Good morning. My name is Jerome and I will be your conference facilitator. At this time I would like to welcome everyone to the BorgWarner 2021 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. [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, Jerome. Good morning everyone and thank you for joining us today. We issued our earnings release earlier this morning. It is posted on our website, borgwarner.com, on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple 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, I need to 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. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes to prior periods. When you hear us 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 adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our growth compared to our markets. When you hear us say market, that means the change in light vehicle and commercial vehicle production weighted for our geographic exposure. Our outgrowth is defined as our organic revenue change versus the market. Please note that we've posted an earnings call presentation to the IR page of 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 Fred. Frédéric B. Lissalde: Thank you Pat and good day everyone. First on Slide 5, I'm very proud of our strong performance in the quarter despite the…

Thank you, Fred and good morning, everyone. Given the number of financial topics we have to get through this morning, I'm going to dive right into the details. So let's turn to Slide 10. As we look at our year-over-year revenue walk for Q2, we begin with pro forma 2020 revenue of just under $2.1 billion, which includes 628 million of revenue from Delphi Technologies. Foreign currencies increased revenue by about 11% from a year ago. Then, our organic growth year-over-year was more than 72% compared to a 64% increase in weighted average market production. The significant year-over-year changes in industry production and the varying levels of supply disruptions among our customers make it difficult to draw conclusions from the quarterly outgrowth figures. Nonetheless, we were pleased with our performance in the quarter. Looking at our regional performance, in Europe we outperformed by double-digits, driven by growth in small gasoline turbochargers, VCT, and fuel injection. In China, we also outperformed the market by double-digits driven by growth in DCT, all-wheel drive, and fuel injection. And in North America we underperform the market primarily due to customer exposure. The sum of all this was just under $3.8 billion of revenue in Q2. Now let's look at our earnings and cash flow performance on Slide 11. Our second quarter adjusted operating income was $401 million, compared to a pro forma loss of $52 million in the second quarter of 2020. This yielded an adjusted operating margin of 10.7%. On a comparable basis excluding the impact of foreign exchange, adjusted operating income increased $423 million on about 1.5 billion of higher sales. That translates to strong incremental margin of over 28% driven by conversion on higher volumes, restructuring savings, and Delphi related synergies in excess of purchase price amortization. We were particularly pleased…

Thank you, Kevin. Jerome, we are ready to open up for questions.

[Operator Instructions]. Your first question comes from Chris McNally with Evercore. Your line is open.

Great. Thanks so much, everyone. Wanted to maybe talk a little bit about the second half assumption. Just based on your guidance, you had a very strong first half of 850 million of EBIT guidance in the second half implied something lower in the 750 million to 800 million range, which would obviously be down sequentially, but also down year-over-year versus the pro formas that you have provided on up revenue. So if you could just provide some of the puts and takes there, that would be really helpful? Frédéric B. Lissalde: Yeah, I think maybe to make it simple why don’t I speak relative to the midpoint of the range. But as you think first half to second half, I think when you exclude the impact of AKASOL which is $75 million revenue sequentially, first half to second half is down a couple of hundred million dollars. So obviously we have lost conversion on that revenue. But then on top of that as you're going first half to second half, you've got the net commodity headwinds, which are an incremental $20 million to $40 million in the second half. Our R&D on a net basis is stepping up in the second half, another $25 million to $30 million and those things are being partially offset by about $20 million to $25 million of incremental synergies. So, that's kind of the walk as you look first half to second half. I think the thing if you look year-over-year, if you're talking second half of this year versus our pro form a second half of last year, I think one of the things you have to keep in mind is part of the revenue walk is AKASOL of $75 million and foreign exchange, which is a little bit over $100 million, so $200 million of our revenue improvement comes with virtually no margin because FX converts to basically our operating income and AKASOL actually because of purchase price amortization is dilutive this year about $10 million. The net is no conversion on that incremental $200 million which means what it means then on the revenue that's left, there's actually the downside conversion at the midpoint of our guide, plus those other things I spoke of the commodity costs, R&D being up, but synergies being a little bit of an offset. So hopefully that helps.

