BorgWarner Inc.

- Former Electrification Expert at a

Turbocharger Manufacturer
Interview conducted on January 05, 2024

Topics
Turbochargers, Electric Vehicles (EVs), Automotive Manufacturing, Electrification, Hybrid Powertrains,
Competition, Power Electronics, Market Trends

Summary
The Tegus Client spoke with a former Electrification Expert at a Turbocharger Manufacturer to gain insight
into the transition of BorgWarner and Garrett Motion in the turbocharger and EV industries. The expert
explained that while the number of internal combustion engines will decrease, the number of turbocharger
sales will increase due to the adoption of turbocharged engines in hybrid applications. BorgWarner is ahead
in the transition to the electrified world, having acquired companies in power electronics, electric motors,
and batteries. Garrett has time to transition but may be left behind if they don't catch up. The expert also
discussed the challenges of making money in the electrified industry due to high investment costs and lack
of standardization. The turbocharger industry is expected to peak around 2031 before EVs become the
dominant production requirement. The expert mentioned the importance of hybrids in reducing CO2
emissions and the potential for consolidation in the industry. They also discussed the struggles of European
automakers in meeting their promises for EV volumes and delivery times, as well as the challenges of
profitability with EVs. The industry is currently not healthy and is struggling to find a successful approach to
EVs, possibly due to the early advantage of Chinese companies and government subsidies.

Expert Details
Former Electrification Expert at a Turbocharger Manufacturer, a competitor of BorgWarner.

Former Research Executive at an Automotive Manufacturing Company. Expert is responsible for the
innovation, design, development, and validation of electric traction motors for passengers and commercial
vehicles (mainly 400V & 800V) The role includes; component innovation, roadmap definition, and execution.
Expert oversees product portfolio management versus modularity definition, Customer RFI/RFQ support,
Product family application, and development up to SOP. Expert has responsibility for all development and
validation activities, including facilities maintenance and development worldwide (Italy and Japan).

Former Electrification Expert at a Turbocharger Manufacturer, leaving in October 2021. Expert was
responsible for compressor and turbine design for all types of applications: Gasoline and Diesel passenger
cars, commercial vehicles, and Fuel Cells. Expert's role included: anticipation of future automotive needs and
definition of the roadmap for aero design to lead differentiation VS competitors; selection and
implementation of integrated simulation and development tools for minimum cycle time; definition of test
methodologies and test equipment; as well as definition of manufacturing strategies to make/buy the
development of suppliers.

Q: Can you speak to BorgWarners competitive position in the products they are selling for EVs and Hybrids?
A: I have some experience with BW hybrid parts, but it is limited. I have good experience of BWTS electrified
charging systems.

Q: Can you speak to the risk of EV OEM insourcing for the EV products BorgWarner is selling?
A: I have some experience with BW hybrid parts, but it is limited. I have good experience of BWTS electrified
charging systems.

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Q: Can you speak to Garret Motions EV products?
A: Yes, I have a good knowledge of what they are doing.

Q: Can you speak to the current competitive environment in the turbocharger industry?
A: Yes, I have definitely a very good understanding of key technologies for LVG, LVD, HDD for hybrid engines
and fuel cells. the market landscape and size.

Q: Can you speak to the mix of turbochargers for diesel vs. gas vs. commercial vehicle and have a view on
the trajectory moving forward?
A: Same answer as above. I have pretty good knowledge.

Q: Do you have a view of when industry turbo sales will peak and start to decline?
A: Yes, I have definitely some data.

Q: Have you been employed by a publicly traded company or a subsidiary of a publicly traded company
within the past 6 months?
A: No.

Tegus Client
Thank you for taking the time to speak with me today about the turbocharger industry and some of the EV
suppliers, specifically BorgWarner and Garrett Motion. To start off, could you please give us a quick overview
of your background and experience in this space?

Former Electrification Expert at a Turbocharger Manufacturer

Sure. So, turbochargers in general, I've been a director for one of the biggest players. And I've also been
working as a powertrain expert for them during a part of my career. Then, after I left this turbocharger
manufacturer, I worked for two years for an Automotive Manufacturing Company. And I was responsible for
electric motors development, for e-drives for full e-drives. We had a joint venture with Punch Powertrain.

