out global versus export. I mean, quite frankly, we don't know when they're exporting a vehicle or not. So that's not something. I don't know if you really break out. What we are feeling good about is that position, a strong position we have in China has led to some tailwinds as they export more to the other markets. So the Chinese OEMs had an amazing first half in terms of export. And we don't see any reason why that won't continue. With regard to the European luxury car makers. We really don't see a big issue and mix of a lot of that just comes down to our customer diversity. When a few others are down. Most of that tends to just kind of wash out. So that's what we see at this point.

Next question will come from Andrew Percoco with Morgan Stanley.

Great. I want to come back to some of the comments you made on the turbine generator product in the hyperscaler interest that you're seeing. Can you just provide some context on whether they're looking at this product on a primary power basis or a backup power basis? And Also, if you can provide any insight in terms of if the economics look any different from your perspective on your side on whether or not they end up using it prime versus backup?

Yes. James. So our turbine generator can serve in both primary and backup. In fact, when we started this project a few years ago, we thought the majority of applications would be in back up, I would say, in the last 12 months, that's flopped that we see more of them in prime use. So I think that just speaks to the speed to compute and the shortage of power generation in general. So this turbo cell unit using BorgWarner TG serves equally well. And both of those are very low emissions, lower noise than some of our competitors and speed to market is really important. So we're excited about it. In terms of the economics, I would just say, overall, we're very pleased with the terms in the agreement that we have with Endeavour across of all use cases.

Okay. That's helpful. And you mentioned time to power obviously being probably more important at this point than just cost of power. So as you scale production in 2027. Like what's your targeted order to kind of delivery conversion time line? Like what are you trying to advertise to the customers that are talking to you about taking delivery of this product?

Yes. So we've announced we're installing 2 gigawatts of capacity and in the initial year, which is next year, about $300 million of revenue. So we are quoting through Endeavour lead times to deliver these units. I would say it's another advantage we have and this. I mean think about it this way. we're standing up materially automotive production and supply chain in an environment that's probably not used to that type of speed. So -- we feel this is also a competitive advantage for us. So the order time as well within the lead times of our capacity and the capacity of our suppliers.

So you're talking about like potentially less than 6 months from when you -- when someone places in order to when you can deliver? Is that a fair way to think about it? Once you have capacity?