Yeah, that's great detail. Thanks so much. And then if we talk to the second side of the business and you announced several EV wins in the quarter. Of note the three on my voltage that are obviously are of more significant value, the dual inverter and iDM. Could you talk about just relative how you may think of a hard number but relative to the -- are we talking about hundreds of million into the backlog in addition where these are 100,000 per year type vehicles or is it something that you expect a little bit smaller? Frédéric B. Lissalde: I think the volumes are meaningful and what we've seen also is it is time we book a business in this field, volume expectation is going up and up. So, those are two great programs for us. And from an iDM perspective, as you've seen, we're building a modular portfolio, it's a different power output, different power level, and so very happy about that and hitting the market with great products.

Great. Thanks so much.

Your next question comes from Luke Junk with Baird. Your line is open.

Yeah, good morning. First question I want to ask is if there's any additional color that you could share in the scope of the iDM whether you disclose today, should we think about this as an award on the single vehicle or could it potentially cut across platform at the customer? Frédéric B. Lissalde: So right now the iDM -- the iDM is a power level. So within that power level, it cuts across the vehicles that the customer wants to tailor for that power level. So that's the color I can give you. It starts with the platform and we'll cut across 250 kilowatt power level.

Okay, that's helpful. Thank you. And then bigger picture, one of the filters here is that you had highlighted at your Investor Day in March was iDMs in Asia in general, seeing here five to six months later, you've now booked a couple of these awards and we're still not even a year out from the closure of the Delphi deal, is it fair to say that the level of interest in Asia is consistent with or it maybe even a little better than you had anticipated in March? Frédéric B. Lissalde: It's in line with what we expected and this is currently where the music is played the loudest from an EV acceleration standpoint. This is where we're going to gain scale early, very happy about that. And the technology that we bring in to the market and the competitiveness that we bring into the market with in house transmission, motor electronic software is very, very well received.

Your next question comes from Brian Johnson with Barclays. Your line is open. Frédéric B. Lissalde: Brian, are you there?

Brian Johnson from Barclays, your line is open.

Jerome, I think we can go to the next question.

Okay. Your next question comes from Joseph Spak with RBC Capital Markets. Your line is open.

Thank you very much. And thanks for that first half to second half walk, that was helpful. I guess just on the commodities, if I'm following along it seems like on a year-over-year basis, you're talking about another $55 million or so headwind in the back half. I just want to confirm that. And also if you could just sort of remind us of your policy here because I thought over time, you tend to get some recoveries there, so as we begin to think about the bridge into 2022, does this sort of headwind remain or do you start to get some of those recoveries on the raw materials? Frédéric B. Lissalde: Yeah, I think you've got the number right. As you look at the second half of the year on a year-over-year basis it's in the $45 million to $64 million range. So you've hit the midpoint exactly right. And that is a net number, net of our recoveries. Now obviously, there are some timing lags as it relates to recoveries, but the bulk of those recoveries are expected to be in our results as we progress through the year. And so that number that we're talking about the 45 to 65 in the back half of the year on a year-over-year basis is net of the recoveries already. But there might be a little bit of a tailwind heading into the first quarter of next year.