So, I'm quite familiar with the turbocharge industry, the nonelectrified turbocharger industry. I'm familiar
with electrified products associated with charging in general, I mean, boosting more than charging, yes. And
I'm also familiar with what BorgWarner is doing on the electrified side of things outside of their, let's call it,
traditional business, which includes turbocharging.

What picture do you want me to give you first, the evolution of internal combustion engines and replacement
with hybrids and after battery electric vehicles and what numbers? You could see that in terms of full
transition to battery electric vehicles, what Garrett is going to do, what BorgWarner is doing? Do you want
me to touch that?

Tegus Client
Yes. I think that would be helpful for us. We don't need the history. We understand the transition and the
rate of change where it's going. I guess for us, it would be really good to help us understand how both
Garrett and BorgWarner are transitioning to the new world, going from the old methodology, the ICE, all the
way to the EV and just how entrenched they are and how they compete on both sides, both the turbocharger
and the EV side versus themselves as well as versus the peer group out there.

Former Electrification Expert at a Turbocharger Manufacturer

Okay. So, let's start from turbocharger. From the turbocharging point of view, you know that most of the
hybrid applications will have a turbocharged engine. And although internal combustion engines will go down
in terms of numbers, the number of turbocharger sales will increase because all the engines will be

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turbocharged.

And a fair amount of them will be gasoline engines, more than diesel. Diesel is going to perform or go down a
bit. So, Borg and Garrett, in the conventional turbocharger business are pretty similar. Maybe Garrett has
some technology advantage on variable nozzle turbines, variable geometry turbines for the use with
gasoline engines that've been the first one to go in production with Volkswagen.

And variable nozzle turbines sales are going to increase in the future, mainly because of adoption of that
technology in Asia Pacific, mainly China, because the technology is already in Japan, mainly China. So, VTG
is going to increase, mainly because of China. And in Europe, most of gasoline engines are going to use that
technology, when coupled to a hybrid powertrain, both 48-volt or 400-volt, mainly 48-volt. Then, Borg is
strong on twin turbo systems, compound turbo systems mainly for achieving very high-power density on
diesel engines only.

I think that the number of sales of those devices is going to decrease since OEMs, mainly in Europe were
visibly strong, are going to decrease the complexity of internal combustion engines to move part of the
money that is related to the BOM of the powertrain towards the electrified part of the powertrain.

So, in principle, engines are going to become simpler in terms of other technology because you need to save
money to put it somewhere else, just to put it in a nutshell. So Garrett, I think that with the standard
turbocharge industry, they got good profitability. They basically have a good supply chain.

And the standard turbocharger business is going to be affected by significant cost reduction. So, OEMs are
going to search to decrease the cost of mature technology in order to have more money to invest on the
hybrid part, which is the new technology, on battery size, which is the new technology for hybrids, to go from
standard hybrid to plug-in hybrid with a big battery, which is very beneficial on the CO2 certification
according to both the European and the American legislations and the Chinese one.

Tegus Client
In Garrett's case then, as it goes simplified, do they have an issue where the selling price and/or the
profitability of their turbocharger product goes down, but they make it up on volumes?

Former Electrification Expert at a Turbocharger Manufacturer

Yes, everybody is going to be under pressure for cost. Above all, if the volumes are supposed to have a
significant increase, mostly in China. Just because it is China, the pressure on cost is going to be bigger than
in Europe, yes. On top of that, you need to have a certain amount of money spent on powertrain and now the
powertrain is more complicated, and more money is going to go into the hybridized part. So, everything is
going to be smaller number of applications.

So, the same turbocharger and the same engine are going to do without any hardware variation, different
tunes for every vehicle. And you're going to have a lower number of different turbochargers produced in
bigger amounts. And this also means that you're going to have the same engine produced in different parts
of the world and every OEM will ask you to the localized production to be closed and also to reduce the risk of
adding some of your tier two going busted. So, they will ask you some redundancy in order to minimize risks
in supply with such big volumes.

Tegus Client
And then, in BorgWarner's case, they're mainly focused on the non-light vehicle that's mostly commercial
truck?

Former Electrification Expert at a Turbocharger Manufacturer

No. BorgWarner, I would say that BorgWarner is the biggest competitor of Garrett, and yes, they have a
similar range of products, very similar range of them. Maybe on VNT for gasoline, they've been a bit behind.
But I think that by now, they must have caught up because that's the business in Europe.

