Shifting gears from powertrains to power grids

BorgWarner, an automotive parts manufacturer, has expanded into the data center power market by signing a master supply agreement with TurboCell, an Endeavor subsidiary, to provide modular turbine generators. The deal, announced in February, aims to capitalize on rising electricity demand from data centers, with production set to begin in 2027 and first-year sales exceeding $300 million. BorgWarner expects the new business to deliver mid-teens incremental margins and contribute to earnings per share growth in its first year. The turbine systems will offer backup and prime power for data centers, utilizing BorgWarner’s expertise in turbochargers, thermal management, and power electronics. The company claims vertical integration, controlling roughly 65% of the content in each system, while the generators will support multiple fuels—natural gas, propane, diesel, or hydrogen—to meet emissions standards and ensure reliable power. Despite the shift, BorgWarner remains heavily dependent on automotive parts, with ICE and hybrid vehicle products generating over 80% of revenue. Management projects a decline in light vehicle production this year, though cost cuts have improved operating margins to 10.5% in the first quarter. The company’s battery energy systems division saw a 32% sales drop year-over-year due to weaker North American and European demand, though China contract wins have provided partial relief. The data center expansion has driven BorgWarner’s stock price up over 100% in the past year, with the company now trading at 13 times forward earnings. While the infrastructure market offers new growth opportunities, analysts caution that the stock’s valuation remains elevated compared to its historical automotive sector multiples. BorgWarner plans to further expand into battery energy storage systems if the data center business succeeds.