Good morning. My name is Sharon and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2017 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [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, Sharon. Good morning, everyone, and thank you all for joining us. We issued our earnings release at 6:30 AM Eastern Time. It's posted on our Web site, borgwarner.com, on the homepage and on our Investor Relations homepage. The replay of today's call will be available through November 10. The dial-in number for that call is 855-859-2056, and the conference ID is 49072509, or you can listen to the replay on our Web site. With regard to our Investor Relations calendar, we'll be attending several conferences between now and our next earnings release. As always, please see the Events section of our Investor Relations homepage for a full list. Before we begin, I need to inform you that during this call we may make forward-looking statements, which involve risks and uncertainties detailed in our 10K. Our actual results may differ significantly from the matters discussed today. Also, during today's presentation, we will highlight certain non-GAAP measures in order to provide a clear picture of how our core business performed, and for comparison purposes with prior periods. When you hear say on a comparable basis, that means excluding the impact of FX, net M&A and other non-comparable items; when you hear us say on a reported basis, that means U.S. GAAP. Now, back to today's call; first, James Verrier, our President and CEO, will comment on the industry, as well as provide a high-level overview of our Q3 results. James will also discuss some of our recent product wins, and our recently completed acquisition of Sevcon. Then Ron Hundzinski, our CFO, will discuss the details of our Q3 results as well as our updated 2017 guidance. Please note that we posted an earnings call presentation to the IR page of the Web site. You'll find the link below the notice for this call. We encourage you to follow on during our discussion. With that, I'll turn it over to James.

Thank you, Pat, and good day to everybody, and we appreciate you joining us this morning for our call. Ron and I are very pleased to share our results from Q3 2017, and also update you on our progress towards delivering 2017 targets. I'd like to start actually by sharing a few thoughts on the macro environment and the industry. And for those of you following along on, that would be on slide number six. We do recognize there is still instability in many aspects from a macro perspective as we look around the world, but I would say, in general, production volumes were only modestly weaker than our expectations as we went into quarter. And let me break that down a little bit for you. So, from a global light vehicle production was up about 2% in Q3, when you look at that prior adjusted geographic exposure, production was flat. European light vehicle production increased about 4.5% which was slightly better than our expectations going to the quarter, China light vehicle production was also up about -- was up about 1% and that was roughly in line with our expectations as we went into the quarter. North American light vehicle production declined by about 10%, which was a little more than our expectations as we went into the quarter. If I talk a little bit about the market outlook, let me talk about light vehicle 2017 calendar year first and we are pretty closely aligned with IHS which is calling for about a 1% growth in China, Europe up a little over 3%, North America production down about 3.5%. And this implies global production growth of less than 1% when you adjust for geographic exposure. Market outlook relative to commercial vehicle, the outlook for Europe and China continues to…

Thank you, James and good morning everyone. Before I review the financial details I would like to provide you some of the highlights as I see them for the quarter. First it was another strong quarter. Second average performance was as we expected and finally given a strong performance year to date we are confident raising our full year guidance again. Now is Pat mentioned I will be referring to supplemental, financial slide doc as posted on our IR website. I encourage you to follow along. Let's turn to Slide 11 on a reported basis sales were up 9.1%. On a comparable basis our organic sales were up 10.8%. Very strong performance compared to our weighted average light vehicle industry production for the quarter as James mentioned which was flat. We saw 34% growth in China against the production market that was up 1%. In Europe revenue was up 7% so I think better than the 4.5% production growth in the quarter. North America revenue was up low double digit versus the 10% production decline in the quarter. Commercial Vehicle was a benefit again contributing more than 200 basis points. Diesel and gas in Western Europe was ahead when but lower than we expected going into the quarter. Before I moved to the operating profit I would like to discuss our gross profit and SG&A line. Gross profit as a percentage of sales was 21.6% in the quarter up 30 basis points over last year. SG&A was 9.3% of sales R&D spending which is included SG&A was 4.2% of sales. SG&A was down 20 basis points from a year ago driven by leveraging higher sales. Now look at the year-over-year comparison for offering income which can be found on Slide 12. Q3 adjusted operating profit was $298 million or 12.3%…

Sharon, we're ready to open up for questions.