And you said that BorgWarner is a far bigger company than Garrett in terms of what the ultimate goals and
product portfolio is. So, BorgWarner is in front of Garrett in the transition to the new electrified world. You

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know that they've acquired Delphi in order to have power electronics. They've acquired a few other players
in the industry for electric motors and also for battery because they want to be a supplier for battery electric
vehicles of a certain size in the future.

As far as I know, Garrett hasn't done any of these moves. BorgWarner has awarded programs for electric
drive units. What I call electric drive units are e-axles, so the gearbox with an electric motor and with power
electronics with an inverter on it, yes. BorgWarner has the system integration capability of selling e-axles.
They won business with Hyundai, standard business, 400-volt, even for A-segment vehicles. Hyundai is the
first one to have done an 800-volt vehicle for mass production, the IONIQ five, and they've done that in-
house, yes.

But for other vehicles, even cheap vehicles where it is very important to have the biggest possible control on
the BOM, I would say, controlling the vast majority of the BOM, they gave the business out and Borg and
others weren't part of the business for cheap A-segment vehicles, I don't know if you have that in U.S. or in
Canada. But A-segment vehicles is something like I don't know, small city cars, let's call it that.

So, in terms of the path to transition, Borg is in front of Garrett as far as I know, is in front. And you know that
they plan to have by 2025 a turnover of their electrified unit, close to $4.5 billion, so yes. So, they are in
front. So, Borg, during the past few years, they've had the cash to make some mergers and jump some steps
in the learning curve in order to acquire companies with relative know-how and the supply chain to go for the
electrification industry.

So for the turbocharger, for standard conventional turbocharger, I would say that they are comparable.
Maybe Garrett is going to increase their share of demand of Borg more than Borg. So, Borg is putting their
money in the next step more than Garrett.

Tegus Client
If Garrett doesn't make the transition, over time they'll be left behind in your view?

Former Electrification Expert at a Turbocharger Manufacturer

You know that the turbocharger industry is going to peak in terms of sales, let's say, the latest is going to be
2031. I don't know what figures you have, but this is the figure I have in my mind, 2031, 2032. After that, the
next step of the legislation in Europe is going to go to force you to have only EV in production for your fleet
CO2 average. So, I would say that up to that time, Garrett is going to make a lot of money, yes.

So now, Garrett has time to transition to the purely electrified industry. But in principle, they are starting
behind Borg, let me say. Borg has always been a bigger company than Garrett. Garrett is turbocharger. Borg
many years ago, acquired KKK, which was a very famous German turbocharger manufacturer, and that has
become BorgWarner charging technology. So, Borg is a bigger company.

Tegus Client
Got you. Just in general, the transition and the moves they're making towards the e-drives, can you talk
about positioning from a competitive standpoint? They're going up against different people, they're going up
against some of the OEs who have it in-house. How do you see that playing out in the long run? Are they only
going to get a certain percent of market share, like you mentioned in the Hyundai situation on only lower-
end vehicles they'll farm it out or can they get more outsourcing over a larger part of the product line in the
future?

Former Electrification Expert at a Turbocharger Manufacturer

I'll tell you, well, this is my opinion. This is also part of the job that I was doing. So, in principle, most of the
OEMs, as I said before, are going to be willing to control the biggest possible part of a vehicle BOM, the
cheaper the vehicle is. So, cheaper vehicles with lower margin, they want to keep them in. Otherwise,
they're going to struggle on profitability. So A, B, C. When you get to D, so what is D? D, it's Audi A4, BMW
three Series, Mercedes C-Class, that kind of stuff, yes.

When you go to D and going above D, then you have bigger margin. And you can give bigger parts of the

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vehicle out to Tier ones, considering that your engineering force is limited, and you do not have people for
doing everything, yes, if you understand me. So, if you are a tier one supplier in the electrification era, you
are likely to receive more RFQs for vehicles above D, I would say, D included, yes. This is my kind of vision of
the market, but it's not a common rule.

Now, you see that, for instance, Borg has managed to get an award from Hyundai for an A+ segment. But in
principle, I know what Stellantis, for instance, is doing. Stellantis has been fully equipped with a joint venture
with a Chinese company, yes, for making electric motors in-house to have A, B, C completely covered by the
joint venture, to be capable of controlling at best, technology, but above all, part cost and production cost.