So, I mean -- if these commodity levels hold, then it's fair to assume at an absolute level there's still a headwind in the first half of next year, even if maybe it's mitigated somewhat by some of the recovery timing? Frédéric B. Lissalde: Yes, a little bit. So certainly because the headwinds as we go first half to second half or definitely more negative call it $20 million to $40 million and as that carries over to the -- to the extent it carries over into Q1 of next year, that would be an incremental headwind on a year-over-year basis relative to Q1 of this year. But of course, there's lots of moving pieces as we head into the beginning of the year. We know next year in 2023 we got another 55 million to 60 million of synergies to recoup from the Delphi transaction. We've got the legacy BorgWarner restructuring actions we announced 18 months ago and you remember, we said those actions were to mitigate unknown risks. These are the types of risk exactly that we were geared toward, things that were unforeseen at the time, and that's another 25 plus million of tailwind next year with the legacy Delphi restructuring actions project, which is incremental tailwind next year. And then any conversion on our continued outgrowth. So there's a lots of puts and takes as we head toward next year, but incrementally if commodity levels held, there would be an incremental headwind heading into next Q1 versus this year's Q1.

Okay. And then the second question is just Fred, maybe this is a question we've been getting a lot from investors, right. So at your Analyst Day, I think you sort of put up a slide to show you fit 80% of inverters would be outsourced. It seems like during the quarter, whether it was [indiscernible] some others like there's more and more announcements of automakers trying to do power electronics themselves. And so it seems like -- it would seem like maybe that figure is incrementally more challenged. I'm curious whether your view has changed there or is this just a definition issue, meaning like by in sourcing, you mean like the OEMs actually make it but in reality in some of these cases like the OEMs might help with design, but they won't necessarily build.

Yes. I think in relative we -- I believe we are in a very, very strong position. And we've already announced more than a 1.1 million units by 2025 in Europe. If you do the math, it's a significant share of the overall European inverter volume for that and since then, more booking happened. We don't see too much change. I think and it's due to two to three reasons, we are successful in this field for three reasons. First, it's our product leadership. The different voltage 400 and 800 silicon carbide, we continue to innovate with cost and rate reduction with more efficiencies. Two is we have scale. And I absolutely believe that this continues to be a strength. And we are leveraging the whole electronics business that we have. And last but not least, I think we also have a high degree of vertical integration, in house capabilities, integrated silicate development, software power modules, and maybe more in the future. I think this is a very competitive business. You have to have the best efficiency at the best costs. You have to have scale. And I'm very confident that we are in a very good position to grab a significant portion of what will be outsourced and we're not seeing a change from about 80% of outsourced inverter volume to suppliers.

Okay. Thank you.

Your next question comes from Colin Langan with Wells Fargo. Your line is open.

Great, thanks for taking my question. You've done a pretty good job here. You keep cutting your sort of production assumption and yet you keep raising your sales guidance. I mean, what is driving that much better than expected growth over market, does mix have anything to do with that with the commercial maybe holding it better? Frédéric B. Lissalde: So, I think we all grew the market in Q2. We under performed in North America due to customer exposures and we over performed in Europe and China double-digit, driven pretty much by all products. There is not one product that drives more than the other. Now in Q2, I must admit there was a lot of moving pieces. And we're not looking at our growth per quarter, that is too finite. So, we're very happy with the way our top line is evolving this year. And very happy to be able to beat and raise in the short-term. Also very focused in the long-term. We are investing in R&D in order to support the programs that have been booked and very happy with where we are both short-term on the margin and cash flow and also the activities from a long-term booking. And I want to take the example, people focus a lot on downstream at that rate, but the example of that high voltage I think it's a great example where BorgWarner can develop in house and really solve a problem of battery electric vehicle. Battery electric vehicle require innovation solutions for two critical functions, battery thermal and cabin heating. And the solution that we gave to the market is taking a lot of traction. You won't be surprised we have our own integrated electronics and software and we are leveraging the hinting technologies that we have from other BorgWarner product lines. So very happy about where we are both organic and in inorganic in the long term.

Got it. And any color on the commercial market, I kind of thought that was holding in better, but if I look at your guidance from Q1 to Q2 actually your outlook is getting -- it actually came down. So did that actually hold up better in the quarter, does it get a lot worse in the second half now because I know that's a pretty high margin business I think with the top five deal, it's a larger chunk of your business now? Frédéric B. Lissalde: Yeah, I mean, one of the big things is that China we would expect to see headwinds as we look at the back half of the year from a year-over-year production perspective and that obviously has an impact on us and our overall outlook.