[Operator Instructions] Your first question comes from Colin Langan with UBS.

Thanks for taking my question. I actually wanted to follow-up on Slide 7, you highlighted sort of two things that were interesting, the cabin heater opportunity; any quantification of who are the main categories there? I haven't heard too many people talk about trying to target that market, and what kind of content opportunities there? And also the turbocharger opportunity with Honda, I mean, are you seeing -- it feels like there has been more headlines from the Japanese OEMs, are we seeing that opportunities start to increase there with Japanese moving feel little bit more engines outside there?

Yes, good morning, Colin. Yes this is James. So let me start on the Turbo one first if that's okay, we had seen increased adoption rates with the Japanese OEMs on Turbo, that's probably evolved over the last I would say five years, four or five years and we see that trend continuing and we see that trend continuing on both combustion powered vehicles and also on hybrid vehicles where they're utilizing turbo in both of those configurations. So we have seen that, we've been particularly pleased with win with Honda, we've developed a really strong partnership there and launching some of our latest two stage technology on that one liter engine on the gas engine has been that's been a big success for us. So yes we're seeing more and more usage of Turbo with the Japanese OEMs. The cabin heating opportunity we're really pleased about that, that that was the technology that came to us through the BERU acquisition a few years ago and this is our first significant win with the U.S. And if you think of competitors in that space I would say [indiscernible] is probably the most well-known that you would probably know in the cabin heating space, we also see what Astro played in that space as well, so those are two of the most well known ones that I would point to Colin but we're pleased with how that's progressing for us, we would like the technology and as we've alluded to it's a good growth platform for us on peer EVs.

Okay. And just any color on emissions restructuring, I mean when do you get the benefits from the actions that you're taking? And any sense that you said you're considering trade you might actually sort of divesting some of the products in there, is that right?

Yes Colin, let me kind of give a little bit of a high level answer to that and then Ron could supplement it with any any specific details. Again I think this again there is two dimensions so to speak to what we're doing here, the one is we have identified a couple of non-core product lines and we're evaluating all of the strategic options associated with those. So that's the one aspect and then the other aspect is a more generic footprint optimization as well, we're still in the process of working through those details Colin as Ron had said to you. It could one option could be divestiture, one option could be restructure the sort of different options here and as Ron and I thought about this until we got a little bit more clarity around that we need a little more time to be candid, but it does include all options are on the table frankly. And we're going to work our way through that through the fourth quarter and I think we will have more color for you when we come back on to the earnings call in February of next year.

Great, thank you very much.

Thanks Colin.

Your next question comes from Ryan Brinkman with JPMorgan.

Thanks for taking my questions, just a follow up on that, have you discussed which sort of sub-segments of emissions is considered non-core and how that differs from the portion of emissions business that is still core, does it relate in any way to for example dollars?

Yes I can add a little bit of clarity there Ron, so the two product lines that we were viewing as non-core tool from a BorgWarner perspective, think of thermostats and think of pipes, it has nothing at all to do with core EGR business, EGR bowls, EGR modules, EGR coolers, those are fantastic businesses that are doing really, really well for us. So it's in that the thermostats and pipes. When we look at the level of technology differentiation that BorgWarner excels in I don't think they bring that kind of technology differentiation, they don't bring the growth profile so much as a BorgWarner product line. So those are the two product lines that we're referring to.

Okay, that's really helpful and just lastly from me then on the expected sequential deceleration in year-over-year growth as you go from 3Q to 4Q, you did 10% in 3Q looking for 5 to 6.5 in 4Q, very simplistically I look at like North America production that was kind of a drag in 4Q down 10%, IHS was something more like minus 3% in 4Q. So, just curious what drove incremental headwinds are that you seem to be something specific with your backlog or something and if not maybe you think that potential of risk skewed to the upside organic growth in 4Q?

Sure Ryan. This is Ron. I'll give you three of the high level, first of all is diesel mix in Europe like we mentioned on the call, we're not seeing the headwind that we anticipated in Q3, so that gets pushed into our Q4 where the sale starts to show through the production levels, we assume that could be as much as 300 basis point headwind for us in that fourth quarter, that's one item. Korea has been an issue for us as well, that can swing to a negative in Q4 again over last year and then if you remember last year, we had some really good launches in the fourth quarter, the Duramax for example and F250 and we're going to lap those, so we're going to see not have that as a tailwind as well going into the fourth quarter, so three of them at high level.