But for all the tier one suppliers competing with Borg like Schaeffler, ZF, Magna. You're going to see them
receiving a fair amount of RFQs for a vehicle with significant volumes for, I would say, vehicles above a
certain class. On top of that, I would say that because of how far in front from Chinese OEMs and tier ones
are, making money now in the electrified industry is quite difficult.

So ZF, Schaeffler, everybody is struggling a lot to make money because you need investment, yes. There's
no standardization yet. So, all the CapEx for production is definitely one of the biggest issues, yes. So, you're
going to make money if you can have product families that can stay on the same product line, minimizing
CapEx.

This is a big problem for everybody. And Chinese are so far in advance because they've already partly solved
that problem. They have already acquired a certain amount of lessons learnt. And at the moment, the
European industry is too expensive to compete with China. Just to put it in a nutshell, too expensive. Then I
don't know what's going to happen. If there's going to be some protectionism because at a certain point, the
European industry is too expensive for battery electric vehicles.

We're not talking about the battery, which is something I know about more peripherally. I'm talking about
the electric motor and power electronics. And then, if you come back to Borg, yes, what has Borg done?
Borg, everybody is understanding that the electric motors are going to become a commodity. Making a
gearbox is not rocket science. So, where is the added value? The added value is power electronics, yes, and
then selling a full e-axle, where you supply software, the software and the system integration that goes with
it.

So, Borg has done the steps acquiring Delphi and making 400-volt power electronics, yes. And so I would
say, current technology. And for the future, silicon carbide or gallium nitride technology, they've done
another joint venture with a company called Wolfspeed.

So, in principle, they are already setting the steps in order to have the technology where the margin at the
moment is bigger, yes. I know that the joint venture they acquired the company for making battery packs for
the commercial vehicle industry, I do not know much about that. I don't know. I know more about what
they've done with Wolfspeed and Delphi.

So, this is thinking forward. So the business is 400-volt. But the next step, which is very close, it's going to be
800-volt. All the vehicles above a certain segment, above a certain class are going to be 800-volt. I want to
be capable of having inverters and the cost of an inverter mainly is due to the cost of the power modules. So,
I make a joint venture for 800-volt technology with someone making a power module for me only. Well, I can
get a good deal, if I'm capable of adding very big level of volumes for power modules every year.

This is how we are capable of making compatible inverters. You need to make a deal with Downforce, with
XP, with someone saying, I'm going to buy from you 10 million of these modules today, and then you get a
certain price. Borg has gone beyond. They've done this joint venture with Wolfspeed probably because they
want a customized product. Beyond promising to them a certain volume of business.

Tegus Client
Yes, if we think about the next five years and we look at turbocharging in Western markets, if you had a
thesis that EV adoption is going to slow, particularly in the U.S. because of the lack of infrastructure, range
anxiety, whatever cliche you want to use to describe the American people and their reasons not to adopt
EVs, the move to a hybrid powertrain seems to have taken on a second life here recently.

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Which of the two vendors would benefit from a greater hybrid adoption over the next five years? And you can
comment whether or not you agree with the story I just told, but I’m curious to see if that story were to play
out, which one would be a beneficiary?

Former Electrification Expert at a Turbocharger Manufacturer

So, if you're talking about just turbocharging industry, I would think that they both are going to benefit.
Maybe Garrett is going to benefit a bit more if there's going to be a bigger adoption of variable nozzle
turbines in U.S. on gas engines, which is yet to be proven.

But in principle, they're both going to benefit for standard internal combustion engines, which are coupled to
hybrid. But at the same time, the other Borg division, if you have lots of hybrids, will be capable of selling
also motors to, I would say, P2, P3, yes, for hybrid vehicles, yes. Although most of the money now that Borg
is spending is dedicated to EV development, battery electric vehicle development, but the motors are not
very different. Some of the motors are not very different, I would say.

Tegus Client
Right. So a hybrid powertrain, the turbo, does the turbo unit differ from an ICE engine versus a hybrid
engine?

Former Electrification Expert at a Turbocharger Manufacturer

If you go to heavy downsizing and you want Lambda I, which is something for Europe, I don't know if it will
come to U.S., then you're likely to have VNT on a gasoline engine, too. So, you go from wastegate to VNT,
and this is what's happening in Europe. PSA, RSA, Volkswagen and Stellantis, they rollout with small engines
with VNTs, gasoline, yes.

