Student Investment Competition sponsored by the University of South Florida and Star Mountain Capital. April 1, 2023

1. BorgWarner Inc. (BWA)
Stock Pitch Competition
USF - Investment Tournament
APRIL 1, 2023
Student Presenters
Mitchell Coker
Adam Abdelfattah
Jessica Garciduenas

2. Investment
Process

3. Investment Process

4. Investment Thesis
Overview

5. Investment Thesis Overview
• BorgWarner is undergoing a major business model transformation from a
supplier of internal combustion engine (ICE) auto parts to a key supplier of
Electric Vehicle (EV) components. This transition will allow the company to
both accelerate sales growth and expand profit margins over the next several
years.
• We believe the market has not fully appreciated the BorgWarner story, and that
is reflected in low equity market valuations across multiple valuation metrics
including P/E, P/S, and EV/Ebitda. Using a 3 stage Discounted Cash Flow (DCF)
Model, we derived an intrinsic value price target of $84, representing 80%
upside from the current market price. Additional stock price upside is possible,
however, if investors begin to place appropriate value on the fast-growing EV
components business, in a Sum Of The Parts analysis.
• The company possesses several additional catalysts including: a recently
announced plan to Spin-Off its fast-growing EV components business from its
legacy ICE auto parts unit, continued deployment of Free Cash Flow towards
accretive acquisition in the EV components, dividend hikes and additional share
repurchases, and a strong and improving ESG rankings.

6. Fundamental Drivers
& Catalysts

7. Fundamental Driver
Long Term Secular growth of Electric Vehicle Market
Global EV unit sales poised to grow 10-15% annually and capture 1/3 of total sales by 2040
Annual Global
Automotive Unit Sales
in Millions
Internal
Combustion
Engine (ICE)
Electric
Vehicles (EVs)

8. Fundamental Driver
Significant increase in CONTENT PER VEHICLE
BorgWarner poised to nearly triple its revenue per vehicle sold.
Source – BorgWarner Investor Presentation Q1 2023

9. Source – BorgWarner Investor Presentation Q1 2023
Catalyst
Multiple OEM Customer Design Wins
to drive Organic Growth

10. Catalyst
Acquisitions poised to further accelerate future growth.
Source – BorgWarner Investor Presentation Q1 2023
Acquisition History

11. Catalyst
PENDING SPINOFF OF LOW GROWTH LEGACY BUSINESS
Source – BorgWarner Investor Presentation Q1 2023

12. Valuation Analysis

13. BorgWarner (BWA) trades at an average 25% DISCOUNT relative to its 10-year historical levels across multiple
valuation metrics (including P/E, EV/Ebitda, EV/Sales, Price/Book, FCF Yield and Dividend Yield). Given the
company’s ongoing successful business model transformation (evidenced by record revenues, earnings and cash
flows) , we believe its stock should trade at least at the top quartile if not near the peak of its historical
valuation levels, resulting in a 50% to 100% stock price upside opportunity.
Relative Valuation Analysis (vs. company’s own 10-year trading history)
Source – Bloomberg Terminal Code GF Graph Fundamentals

14. BorgWarner (BWA) trades at an average 40% DISCOUNT relative to its peers in the Auto-parts
Industry across multiple valuation metrics (including P/E, EV/Ebitda, EV/Sales, Price/Book, FCF
Yield and Dividend Yield). Given its substantially above industry average Sales growth, EPS
growth and Operating Margins, we believe a 10-20% PREMIUM is warranted, which would
result in a 50-60% upside to the current stock price.
Relative Valuation Analysis (vs. Industry Peers)
Source – Bloomberg Terminal Code W Bloomberg Worksheet

15. Based on our 3 stage Discounted Cash Flow (DCF) Model, we derived an intrinsic value price target of
$84, a full 80% above the current market price. We assume the company can meet consensus FCF
estimates for the next 3 years and then grow 13% between year 3 and 5. Our terminal growth rate of
2.5% reflects the expected long-term growth of the overall economy. For years 6-10 (stage 2), we are
using a growth rate of 7.75%, which is the midpoint between the initial and terminal growth rate.
Discounted Cash Flow (DCF) Analysis
Source – Student Managed Investment Fund DCF Excel template using Bloomberg linked data

16. DCF Model – Sensitivity Analysis for Growth Rate and WACC
Base Case
Scenario
Bull Case
Bear Case

17. Sum of the Parts (SOTP) Analysis
We believe the pending spin-off of the Internal Combustion Engine (ICE) parts business from Electric Vehicles (EV)
components is a SIGNFICANTLY value enhancing catalyst for BorgWarner shares. We conservatively estimate that
the EV unit will trade at 10x 2023 Ebitda (low end of Growth oriented comps Aptiv (13x), Gentex (11x),and Visteon
(10x) while the ICE unit will only fetch 4.5x Ebitda (in line with the cheapest Auto-parts comp American Axle).