Okay, very helpful. Thanks a lot, congrats on the quarter.

Thanks Ryan.

Your next question comes from Rod Lache with Deutsche Bank.

Good morning everybody. First just wanted to ask about backlog it was that shows $268 million in the quarter, your guidance was 100 to 150 and it seems like every quarter it's coming in a bit higher than your guidance, so I'm wondering whether there's any reason why we shouldn't be thinking about upside to the number for next year, the 460 to 670, you did kind of enhance that, there's been some program uplifts and that's affecting CapEx, so it seem to suggest that?

Hi Rod, this is James. So couple of thoughts from my end at least you're right, we've been tracking ahead of what we've come into the year expected and that's a good feeling obviously and that's that is predominantly backlog related. To your point about next year, I would reiterate my comfort and confidence in the 7% CAGR number that we put out there but obviously over the next few weeks, we're going to -- we're going to take a good look at that and then as we come into January into Detroit we would obviously give you more specificity around 2018 backlog and obviously the three year period as well. But I would think of it this way rather the way this year's transition for us just gives me at least builds a lot more confidence and comfort of the numbers as we go into next year.

Okay, great. And just secondly, I was wondering if you thought there were any competitive implications from the strategic changes that that were announced by your biggest competitor in Turbos, we've seen that actually happen in other segments where multi industry companies have announced divestitures, so any kind of high level thoughts on what have they been running the business today, how that's affected you and how that maybe run into future?

Yes I would say from my point Rod that Honeywell has always been an excellent competitor, very strong, strong player and I don't see that really necessarily changing, we will see how it plays out, the most important part for me though that I would want to reiterate is we just continue to see two things strong penetration growth at turbos internal so we still see the turbo business as a strong growth engine for BorgWarner and we still see our one-third market share position that we have very solid, very solid as we look this year and we look at a three year and a five year view. So, for us, it's kind of no change is the way I look at it right we feel great about the turbo business. We love the growth and we love our strong competitive position and I think he will do what they need to do.

Okay, great. Thank you.

Thank you.

Your next question comes from John Murphy with Bank of America.

Good morning guys. May be just a follow up on sort of the backlog question Rod just asked me, you kind of highlighted in Drivetrain it's programs running a little bit better than you're expecting as far as new program are certainly your rate cap action, Ron, you tend to be pretty conservative or tight with capital. So it seems like something really positive is it is going on I think that is compliment around what's happening there I mean is it higher volumes and you're expecting our new programs or their actual wins they're manifesting faster than what you thought or say just pull ahead of launches and I'm sure we understand, what's going on there.

Hey, John, by the way, Ron really took that as a big compliment. He loves that comment. So, I think it's a little bit of all frankly I think we've got some of the launches this year a come on maybe are faster ramp some of the volumes have been a little stronger. So it's now one thing John it's been a combination. I would say the biggest link though between for me between backlog strength on the Drivetrain side. Is the seat a China that's the biggest kind of mover if I can say that way John and that's a function of a real good BCC adoption and success for us in China both with the Chinese domestics and the global guys and that's just pulling forward a little bit as the capital in life for us. And I would say that's probably the biggest piece but generally from the backlog it's been, its strong both cadence and absolute volume.

John had a couple things. James mentions in the call. This year we're seeing every one of our product lines are growing really well in the past you have a couple product lines that have really good launches and then maybe the other ones are in a cycle where there launches are not hitting this year's here is where every one of our businesses all the launches are hitting and they're hitting at that time that we would hope they would get which is good. And we're getting just tremendous growth across the whole of portfolio and then addition we don't have the headwinds of commercial vehicle to [indiscernible] so it just cost everything.

Okay, that's helpful. Second question on acquisitions I mean Sevcon looks interesting I mean just curious that just you think about Sevcon in potential future acquisitions, you looking for more human capital or products and if you can kind of just linear may be in Sevcon I mean there sounds like double, double your engineers focused on electric Powertrain so, that's sounds good but there also are product suite becomes along with it or you really wasn't to be engineers you're going after an acquisition.