Then U.S. is a different market. So, if you talk about F-150, F-250 that kind of stuff, I don't know what's going
to happen. I don't know what kind of volumes. They have volumes in those applications, but I don't know how
much F-150 Ford is making in one year. Maybe the gas engines, if you go hybrid on those, the gas engine is
going to be smaller. But I do not know if they will ever get to have a VNT turbo. I do not know if they will get
there.

Tegus Client
But wouldn't a VNT turbo be more efficient? Wouldn't that be the better system versus a wastegate?

Former Electrification Expert at a Turbocharger Manufacturer

Yes, but it depends on your combustion system. So, if you embrace a certain type of combustion system, you
can afford and you need a VNT system. If your combustion system remains the same, then VNT, you don't
need it, and VNT has a bigger limitation in turbine temperature, which is removed by going with the new
combustion system, which is the Millerized engine.

Tegus Client
And it seems to me that the smaller engine with VNT is the state of the art. Is that not the case? I hear what
you're saying about whether Ford would adopt it, but the state of the art is VNT today. Is that accurate?

Former Electrification Expert at a Turbocharger Manufacturer

Yes. In Europe, yes, the state-of-the-art of engines of, I mean, big production of engines is Millerized
applications with VNT, of engines which are getting up to two liters of displacement. So the Audi two-liter
engine, which is the EA888 engine, has lots of different tunes and that is properly Millerized in most of the
tunes, even the highest power tune, which is 210-kilowatts.

So with a Millerized engine, you can get up to, I would say, 105, 110 kilowatt per liter. That's the frontier at
the moment for making a full Lambda engine, even at full load and full other conditions. But that's the state
of the art.

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Tegus Client
And which of the manufacturers does better in that state of the art? Are they like both representative? Or is
Borg ahead?

Former Electrification Expert at a Turbocharger Manufacturer

Garrett has a bit of the edge at the moment.

Tegus Client
Okay. And why is that? Do you have a rationale for that?

Former Electrification Expert at a Turbocharger Manufacturer

Well, they've been the first one to believe in this with Volkswagen. And they are exploiting a bit of a market
advantage, a bit of a time advantage, but the others are catching up. And amongst the others, I would also
put people like Bosch Mahle. You know that Bosch Mahle is another competitor. I still call it Bosch Mahle, but
Bosch go out from the deal a few years ago, now they belong to a Chinese investment fund.

So everybody for gasoline is going towards that technology. I know that Garrett in principle, they were
extending their share of demand of VNT in China because they wanted the technology because they were
seeing what VW was capable of doing in production with their 1.5. And also, Hyundai was very interested in
having VNT well.

Tegus Client
Back to the premise. How do you view hybrid? Do you think hybrid is a resurgence technology for a period of
time? Or do you think the alternative would be, it's really just a stopgap and EVs will reaccelerate in '25 or
'26? I'm asking for your opinion.

Former Electrification Expert at a Turbocharger Manufacturer

Hybrids are going to increase their sales, yes. At least, if I look at Europe, which has a very clear trajectory
versus CO2. So now in Europe, you need to make something like 94 grams of CO2 per kilometer and you
need a hybrid for doing that, absolutely. There's no way you're going to make it without it.

Then when you transition to the next target, which is in 2030, the big target, where basically, you go more or
less half of those 93, 94, yes. At that point, you need a hybrid with a big, big battery because the legislation
is giving a price to battery size, where you are capable of running the whole of the certification cycle in full
electric mode. So this is a way of endorsing battery electric vehicles basically, yes. But it will still be hybrid,
yes.

And what's happening on all the vehicles is that you make it hybrid, you need to move part of your money
onto the hybridized part of the powertrain and at the same time, you need space under the bonnet. So the
engine is supposed to get cheaper and get smaller because there's no space.

I can tell you that Daimler was thinking about making very small engines even for the S-Class, yes. With a
full hybridized powertrain, they were thinking of making very small engines, even for vehicles usually having
V6 and V8, even V12, which are going to disappear. All that kind of stuff is going to disappear.

Tegus Client
At that point, when the engine gets that small, the engine's only role is to generate electricity to power the
battery?

Former Electrification Expert at a Turbocharger Manufacturer

No. I'm talking about parallel hybrid, not serial hybrid. So what you're talking about, you're talking about
serial hybrids. I think that Europe and U.S. are going to see more of parallel hybrid than serial hybrid.
Because when you make a serial hybrid application, the whole of the mechanical power that goes on the
tarmac is supposed to come to the electric motor. So the electric motor is supposed to have a very
significant power together with power electronics. So it becomes relatively expensive.

