Here's Why You Should Offload BorgWarner Stock From Your Portfolio

BorgWarner Inc. BWA, a global leader in clean and efficient technology solutions required for combustion, hybrid and electric vehicles, is facing headwinds from higher tariffs and rising SG&A expenses.

Let’s see why you should offload this Zacks Rank #4 (Sell) stock from your portfolio.

Higher Tariff & SG&A to Hurt BWA’s Margins

The company has slashed guidance for adjusted operating margin due to higher tariffs. The company expects to recover higher tariffs through higher prices. However, those recoveries will increase revenues but won’t actually improve profits, so the overall margin will still take a hit. It now expects a full-year adjusted operating margin of 9.6% to 10.2%, down from the previous estimate of 10.0-10.2%, reflecting a 20 basis point impact.

BorgWarner is bearing the brunt of high SG&A costs over the past several quarters and the trend is expected to continue. High research and development costs associated with electrification-related programs and eProduct growth are likely to limit its margins. Discouragingly, BorgWarner expects free cash flow of $650-$750 million in 2025, which implies a year-over-year decline of $29 million at the midpoint of the guidance.

Its stretched balance sheet is also a concern. BWA's long-term debt rose to $3.8 billion on March 31, 2025, up from $3.76 billion as of Dec. 31, 2024. Rising debt restricts the firm’s financial flexibility. 

BorgWarner competes globally with other manufacturers and distributors of similar products, many of which are larger and have greater resources. Major non-OEM competitors include Robert Bosch GmbH, Denso Corporation, Garrett Motion, Hitachi, Ltd., Magna Powertrain, Valeo, Schaeffler Group, and Vitesco Technologies, as well as certain electrification start-ups. The company’s competitors often benefit from economic advantages, such as lower labor costs, healthcare costs, tax rates, and export or raw materials subsidies. Increased competition could adversely affect the company’s business.

The Zacks Consensus Estimate for 2025 sales and earnings suggests a year-over-year decline of 2.57% and 2.78%, respectively. The Zacks Consensus Estimate for earnings for 2025 and 2026 has moved down by 8 cents and 12 cents, respectively. 

Stocks to Consider

Some better-ranked stocks in the auto space are Hesai Group HSAI and Standard Motor Products, Inc. SMP. HSAI sports a Zacks Rank #1 (Strong Buy), while SMP carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for HSAI’s 2025 earnings indicates year-over-year growth of 336.36%, respectively. EPS estimates for 2026 have improved 12 cents in the past 30 days.

The Zacks Consensus Estimate for SMP’s 2025 sales and earnings implies year-over-year growth of 17.1% and 12.62%, respectively. EPS estimates for 2025 and 2026 have improved 6 cents and 2 cents, respectively, in the past 30 days.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research