Yes, that was a good thought John I would say the Sevcon is an example is kind of combination so it brings a revenue stream right if it brings an order book. They bring real product that they have put in boxes and shipping sort us be so it's not just a pure engineers perspective but I would also say clearly they bring to us terrific people capability on the engineering side particularly they bring a lot of that so it's both. And I would say as we look forward John I'm thinking you know more of the same our acquisition focus would be around electronics, power economy capability and we look to obviously add people and talent but our preference also is where we can actually have physical product content where we can particularly around electronics and power electronics. So that's how we thinking about it obviously priority one right now John is to integrate Sevcon and get that up and running well which we're confident in but we're going to keep our eyes and ears open for additional opportunities as well.

And just a one last final question; I mean it looks like a lot of your peers are deepeners or expect going in the opposite direction where there is splitting up ice and sort of electric powertrain components and what kind of position you think that you'll have competitively in the market which you go head-t-head with these folks and will you be advantage or disadvantage by having a full products we have been somewhat agnostic to where Powertrain goes?

Yes, we then obviously I'm a little biased John right but I think we have an incredible advantage. I really do because we're the -- I don't want say the only one but we one of the very few that can go in and discuss with the OEMS. One of the tradeoffs between you knows combustion hybrid and electric architectures and we do it we have those dialogues because we can help them understand. If you put this type to hybrid application into this set of vehicles and you can go electric on this. We are engaged in those conversations because we play across this space and then the other part of the differentiation for us is we then bring the technology that helps them get there. And what they see in a BorgWarner John which I think is really interesting is they know we're not in a lobby and into for in our overly influence them on a pure evil platform or 48 hybrid platform because we play on both so they view us as a neutral partner in that respect but we then follow it up with the content because we have electric motors we have successfully transmissions. We have cabinet and we have all the suite of combustion products and hybrid products so I think and again I'm biased we have a big vantage.

Okay, thank you very much.

Thank you, John.

Your next question comes from the Joseph Spak from RBC Capital Markets.

Thanks. Good morning, everyone. First, just wanted to talk a little bit about the change in backlog relative to the change in CapEx because backlog I think is 50% higher than what you indicated that beginning at the midpoint CapEx is only 10%. So, is that greater efficiency or does it speak to maybe there was just more conservatism on the revenue side versus the capital side?

Joe this is Ron. Remember that capital that goes in is a ramp cycle of what's happening right. So it's not a direct relationship with the sales increase so it's not fair to say that for a 10% increase in sales you need to 10 % of capital it doesn't work the way you're putting capital over several years. So, the capital tends on the rent side would tend to lag the sales increase because in that my comment as that they was primarily due to ramp increases right net new programs so that tends to lag the sales increase is that clear.

Yes.

It's uplift. It's not new programs yes.

Okay, well what about can you reach sort of help us I mentioned how much capital was put in place for a backlog coming in future years or it would seem like not much based on a comment that.

This is a long discussion Joe but typically it follows up on it and how far off with you I get some ratios that would take this offline it's a long discussion, right, Joe.

Okay, perfect and I'm then just if you go to like page 11 in the bridge. And I know you made some comments on Commercial vehicle helping I tell you said by 200 basis points is at and then you mentioned market growth was the minus 36 I thought you call that just light vehicle market gross of just this commercial vehicle go in somewhere else in that walk. And then can you also let us know what you're thinking on commercially on off highway first for the fourth quarter embedded in the guidance.

So commercial vehicle goes under the backlog in the mix the 268 on that slide okay, okay that market is typically more light vehicle; the market growth and pricing, okay. First question and the second one is where so many sort of fourth quarter is although it was a tailwind of a 200 basis points and we're going to go back more to what we saw prior in the year which is about 100 basis points improvement for the fourth quarter for commercial vehicle. Last guidance we had none, this guidance we are going to take a little bit of a tailwind for commercial vehicle but never had we seen in the third quarter.

Okay, that's helpful. Thanks, Ron.

Thanks John.

Your next question comes from Brett Hoselton with KeyBanc.

Good morning gentlemen.