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You can get the engine refined for working in a steady state operation almost, yes. But I think that for
Europe and also for America, the parallel hybridized powertrain will be preferred because of DM you can have
the maximum power under control of the internal combustion engine. So serial hybrid is more something
coming from Japan. I see more parallel hybrid coming for U.S.

Tegus Client
Got you. I'm going to ask you about the competition. So this is all new frontier for a lot of these companies.
So, like you said, Borg's going up against Magna, against like Marelli against a lot of other even larger
companies than BorgWarner. So what's your view on how does that shake out going forward? Does it make it
just much more difficult? The shares that they had in the past getting much smaller?

Former Electrification Expert at a Turbocharger Manufacturer

Yes. So, there's going to be some consolidation, for sure. For instance, you may know that Schaeffler, in
November acquired was known as Continental Automotive and before there was Siemens deal. So, they
acquired Vitesco. There's going to be some consolidation. Because at the moment, the road to EV is small
margins, and it is difficult to survive. So, that is having a very fantastic portfolio of electric machines and so
on, they have business value. Yes, the other one I forgot is Valeo. Valeo is pretty well placed. They got lots of
business with Daimler.

And also, they are involved in making new families of electric motors or inverters for standardization for
getting costs down and be capable to penetrate the market better. But everybody is dragging for margins.
So, there's going to be some consolidation. Someone is going to go busted or in certain financial difficulties,
to be purchased by someone else. Price scale, to have the right scale.

Tegus Client
Got you. And a lot of Borg's wins in that supposed $4.5 billion target, a lot of it is from China. So, just your
views on positioning, if they’re with the Chinese, is that good for scale, but long-term bad for profitability?

Former Electrification Expert at a Turbocharger Manufacturer

Difficult to say. So, profitability will have to be sufficient to sustain the company. And you will have to achieve
a certain scale. And you'll have to concentrate on the right products giving you the right profitability. Which
basically means, I'm coming back to what I said before. If I am a tier one, this is not a general rule because
you've seen what happened between Borg and Hyundai.

If I have tier one cheap vehicles, if an OEM wants to give me business, yes, I'm going to struggle to make
money. And if a Chinese tier one comes over, the Chinese tier one is going to win from the price point of
view. From the technology point of view, I would say, equivalent. Then there are lots of other things to be
considered like localization, geopolitical risk and all this stuff.

I can tell you that people like BMW, they would really like to have a significant amount of independence from
China as much as they can. I don't know how much they can afford. Considering that if you have a
permanent magnet motor, all the magnets are coming from China. Having said that BMW has gone with the
externally excited synchronous motor, which does not make use of magnet. You know that.

And more European companies are going to move towards this technology in order to get away from
permanent magnet motors, which will always retain the maximum power density, but they want to get
independent from China. So, there is also this kind of thing to be considered.

You need to be cheap, yes, you'll never be as cheap as a Chinese, but at the same time, you want to contain
geopolitical risk. So, Chinese can get into the European market, maybe BYD is going to do in a bigger scale
starting from this year and next year, yes. But it's not B2B. It's a B2C. So, they sell to the end customer. For
B2B, everybody at the moment is willing to decrease their dependency upon China, everybody. You hear the
same thing from everybody.

Tegus Client
Yes. Then, it comes down to this B2C. B2C always typically wins, but there's regulation, right, that holds

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them off?

Former Electrification Expert at a Turbocharger Manufacturer

Yes. B2C, for instance, now in Italy, people cannot afford and Italy is a nation made by A, B, C segment, yes.
So, if someone arrives in the market giving you an A or B segment of a certain price equivalent to what an
internal commercial engine, A, B car is, that means it's time. And Stellantis and RSA, Renault, Volkswagen,
there's nothing that they can do at the moment because they're still too far away from that kind of supply
chain cost, yes. At the moment, they just need to survive.

Tegus Client
Got you. Getting back to Garrett, if you're going to have to focus to get some more scale on EV to be
attractive as a consolidation candidate, if they don't, they're just going to just die a slow death?

Former Electrification Expert at a Turbocharger Manufacturer

I know that many things have changed and then a few other things are changing, yes. I can only say that
Borg in the transition is definitely in front of Garrett. When you're talking about the transition of Borg maybe,
they're definitely in front. I know that Garrett is investing a lot. I don't know if a lot means enough.