Okay. And is that -- okay. So the second half is getting weaker. Okay, thanks for taking my question. Frédéric B. Lissalde: Yeah, second half is weaker on a year-over-year basis definitely. And China is a big driver of that.

Got it.

And your next question comes from Dan Levy with Credit Suisse. Your line is open.

Hi, good morning. Thank you for taking the question. I just want to follow-up on Colin’s question there just from the outgrowth. Can you maybe unpack some of the items that you saw in the second quarter that drove the outgrowth between DCT and Turbo and GDI, just maybe a little more color on what exactly was driving that and as we're thinking about especially in Europe to push the beds, is there any shift in where GDI and Turbo sits in automakers pushing toward their Co2 targets? Frédéric B. Lissalde: Yes. And as I mentioned before, we out grew Europe and China double-digit driven by a lot of factors. But you're right, gas turbos, VCTs and GDI in Europe also drives. And so this is driven by also -- don't forget that in any hybrid architecture, you've got a good gasoline engine with Turbo and GDI and other elements. And don't forget that hybrid power trainer, especially in Europe, but also in China and the business that we booked with the dual inverter is a good example is ramping up very, very fast. And that is giving us on the e-side scale and lounge expertise that are translatable into the world of Bev. And on the combustion side, it just pulls our products that drive efficient combustion engine. So I think it's -- I think it's that particular reason. I don't have the color about how much is Turbo versus VCT or GDI or all-wheel drive, but I'm pretty sure Pat can follow-up offline with you.

Okay. And then the line of sight for the remainder of year as far as GDI and Turbo in Europe, is that something that it's still playing rolling in driving Co2 targets? Frédéric B. Lissalde: Absolutely it does. Absolutely it does. It does in reducing the Co2 and emissions of combustion engines. It does because it is an enabler of hybrid power trains and as you've seen, this is helping car makers in Europe especially to meet the Co2 target. So absolutely it does help.

Great. Thanks. And then as a follow-up, I just wanted a follow-up on the last quarter's announcement, which with a little more color in June, the iDM award with Hyundai. So you have an A segment car here and it's putting in iDM content that's -- I had to guess its $1000 give or take if you can maybe comment on the content, but the question is, usually an A segment car is going to be a much tighter content cost, there's a much lower budget for content. So what does it tell us about going into B or C segment platforms, does that tell you that there is better potential to scale that up to B or C segment, or is there something unique about an A segment vehicle that makes them more likely to approach you on an iDM as opposed to doing it in house? Frédéric B. Lissalde: So last quarter, we announced the iDM award on Class A, so small. Small doesn't mean simple, but small. This quarter we're announcing a different type of iDM, bigger with about twice the output power than the one from Hyundai. And as I mentioned in the last call, we're building iDM modular portfolio, and this is a great example of launching two different power level although made in Asia. Combined with the iDMs that we are currently producing as an integrator, you see that we're starting seeing a path of integrating with other motors or even other inverters if the customer wishes to do that. A path for different power levels, different sizes of iDM, all BorgWarner made transmission, motor power electronic software and vertically integrated on the ASIC and so on. And a path with components. And as we mentioned in past calls, we're very happy to sell inverters to customers who want to make iDM in house. So you're seeing the strategy of developing and commercializing a portfolio of iDMs globally that is seeing daylight.

Great. Thank you. Frédéric B. Lissalde: You are welcome.

Your next question comes from Noah Kaye with Oppenheimer. Your line is open.