Good morning Brett.

Good morning Brett.

Let's see I'm talking about your longer term revenue outlook your organic guidance and so forth and then your backlog has been becoming in stronger than expected you're talking quite enthusiastically about some of the higher contented products hybrid electric et cetera and it kind of just begs the question. As we look out over the next five years is could we see BorgWarner's revenue growth accelerating.

That's a good question I tell you what we laid out at the Investor Day there in New York that 7% guide over the next three years obviously as this year's played out we've just got. We were very comfortable with that outlook. I'm not in a position at this point but I want to start changing next I don't think we need to. But I think that 7% the point CAGER for us is an organic is a good number. Then let's just keep executing at that at least in the short run. We are going to take a good look at it obviously as we go into January plus and we'll provide any update from there but I think at this point I think the 7% organic CAGER is a good number to think about for us.

Okay, and then secondly as we think about the backlog unfolding not necessarily over the next three years but let's say over the next five to ten years and so forth and we think about the move in the direction of from these non IT hard trying to so forth how should we think about margins. You typically is thought about contribution margins but is there the possibility that the margins could be better or worse on these products as we kind of move out into let's say the next five, 10 years.

So Brett this is Ron. We get this question quite often and we've been addressed in several ways and then again referencing the Investor Day that we had here in August. I had a slide in there if you go back to that presentation I think it is on the website where I gave returns on invested capital are very similar on hybridization in a pure electric products as they are in combustion. And that side was to present that and the reason why we're comfortable is because that slide represents products. That we have been awarded and are starting to ship as well and it's across customers and across regions so, the evidence that we're seeing right now of the programs that we're winning don't substantiate in deterioration in margins or returns.

Okay, excellent. Thank you very much gentlemen.

Thanks, Brett.

[Operator Instructions] Your next question comes from David Kelley with Jefferies.

Hey, good morning guys.

Good morning, David.

Just a quick follow up on China. I believe you posted 30% growth Q4 last year the production hurdles a tough one hare you obviously wanting in areas like DCT and with some early model hybrids and electrics. I guess how do we think about some of the puts and takes as we weigh your China opportunity going into year end here and maybe a more difficult hurdle going into '18 as well.

I would say first of all David, yes that the third quarter strong and we've been running pretty strong through the year and you're right it's driven by a lot of that the technology that you could be referenced so, we ramping well with DCT but it's also on a combustion product line as well. So things good, fourth quarters are more challenge it will be a little bit more of a challenge income but will be over the market so, I would think about a high single to low double digit over the market if that makes sense to so that's how we're thinking and going into fourth quarter and I would think that's a pretty good proxy David for going into next year as well. Think of us high single to low double digit growth over the market in China.

Okay, great. Thanks appreciated. And just a quickly shift gears you referenced potentially accelerating diesel market declines in Q4 it's still early in the ballgame are you seeing that mix shift go to ICE or is it more towards hybrids and EVs and I know you've alluded to it before but maybe if you could remind us on how you see your longer term offset opportunity as we do see that, the mix shift ultimately switch to alternative powertrain and away from diesel.

Yes, now in the short run David it's clearly diesel out and gasoline in sort to speak. We've talked about this before net for Borg for every hundred bips of shift from diesel to gas. In the short run is had a $20 million, $25 million annual revenue, voice for us frankly which were obviously offsetting in other areas. As it transitions over the next two, three, four years it's a couple of things one it will be even more advanced gasoline engines to be somewhat comparable to diesel technology. There will be obviously increased hybrid in Europe, so we're going to see that and then longer term in the more four, or five, six, seven year outlook you will see more pure EVs coming into the space, all of that adds up as positive news for us David, so as we go forward we got great content on hybrids and obviously we're growing our electric business. So that's kind of an outlook of how we see it, little bit of short term noise but it's transition into more advanced gas and hybrids and electrics where we'll do fine.

All right, great, thank you. I appreciate you taking my question.

Thank you, David.

Your next question comes from David Leiker with Baird.

Hi, good morning, this is Joe [indiscernible] for David.

Good morning, Joe.

I had two questions on commercial vehicles; it added two points to your growth am I correct my math would imply that's like 20% growth for your commercial vehicle business, does that sounded all right?