But they are more dependent upon turbo business than Borg at the moment. And maybe they're going to be
more profitable than Borg in turbo business. Borg's mind is already into electrification. Garrett has always
been very profitable even when electrification was a fair thing to come. They've always been very profitable.
And even, I would say, say, 2015, 2017, those years, they were very profitable.

Things have changed a bit, say, since, yes, well, there was COVID that things have changed a bit what was
the spin-off from Honeywell, because the thing never happens smoothly without dramas and stuff. But
they've always been profitable. And I think that now they are back to that profitability.

You know that for boosting solution, they also have electrified charging systems both Borg and Garrett. But
in opinion, Borg has won some business with the e-compressor, which is a 48-volt product, they are in
production with Daimler and in production with Volvo. As far as I remember them, maybe with someone else,
small numbers, though applications with small numbers.

But it is not a technology given you the EU7 regulation. It's helping, but it's not giving EU7. And maybe if it
gives you, the EU7 is at a bigger cost than going VNT with the engine and a standard turbo VNT. Same thing
with electric turbo. With electric turbo, Garrett has been the first one to go into production with a 48-volt and
a 400-volt electric turbo with AMG.

But I mentioned AMG is that business, is that kind of cars. Maybe you will see others going into production
with electric turbo, both with Garrett and also with Borg, I guess. But the electric turbo has not gone down in
segments, it's going to be premium or niche sports, that kind of vehicles.

Tegus Client
Got you. And the benefit of the electric turbo is it spools up because it's initially powered by electric, it
doesn't have to wait for the gas to spin it up?

Former Electrification Expert at a Turbocharger Manufacturer

Yes. So, the main benefit of the electric turbo is that you can push the downsizing of the engine further
because you have the possibility of boosting without having all the energy that you need if it's only a gas.
And others are going to use the electric turbo for lowering the exhaust temperature in order to be capable to
fulfill the Lambda I regulation. But that is applicable only for sport and niche, yes.

The electric turbo by itself does not recover enough energy in the certification cycle to give you a significant
advantage versus the money it costs inside any certification cycle because you use the engine at too low
load for that. It works perfectly in F1, you are on a racetrack, and you have the engineer. But in a
certification cycle for emissions where CO2 matters, when you are measured against CO2 for certification, it
doesn't work a lot.

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The other thing that Borg does not have, and I've always been wondering why, and Garrett has invested into,
are compressors and electric turbos, but definitely, there's going to be something in commercial vehicles,
definitely. And all the fuel cells are, I would say, charged, and they are electrical charged. Some of them are
turbocharged. So, you recover some of the energy of the charging, some of it, but most of the energy, most
of the charging is done electrically.

And Garrett to that regard is definitely better placed than Borg. Borg, they do not have that. They decided
not to eventually because that's the one explanation. And as I said, this is going to be something for
commercial vehicles.

Commercial vehicles in the future are going to transition to internal combustion hydrogen. So, we're going to
see some internal combustion hydrogen, yes. And after that, there's going to be a fight between having
battery electric vehicles and fuel cell vehicles. And then, it depends on the range you want to have and the
decrease of payload that you can accept to have.

So, that's the world at the moment, I can tell you that. Daimler, for instance, has a truck for Europe, 40-ton
truck and with a full battery. The battery has something like 650 or something. They did something in the
region of 650. They can make 450 kilometers, yes.

And it applies with regulations, for instance, in Europe, truck drivers, they are supposed to take a 45-minute
break after a certain amount of hours. And they are thinking of that in an infrastructure that is capable of
charging those batteries in 45 minutes when they stop.

So, they're thinking of an infrastructure in Europe where you have DC chargers well exceeding one
megawatt in order to use the 45 minutes to charge. But maybe then you go to U.S., and you require more
range to trucks. And then, if you want more range to trucks, then it becomes a matter of cost of the battery,
weight of the battery, which is going to subtract some of the payload.

A 75-kilowatt-hour battery is 500 kilos, yes. So, you multiply more or less, maybe. Multiply exactly by the
kilowatt you're on, you understand quickly that the battery is bulky, expensive and the total weight of your
vehicle is not supposed to exceed, so it's going to subtract the payload. It depends how battery will become
cheaper.