Thanks. Good morning. Appreciate your taking the questions. I guess first, congrats on closing AKASOL. Just wanted to understand what margins roughly are you assuming for AKASOL by 2024 and the accretion estimates you provided excluding amortization. And then more strategically, how do you see AKASOL maintaining competitive differentiation in battery tax over time? Frédéric B. Lissalde: Yeah. With respect to the margin, we're not disclosing a margin outlook at this point in time, but I think you can probably do some math underlying our EPS and get a sense as to what the pretax assumptions are as it relates to the overall performance of that P&L relative to the 0.5 billion or so of revenue that we're expecting by the year 2024. But at this point, again, not going to disclose any margin profiles other than we think it's going to be a profitable business over time. As far as far as technology -- technological edge at AKASOL, a few things Noah. First, they are currently producing the Gen 2, they are launching their Gen 3 later this year and being able to launch generation and improve efficiency and power density regularly is key. Now they are part of, soon they will be fully part of BorgWarner. And you can imagine that we will be working with them and linking them with the battery management system and software that we have currently in production coming from Delphi Technologies. We certainly are going to link them also to the high voltage coolant heaters. Those elements are heating the coolant for the batteries. And I expect that we're going to find innovation and products that are going to be generating value for our customers and for BorgWarner going forward.

Very helpful. Thanks. And then just around R&D to clarify the new guidance, 725 million of spend that compares to 5% previously. So, just to understand, are you actually bumping up R&D levels from prior guidance and so is that driven by EV programs, kind of where is the focus, just help us understand?

Yeah. I'll take that, a couple of things worth noting around the R&D guide, first thing is that when you look at our Q2 results, I mean, when you get a chance to go through our 10Q, you'll see that our net R&D sequentially was down in the second quarter versus the first quarter. But it's because we actually had higher customer recoveries from engineering perspective than we had anticipated and then we had in Q1 by about $20 million. If you look at our gross R&D going from Q1 to Q2, it was actually up sequentially, but the net was down. And so what that means is that that's actually had an impact. We've actually brought down our implied full year R&D from what was about $740 million implicitly at the beginning of the year to about $725 million as our current guide. And so that's really being driven by the higher than anticipated customer recoveries that we generated in the second quarter. As you look at it as a percent, the reason we gave a dollar guide as opposed to a percentage guide is the percentage is coming down. And the reason the percentage in 2021 is coming down is because revenue is going up. So it's not because we're cutting our R&D spend, we had better recoveries, but our R&D spend is actually still $725 million. But with revenue coming -- going up, the R&D as a percent of sales is actually now 4.6% to 4.8% which just looks like a lower percentage, but it's implying lower spend, but it really isn't the case. So, as we look to the full year, that's what the 725 represents about a $15 million reduction but really driven by the recoveries. And then as we think ahead to next year and beyond, we continue to expect that we're going to be driving R&D spend in that 5% plus range on a go forward basis.

That's very helpful detail. Thanks Kevin. I will jump back.

Jerome, we are ready for the next question.

Your next question comes from David Kelley with Jefferies. Your line is open.

Hi guys, this is Gavin Kennedy on for David. Two from my end. First, you mentioned that North America customer mix was a headwind in 2Q. Just was curious what BorgWarner is seeing as far as visibility to customer schedules in North America three year in? Frédéric B. Lissalde: What we're seeing is a better mix and recovery coming into Q3 and Q4 from the Q2 level and still very volatile, especially because of the semiconductor supply issues, that's what we are currently seeing Gavin.

Okay. That's helpful. And then switching gears, at your Investor Day you mentioned 3 billion to 4 billion in targeted legacy ice disposition by 25 and about call it 1 billion in the next year or so. Can you comment on how disposition conversations are going, particularly given the volatile current environment and any additional commentary you can give us on what products you might be focused on in these dispositions, that would be helpful? Frédéric B. Lissalde: Yeah, I mean, it's in progress. Just as you noted, the 1 billion or so we expected to execute over a 12 to 18 month timeframe from what we announced at Investor Day, which means as we get to the end of Q3 we expect to complete that full billion or so. And we're in progress right now. And as we talked about, we're really focused on disposing product lines or businesses that don't meet the long-term financial objectives of our portfolio. Which means they lack one of three things, they either lack product leadership, they lack medium to long term growth prospects, or they lack strong margin and cash flow generating ability. And so if our product line or a business doesn't tick off three of those boxes, if a candidate for disposition. So, at this point, we're actively moving forward in line with what we talked about at our Investor Day, and we think we're on track to deliver that billion or so of dispositions, I call it mid to late 2022 consistent with the timeframe that we laid out back at Investor Day. And then we continue to expect $3 billion to $4 billion by the end of 2025.