I haven't broken up between off-road and on-road but that's about right Joe.

Okay. And the second question, so it almost feels like five years ago what you went through with automotive and trying to see OEMs plan around greater electrifications, the big heavy duty truck OEMs are all on that stage right now and whether it's Daimler showed a vehicle this week or the others are planning 2019, 2020 that sort of timeframe for launches, what is BorgWarner seeing from in interest perspective, the development perspective and watching either hybrid electric or peer electric commercial vehicles and by what timeframe you expect that?

We're seeing a lot of interest actually around electrification in the commercial vehicle space, we put in the deck actually the Scania win on our drivemotor there for that particular bus application, so we're seeing increased interest Joe across the space and we see obviously Urban Bus type environment is particularly attractive, U.S. we see small and mid sized truck applications again predominantly more CDR, so we're seeing that and if you think about it, a lot of technology that we have on the light vehicle side is leveragable over to the commercial vehicle space, drive motor is being a good example of that. So we're seeing it, I think we will probably have a better view Joe when we do a backlog showing in January because you know there we'll break it down by technology and we will break it down a little bit by and talk about it by end markets. So that will be a good point to kind of break it down a little more for you but directionally we're seeing a significant increase in electrification and in commercial vehicle and we're participating strongly in it.

Great, thank you very much.

Your next question comes from Matt Stover with Susquehanna Financial Group.

Hello, Matt.

Matt Stover, your line is open.

Apologies for mute.

Okay, go ahead.

Apologies, you addressed but just wanted to talk about it in overtime the return on capital of the company has been pretty good and over the last few years for a variety of reasons, it's sort of moved to a lower level but we're seeing some stability here and I'm wondering as you sort of think through the new revenue opportunities that are emerging for you over the course of let's say the next two to five years, if you think that there is an ability for you to sort of rethink the capital intensity or the profit profile of those businesses would allow the company to resume its previous investment class returns on capital?

Matt, this is James. I'll give you, I guess, at least my quick high take and then Ron can weigh in, as you rightly pointed out what service company really, really well is that after tax 15% ROIC threshold and hurdle and that's not, we continue to drive that metric pretty relentlessly, so I would start there and say that through minds the core and the primary metric for us. Ron might want to add specifically around cash flow, if you want to talk about?

Our capital deployment in general, I think with the organization going forward is going to have to do is we're going to have to take a look at our product lines and determine which product lines get more capital and which product lines started to not have as much capital as the portfolio starts the evolve and changes in different direction. But, as James mentioned, as we go through their process we will reallocate resources but we are not going to give up on the go of 15% after tax return that's not going to happen. We will redeploy our capital in the right resources in the growth to achieve the growth that we have in our portfolio. But, we are not going to give up on that return metric.

Okay. Thank you.

Thanks, Brian.

Your next question comes from Richard Kwas with Wells Fargo Securities.

Hi, good morning everyone.

Hi, good morning Rich.

I will take another -- a little different strategy and the backlog. So, going back at the beginning of the year the mid-point was 500 million, you are going to be not quite double have it almost I mean I am imagining it has some expectation you could out perform the top end of your initial range, but anyway to think about how what your internal expectations were versus what's actually happened?

I mean I would say, Rich, you know, we are -- obviously first of all, we are -- obviously -- yes we are ahead its coming stronger, it's coming stronger. But what I would also say Rich is, you know, you remember the history here and how we got to the methodology around the development of backlog. And I don't want to go back all the time and in history, but, you know, we took an approach where the roll up for the data was the same, but we were maybe a little more prudent around the cadence and volumes over the launches and we also, you know, built in some, you know, macro stuff, so I think we took that approach and I think that has helped us. But, I think even with that said, from an internal perspective, you know, we are definitely running a little better ahead them what we had anticipated and I think its really what Ron said, it's a combination of, you know, across all of our products and across all of our regions we have just add, you know, the ramps either been little bit quicker or the volumes have been a little stronger and when you add all that up around the world and across the products you get to the kind of results that we are at. So, yes, it's pleasing.

I know you said, your cross products and regions but DCP seems like its one the areas that probably will contribute a little bit more than average and I know there are some positive payback, which is given their delays in prior years with by customers and what not so. Is that a fair assessment?