18. SOTP Model – Sensitivity Analysis to changes in EV / Ebitda Multiples
Base Case
Scenario
Bull Case
Bear Case

19. Industry Landscape

20. Industry Landscape: Competitors / Suppliers / Customers
Source – Bloomberg Terminal Code SPLC Supply Chain Analysis

21. “Mosaic Theory” data points which reinforce our Investment Thesis.
February 2023
S&P forecasts electric
vehicle sales in the United
States could reach 40
percent of total passenger
car sales by 2030.
EVs will make up about
half of new car sales
worldwide by 2035,
according to Goldman
Sachs Research.
November 16, 2022
BorgWarner invested $500m in Wolfspeed which
is undertaking a $6.5 billion expansion of its
Silicon Carbide semiconductor manufacturing
capacity.
EV Manufacturer’s are increasing turning to
Silicon Carbide based chips to increase battery
range and reduce battery size and weight.
MARCH 3, 2023
FORD ANNOUNCES AN
INCREASE TO VEHICLE
PRODUCTION SCHEDULES
IN RESPONSE TO STRONG
CUSTOMER DEMAND.
March 13, 2023
At a recent Wall Street
Conference, Lear’s (LEA)
CFO substantially raised
2023 Q1 revenue and
earnings guidance due to
strong customer vehicle
production.
Ford, GM, Volkswagen
and Mercedes all are Top
Customers of both Lear
and BorgWarner.
March 13, 2023
In a recent research note,
Deutsche Bank said that
BorgWarner’s upcoming
Investor Day may act a
catalyst as management
will likely “ spell out above
market growth and margin
targets for the NEW
BorgWarner and Phinia
which could help unlock
large shareholder value.”
BorgWarner’s largest customer Ford
Wall Street Analyst Note
Industry Projections
BorgWarner’s
Competitor Lear
BorgWarner’s key raw materials supplier
and partner, Wolfspeed.
BorgWarner’s 2nd largest customer Volkswagen
March 14, 2023
According to an article in
the Financial Times,
Volkswagen plans to allocate
$180 BILLION Euros over
the next 5 years to Capital
Spending, 2/3 of which will
be earmarked for its
ELECTRIFICATION
efforts.

22. Environmental, Social, and
Governance (ESG) Analysis

23. Company’s ESG Strategy
Source – BorgWarner Investor Presentation Q1 2023

24. Demonstrated progress towards ESG goals
BorgWarner is posting
above Industry Average
ESG Scores across almost
all major categories.
BorgWarner has shown
consistent improvement
in overall ESG scores over
the past 15 years.
Source – Bloomberg Terminal Code ESG Graph Fundamentals

25. Risk Analysis

26. KEY RISKS
Source – BorgWarner SEC 10K filing
• Fundamental Risks
• Management’s failure to execute any or all elements of the company’s “Charging Forward” business transformation plan including its
internal Research and Development efforts, identifying and integrating outside Mergers and Acquisitions, and the Sale or Disposal of non-
core legacy assets.
• BorgWarner’s revenues, margins, earnings and cash flows are highly dependent on global auto production volume. Thus, any
macroeconomic downturn or other development (e.g. Covid pandemic) resulting in lower automotive sales and production volume would
have a negative impact on the company’s financials.
• BorgWarner operates in a highly competitive industry, intensification of which may affect future product pricing and profit margins.
Additionally, customers may choose to vertically integrate their operations and build components themselves, which would negatively
impact outside suppliers like BorgWarner.
• BorgWarner uses a variety of commodities (aluminum, steel, copper, nickel, cobalt, lithium, plastics, etc) in its manufacturing operations.
Inflation and Supply Chain issues may negatively impact the company’s manufacturing abilities and cost structure.
• BorgWarner is a global company, with manufacturing facilities and sales offices in multiple countries. As such, the company’s is exposed to
geopolitical and Foreign Exchange Risks. For instance, the company estimates that every 1c increase in the value of the Dollar versus the
Euro, would lower annual sales by $53m.
Quantitative Risk Profile
While BorgWarner is slightly riskier than the overall market, its risk profile is lower than its industry peers as evidenced by a lower beta,
lower stock price volatility, lower VAR, better interest coverage, higher debt ratings and a lower default probability.
Source -- Bloomberg

27. Conclusion

28. Conclusion
• Ultimately, there are 2 drivers of higher stock prices - earnings growth and valuation
improvement.
• We believe that BorgWarner is positioned to benefit from both dynamics, leading to
substantial share price appreciation potential.
• Earnings Growth is poised to accelerate over the next several years driven by the secular
shift from gas powered to electric vehicles.
• BorgWarner’s valuation is compelling relative to the market, its industry peers and the
company’s own historical trading range. Discounted Cash Flow and Sum-of-the Parts
analysis also point to a significant valuation expansion opportunity.
• Additionally, the company possesses multiple catalysts including the Spin-off of its legacy
auto parts business which should increase investor interest in the stock.
• While no investment is without risk…..we believe that BorgWarner stock offers a unique
combination of downside protection (trading a trough multiples) and upside potential to
both earnings and valuation.

29. APPENDIX

30. KEY FINANCIAL STATS
Source – Student Managed Investment Fund DCF Excel template using Bloomberg linked data