Great. Thank you, everyone.

Your next question comes from Brian Johnson with Barclays. Your line is open.

Thank you. And I apologize if this was covered in the opening, but I kind of doubt it. When you look at the 800 volt mark and I was struck at the Chicago Auto Show by the Hyundai 800 volt systems and of course, the advantages. A small question is, can you confirm it around that or not? But the bigger question is 800 volts started in the high performance market with the Porsche. Now we see it in Hyundai. I know your new EV motor runs on 800 volts for commercial. So my question is, do you see 800 volts as a big trend, one? Two, is the inverter product line you got from Delphi Tech uniquely positioned in that market relative to competitors? And three, are there synergies then between your 800 volt converter capability, your e-motor capability, and where AKASOL could go and is AKASOL capable of doing 800 volt packs? Frédéric B. Lissalde: So, the answer to your first question is 800 volt a big trend and is it going down in vehicle size? The answer is yes. Why, because it increases the power density and decreases the charging time. Are we well equipped, absolutely. The answer is absolutely yes. We are going to be one of the first one launching very soon, 800 volt silicon carbide at high volume. This is a competitive advantage that we have to master high voltage silicon carbide and also master 800 volts made in house power module, which is the heart of the inverter. Synergies, absolutely I was talking at about high voltage coolant heaters. We will start in 2024 a 800 volt high voltage coolant heater and yet our synergies across the different product portfolio that we have running at 800 volts Brian.

And could AKASOL do 800 volt packs? Frédéric B. Lissalde: I need to check that. My answer is yes, but I need to go back to you on this one particularly.

Okay. Thank you.

And your next question comes from Emmanuel Rosner from Deutsche Bank. Your line is open.

Thank you and good morning everybody. Frédéric B. Lissalde: Good morning.

The first question was about your crossover market outlook. It is good to see you boosting the outlook for the full year. Can you talk in a little bit more detail around what you are expecting for the second half of the year, obviously, you mentioned mix improving and customer mix in particular, but then obviously, you had pretty solid growth of market already in the second quarter and then for the full year, you had 500 to 600 basis points. How would you see this play out in the second half? And then just looking a little bit more forward, how should we think about the mix going forward, does this then represent a headwind in 2022, does this acceleration in growth of market make you rethink your framework for growth of our market? Frédéric B. Lissalde: Yes. I mean, a couple of things. When you look at the first half year-to-date, we're somewhere between 650 to 700 basis points of cumulative outgrowth for the first half. And so as we look at the second half of the year, we don't think we'll be operating at quite that pace. We think we're probably in the 400 to 550 basis points for that second half. The first half we've benefited from some mix. We've probably benefited from some production of vehicles that were ultimately in the production numbers of the OE. So there's probably some level of impact that's implied in our numbers in the second half, which is why you see a lower year-over-year and implicitly step down sequentially going from the first half to the second half. But overall feel good about our ability to deliver 500 to 600 basis points for the full year. In terms of what that translates to for future years, not prepared to give any update on that. I mean, we feel good about the backlog we've disclosed previously looking out 2022 to 2024 and we'll probably give an update on that as we get into the beginning of next year.

Okay, thanks. And then second question on iDM, just diving a little bit deeper here, can you just give us a sense of how you think about the range of content per vehicle and how would you see your either volume or revenue and margin profile of that line of business evolve over the next few years. So sort of like a mid-term outlook and how you would see iDM go from here.