I think that's a good, that's a good perspective, which, you know, we have seen, you know, the ramp has been little better and stronger. And I think, you know, so your point about history probably couldn't blame as for been, you know, it had conservative in that space based on, you know, the ramp has taken a few years to get where it maybe -- but that's a fewer assessment is a good one right.

Okay, great. And then, last one just on Sevcon, so we get back the penny impact the negative impacts in the quarter, do we just kind of flow that through on the quarterly basis for '18, just big picture?

At this point, I think that's probably a good assumption Rich, we are going to find soon there are updated. We do think that you moderate a little bit going forward, but I think it -- you are going to have give me clarity probably in January.

Okay, thank you.

Thanks, Richard.

Your next question comes from Brian Johnson with Barclays.

Good morning. Dallas got a kind of bigger question. So, I think there has been through training and swamp on backlog, you know, the books wagons putting some of those businesses into our something that potentially could be by now I mean 20 years after the US OEMs to debt and this forma Delphi of course the Honeywell transaction, the spin-off of Delphi so just because you look at broadly the powertrain space given here that the challenge of kind of managing the transition from ice given the challenge and see a huge ACN, American Actual Data, all investing in the e-modules make that look longer, do you think that this is an industry that's going to consolidate over the next 10 years and its so, what role do you BorgWarner playing in that kind of consolidation?

Yes, no, it's good, Brian. I am going to try and give you the best answer I can. But, I am going to stop with something that I think I said in the last -- and that is I love our proportion business, I really do, I am very, very happy with where we have positioned ourselves and the product lines that we have got. I see there is a great future for the proportion guys like us and the reason for that is, our balance again across combustion hybrid and electric. We are agnostics to those shifts Brian if there is a quick fast acceleration of EB penetration that's fine we have great products there. If hybrids becomes a predominate architecture that's fine. So, we are beautifully positioned on whatever that evolution and shift is, you know, in terms of, you know, as our plays out in terms of consolation and who wants to keep what core that I don't know, what I know the one thing that I do know is we are proportion company we are very happy with that, we don't plan to do anything different than be a leading proportion company. I get to let the other guys do what they are going to do, but we are just going to crawl the heck out of our proportion business across all of the, all of the big [technical difficulty].

As you look across creative landscape I mean are there redundant or do you mean capital investments going across competitors and OEM as it something where it could use consolidation just not so much for a strategic but just maximizing the cash flows even everyone is making roughly the same products -- product investments?

I am not so sure. I wouldn't want to speculate too much Brian, you know, the one thing I would also use when you get down to the real core technology in portion, you know, over abundance of players in the space. So, if you think of -- think about business and think how many guys are on the planet or how many turbo guys who are on the planet for DC module -- on the planet you know, there is so many right, when you get to other, you know, less differentiated products. So, I use that example of thermostat, that's a little bit of a different story. So, I think, you know, individual discrete product lines made lend itself that but I think when you look at the core of the propulsion, whether it's a electric hybrid or combustion. There is not an over abundance of course in my opinion, Brian.

Okay. Thanks.

Thank you.

Thank you.

Your next question comes from Chris McNally with Evercore ISI.

Thanks, gentlemen, and congrats again on this the good year and driving the detail on the PF side, and it's been really helpful for the call. I wanted to thank you just a follow up to the China question with a couple questions ago, you know, remembering that China was one of the issues that we only 15 on some of the new launch volumes. How do we start to think about China in 2018 but, you know we have seem that Chinese stronger growth from 18 to 25 million. Is it crazy to fuel the 2018 could be down sort of low to the mid-single digits in China and if that's the case, you know, how do you start to scenario planned, you know, around just a temporary blip in production and new launches, you know, you can start to grow again later in the year and going forward?

Yes, I though as we get to think about 2018 heat is up, you know, I think you are going to see modest growth in large circulation production in China, you know 1% or 2% we are not certain exactly the number. Yes, the days of 6% to 8% percent I think are behind us. So, from a market perspective here in a 1% or 2% growth environment for China next year, but we are in excess of that, you know, we are going to be high single to low double-digit growth over and above that market. So, even if there was a little bit adjustment in China ran flat slightly down for a year or so, you know, we are still going to be delivering a very significant growth that driven by, you know, penetration story of about products. So, not a big deal frankly if China is off a couple of percent next year what we are focused on is launching flawlessly a products that are driving the high growth first in China.

