Global powertrain markets are diverging. BorgWarner CEO Joseph Fadool explains why “making speed the moat”, re-regionalization, and AI will shape the automotive propulsion industry – and why policy shouldn’t push technology
Joe, what does it mean for BorgWarner when, as is currently the case in global markets, propulsion concepts are diverging dramatically?
Maybe some context is helpful here. In the past, let’s say 30 to 40 years ago, much of the powertrain development was driven by emissions and fuel economy improvements, with Japan and Germany leading in part. Each region followed more or less the same path, adopting technology that led in one region and then flowed to others three to five years later. What’s changed now is that each market requires a fundamentally different mix due to a combination of local regulations and consumer behaviors. In China, over 50% of vehicles are hybrids or pure BEVs; Europe is approaching 18-19% EV share; the U.S. is stepping back, with government incentives withdrawn and EV penetration expected to remain around 7-8%. For BorgWarner, as a global company serving all major OEMs around the world, the good news is that we have a resilient portfolio capable of serving all markets, no matter the propulsion type. As an industry, we must return to a customer-first mentality rather than letting governments legislate what people will buy. I think that was a complete disaster. The OEMs know what consumers want to buy. You’re going to continue to see regionalization and differences between the markets. Long term, however, we still believe in electrification; it is the only way to truly decarbonize. But it will happen at different speeds, it is dependent on many factors like infrastructure and rare earth mineral availability, and it won’t be without disruption.
In your plenary speech at the CTI symposium in Novi, you used the term “moat”. What are the decisive factors in stabilizing or widening it, especially in competition with China?
Moat is a term Warren Buffett and others used – a reference to castle moats that slow down or stop the enemy. For our industry, it means a couple of things. First, innovation: more value at lower cost, more efficient powertrains – better fuel economy for combustion, smaller batteries for the same BEV range. Second, and this is what’s changed in the last five years: speed as a moat. China is teaching the rest of the world that you must constantly reinvent and bring better products to market faster. The companies that move at speed will win; the slower ones are stuck in the old paradigm. We see this reflected in the OEM landscape too: when I joined the industry 35 years ago, growth was driven by Ford, GM, Volkswagen, Toyota. Today, the only OEMs really growing are seven or eight Chinese companies, plus Hyundai. Hyundai is still growing and doing well. Everyone else – GM is out of Europe, Stellantis retreating from India, Ford down to 3% in Europe – is shrinking. Retreating to protect a single profit pillar is not a winning strategy, in my opinion.
How does regionalization align with the traditional concept of economies of scale through a “world product”? And what are the risks of speed over scale?
This is a great question, because for 20 to 25 years, as global vehicle volumes grew from 50 to 90 million, scale was the name of the game. We were investing heavily in technology, developing suppliers, and building factories that needed to run efficiently. What we now see is that beyond a certain point, other factors become more important than scale – specifically speed and local accountability. That doesn’t mean abandoning scale; it means finding a new balance. Housing and mechanical parts, even factory assembly, require far less scale than before because these are readily available products, and suppliers are more regionalized. Semiconductors, on the other hand, remain a scale game – chip companies pay more attention to Tier 1s and OEMs that give them high volume. The downside of scale is loss of local agility. Large global competence centers that push technology out to regions are less effective now – they’re expensive and slow. When a region has to route
decisions back to a distant center of competence, that’s time lost, and people far from the customer are making local market decisions without fully understanding the pressure on the ground. What we find more effective is giving regions greater authority and competence – a democratization of know-how, with regions learning from one another rather than relying on a central hub. BorgWarner has a decentralized operating model for this reason.
Would a concept of “similar but not identical” components across markets work for you as a supplier?
Definitely. Take turbochargers: they spin at 300,000 RPM and can be dangerous if they fail. Engineered for the German market – high speeds, high temperatures, autobahn use – they’re built to be virtually indestructible. In China, the use case is mainly stop-and-go traffic with 1.5-liter engines. The load profile is fundamentally different, so you don’t need the same robustness. We’ve reengineered our turbo line for China accordingly – 20% lower cost than the European or North American equivalents. Five or ten years ago, we would have carried over the European or North American product into China. And we found we were no longer competitive. We were sometimes over-engineering for markets that didn’t need it – and while we told ourselves we were gaining scale, the design simply wasn’t affordable in every market.
How can leadership culture help to handle the change?
Leadership has to start by accepting the uncertainty. A big part of the job is looking around the corner and anticipating the future – that has become much harder. It means thinking in scenarios rather than toward a single point, even while maintaining a true north. The second shift is toward flexibility: a resilient portfolio, a flexible supply chain, and a manufacturing footprint that can serve multiple customers on the same production line rather than running just one. Leading today is about providing clarity on facts and priorities, while helping people navigate the uncertainty. The disruption increasingly comes from outside the industry, and that’s accelerating. In China, many successful automotive players came from consumer electronics – Huawei being the obvious example. In the U.S., Apple, Google, Waymo, and Tesla have demonstrated that companies with no traditional automotive background can become highly relevant because of software competence and systems thinking. These players don’t focus on individual components – they think in terms of the experience they want to deliver to the customer.
BorgWarner has been shaped strongly by powertrain hardware. What does it mean when intelligence is shifting into software – and the SDV?
We’ve seen software grow in the powertrain space for a long time – ECU development, electrification driving demand for complete drive modules with integrated software. The software-defined vehicle is a parallel innovation aimed at reducing development costs and enabling over-the-air updates long after a vehicle has left the dealership. If you think of how a smartphone works, the SDV follows the same logic: new features come through software, not hardware replacement. Electrification and SDV actually accelerate each other. The hardest part of implementing SDV is doing it on a legacy platform with hundreds of distributed electronic modules. The goal is to consolidate to a zonal controller architecture. At BorgWarner, we see a future where the Powertrain controller integrates into the front-end zonal architecture. Some competitors have expanded from their ECU supplier role into zonal suppliers – we’re looking at the same path. Most OEMs currently keep Powertrain as a separate subsystem, but we expect that to change, and we want to drive it.
Where is AI most important for BorgWarner as a company?
We’ve used machine learning and AI in our factories for a long time. Generative AI with large language models adds value in three areas. First, product development: replacing routine engineering tasks with agents and tools – code generation, test automation. The highest benefit
comes from automating the repetitive tasks that consume significant engineering hours, freeing time and resources up to manage more strategic work. Second, factory automation: AMRs and robots are increasingly AI-enabled, and generative AI makes it significantly easier to train them. We expect a step-function increase in automation potential in our factories. Third, personal productivity and end-to-end process improvement: using tools like Copilot or Claude for daily work, and automating manual processes such as monthly financial closes and forecasting. Generative AI is one of the biggest changes we will witness. Personally, I find it liberating – you can delegate the monotonous groundwork, the research, the routine write-ups, and focus on the work that actually creates value.
How will increasingly software-defined vehicles change buyer expectations, particularly in North America, where combustion still dominates?
The two trends are closely linked. SDV is easier to implement on an EV platform. As EV batteries become more affordable, adoption will grow; as EV adoption grows, users will experience more features; that experience will pull more people toward EVs in the future. It’s a reinforcing cycle. We expect SDV to reaccelerate electrification as electric vehicles become cost-competitive. Europe will play this out first; North America will follow. Buyers will demand over-the-air updates, vehicles that have more features and deepen integration with their home and mobile environment. You know, these cars are awesome. So I think these two things are converging, and it will reaccelerate electrification to some degree.
Interview:
Gernot Goppelt