Our rich comprehensive vehicle is going to range from about $1000 for the small versions and times 3 or 4 for much higher sizes. I'm not going to comment on volumes, I am not allowed to comment on volumes. Only I think that gives you some color on the content vehicle. And then on the margin side of the equation, because we've talked about before, any new product programs, whether they're combustion based product or an EV product like an iDM, we look at on our return on invested capital basis. And given that we are predominantly from a manufacturing perspective in the assembly business, what that means is the capital intensity of our programs including the iDM tend to be similar to our other product lines. And so as we drive to deliver consistent ROIC across our product portfolio and we have relatively consistent capital intensity, it means the margin profile on any discrete program looks substantially similar to the margin programs of other business that we approved throughout company, whether it's EV or not.

And that would be from day one or is there a target data on this?

Well, that's the life of a program. So when you look at our EV programs, generally speaking, they tend to have much more R&D intensity, which tends to be upfront. So as we're growing in EVs, what happens is we have a lot more R&D hitting the P&L upfront. And then you generate the contribution margins over time and the blend of all that hits our ROIC targets over the life of the program. But what that means as you're in ramp up mode across EV, your R&D is much higher proportionately relative to the conversion you're generating on the incremental revenue because the revenue is still coming in the future. So the EV portfolio in total has a more depressed margin while you're in gross mode, but that's not because of the underlying fundamentals of the business. It's because we're growing and investing in R&D to support the contribution margins that we will generate over the coming years as we start to generate the revenue. Frédéric B. Lissalde: Two things I would add. I mean first is that everything that Kevin has said is and the additional R&D that we do for EV is already in our margin profile, right? And two, we are currently spending 30% of R&D and EV when our revenue is 3% to 5% like -- or like the market is quite frankly. So that shows you how deliberate we are in accelerating the path forwards electrification.

Yes, definitely. Appreciate it. Thanks.

We have time for one final question and that question comes from Mark Delaney with Goldman Sachs. Your line is open.

Yes. Good morning and thanks very much for taking the question. First, I wanted to talk on Delphi and reflecting back when that was announced. Part of the industrial logic was that Delphi would give the company a broader set of technologies, including for EVs. I know some of that's with iDM but more holistically, so you that you've had that asset for a longer period of time, you have a few wins with iDM, can you give more clarity on your win rates and to what extent you're converting on that broader set of solutions is to the extent that you had been anticipating? Frédéric B. Lissalde: So, yeah, we -- only six months after the close we booked iDM, which is very important, but it's not limited to those systems. We also booked a lot of inverters that we think could be booked only with that combination. We are also accelerating on battery management system, the software battery management system. So from a top line synergy perspective, we're absolutely on track with what we expected coming into the Delphi acquisition.

Got it, it’s helpful. And then you talked already a little bit about the supply chain situation and your views on a second half versus the first half. But maybe you talk a little bit more on the longer-term implications from the supply shortages, some of the OEMs have said that they want to change, are they going to procure supply and then work more directly with some semiconductor companies and how do you think that may impact a Tier one like BorgWarner in terms of how you may partner both with your customers and suppliers and some of the implications around margins and working capital? Thanks. Frédéric B. Lissalde: So, we are not seeing that trend at least in the products that we focus on. But what that thing -- with that semiconductor issue has told us is that it is extremely important to partner, upstream and downstream. Upstream with our customers and downstream with our semiconductor suppliers. The second thing that it has taught us I think is that scale matters and is easier to get going when you have scaled enough. And I think those two lessons, we're going to keep very close to our mind when we move forward in the next year.

Got it. Thank you.

Thank you all for your great questions today. If you have any other follow-up questions feel free to reach out to me directly. Jerome, go ahead and close up the call.

Alright. That concludes the BorgWarner 2021 second quarter results conference call. You may now disconnect.