I think that's great. And its fair to say that, the comments that you have been making about drivetrain with, you know, some of the all over drive and DCT growing, the launch cans, is it still pretty good specifically in China as we think about 18 and 19 but its still as good as was in sort of the last four quarters, but if China is specific for driving train, you know, still a nice a new backlog new launch cadence over the next, you know, the next year or two?

Yes, it is, you know, specifically if you think about that we, you know, one of our big launches and the growth stories there in drivetrain is with Great Wall on a dual-clutch technology, and if you think about this really only been ramping in the third quarter and they will be ramping further in the fourth; next year that ramp is going to continue to decline, and then obviously we have been putting in capacity to support Volkswagen in China, and that's also in early ramp mode. So you are going to get that -- that's going to be a tailwind for us as we go forward. So, yes, still a lot of opportunity for growth for us in drivetrain in China.

Okay, thank you so much.

Thank you.

Thank you.

We have time for one final question, and that question comes from Richard Hilgert with Morningstar.

Good morning, guys.

Good morning, Richard.

Congrats on the quarter. Hey, I was thinking about you know, the comments earlier in the prepared remarks about you know, the phenomenon that we are seeing with crossover sport utility vehicles outside of North America, and the tremendous growth that we have seen in these products, not only in Europe, but in South America and Russia, in China. And with the changeover in powertrain to both hybrid or battery electric, given the way that the portfolio is set up now, do you envision at some point potentially more products coming on you know, the torque delivery side to match some of these new energy powertrains that we are seeing to go into the crossover segment, and is that an area that you could potentially see some additional growth rates on top of what you have already forecasted for the longer term growth?

Yes, Richard, let me shut that up for you. I think you know, first of all, your observations are right on. We do see globally in our shift to more SUVs and obviously here in the United States light truck or truck is strong. Directionally, it's helpful for BorgWarner, because it does offer the opportunity as you say for more all-wheel drive content and transportation specifically obviously for four-wheel drive applications. So, it does. I mean directionally it does help us with larger vehicles and SUVs on the drive trend side. But so yes, I think the quick answer is yes, Richard, we do see that as a slight tailwind. I would say it's best to think of we probably factored that into our -- of data we gave back in New York. So I'm not seeing that necessarily in the short run as necessarily upside-upside, I think that's already reflected in our projections that we gave in New York, which is that 7% CAGR you know, at the midpoint for us over the next three years, Richard.

Okay. On the Sevcon side, converters, the high-voltage, low-voltage products that got there, and the software that goes behind that seems to me like you know, the battery chargers is probably the area that you might have been referring to with respect to what might not be core to BorgWarner's business, but I was wondering you know, the sort of development behind that, is there anything there that might give you some expertise on working with your OEM customers on how the battery energy flows you know, coming in and then optimizing going out for the output. Is there anything there that you would want to retain from that aspect of Sevcon that could help you further develop that business?

Yes, so a couple of thoughts, Richard. One is the non-core product line I was referring to earlier was in our emissions business, which is thermostats and pipes. So, certainly nothing -- I'm not disclosing anything non-core at all on the Sevcon side. As you alluded to, the power electronics capabilities is particularly core to us, because that is where we are going to be able to integrate that power electronics into the products and systems and modules as we go forward, because that's critical to us. You know, the battery charging piece of the business is also very interesting for us. It's fair to say, I would describe it his way, that's the one we -- you know, we don't know so much about yet candidly. So we are going to get in and work with the Sevcon team and better understand what the opportunities are for that piece of the business. But overall, Sevcom is a wonderful acquisition for us, and it's really going to help accelerate our efforts in power electronics and system capabilities. So, positive on that.

Okay, great. Thank you very much for taking my questions.

Thank you, Richard.

With that, I would like to thank you all for your great questions today, and sharing it for the course of the call.

That does conclude the BorgWarner 2017 third quarter results conference call. You may now disconnect.