So, at the moment, it is more important to have battery cheaper to use them on commercial vehicles than
getting them capable of storing more energy, to have a higher energy density. The cost is the biggest thing,
yes. So, if you want a certain range at the moment, only the fuel cell can give it to you, unless you put a
humongous and stupid battery in a vehicle.

Tegus Client
So, you don't believe in the Tesla Semi truck?

Former Electrification Expert at a Turbocharger Manufacturer

With the existing battery technology, I know maybe it's not for U.S. because I know that the required range is
bigger than in Europe without refueling at this moment. For Europe, maybe. Not for U.S. But I can tell you,
also in China, they are making e-axles for the typical 40-ton trucks to be sold in Europe.

While many may be axle then it doesn't matter where the energy comes from, from the fuel cell or from the
battery. So, the e-drive is going to be some. They're going to come. I don't know how much. Unless some
breakthrough in battery technology happens, at the moment, I see very difficult to have battery trucks in
U.S.

Tegus Client
I agree. Maybe for last mile, but not the big ones. Initially, when I started looking at the electrification space,
I was steering more towards the commercial because I just felt it would be a more protected market. Just a
quick one. Just your overall view, do you think the commercial truck market would be a good place to play for
this transition? And then, the last thing, I think we want to get your overall view on just whatever your
general view is on what's happening in the auto market?

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Former Electrification Expert at a Turbocharger Manufacturer
So, talking about commercial vehicle. So, the nice thing of commercial vehicles is that when you talk about
standard turbocharger, efficiency, the OEMs are prepared to pay for efficiency because then they can sell the
efficiency to the end fleet manager then to consumer. And therefore, they're prepared to pay the
turbocharger supplier a premium for their efficiency. Therefore, commercial vehicle turbochargers usually
have a significantly better margin than light-duty vehicles.

So, this is a rule that applies everywhere. And this rule is applicable for hybrids applied onto commercial
vehicles and so on. I can tell you that there are companies willing to approach the transition from standard
internal combustion. If I’m a tier one supplier working with standard internal commercial engines. I want to
transition to hybrid and eventually battery electric after.

I start from commercial vehicles because the market is smaller, the number of players is smaller, the
margins are higher. There are companies thinking this way. But the market is significantly smaller. You need
to consider that.

So, when you do that, you're not capable of developing technology. You are just reusing technology someone
else has developed. If you go to very deep market, then you are capable of developing new technology. You
have to, yes. So, if you go for commercial vehicles, in the transition to hybridization and EV, you are a
follower. You do it because it's the one thing you can afford.

Tegus Client
Got you. Just an overview on the auto market, what you're seeing out there. I know we had the strike, we've
had unit volumes have been kind of a lot lower than we had expected, even though end demand looks
strong. The aging car park, especially in the U.S. keeps holding it older and older. Whatever you can give us
your view on the U.S. market, Europe as well as China?

Former Electrification Expert at a Turbocharger Manufacturer

So, if I can give you a view on U.S. market, one of the things that everybody says is it depends on what kind
of President we can have in the future. So, if you're going to still have Democrats in charge, I think that they
are going to follow more the policy that has been introduced in Europe, which is very harsh, yes.

What the European Union has done, 2030, 2035 is very harsh. And then, we're going to see for the first time
for emissions and CO2 certification, you're going to see U.S. following Europe and not vice versa as it has
always been since the '60s, I would say.

But then, if U.S. is getting a different President, if Donald Trump comes back, which I believe it's impossible,
but you never know, then, I don't know, maybe they're going to stop, they are going to do any kind of
proposition in the phase after the next electoral term, yes, I don't know.

So, at the moment U.S. is behind, but they seem to be willing to recover and follow Europe, but it depends
on the President, yes. And then you have said about infrastructure charging points and all that, in my view,
now if there is a big drive behind, that is not going to become an issue.

And as a matter of fact, something I forgot to tell you before, Borg, for instance, is also investing big time in
charging technology. So, in the charging technology, which is the charging stations, so DC charging stations
and also in onboard chargers that are capable. So those chargers that are capable of taking monophase or
three phase and convert it to DC for the battery.

But I know there is a big drive for making DC charging station, to become a big player in DC charging station
because they see a big business in the future. Stations from 250-kilowatt-hour and above, yes. In Europe
now, we are at 350. 350 is the standard and now they're thinking of increasing. They go hand-in-hand with
battery technology. The bigger the battery pack, the more power the battery pack can absorb because the
power is distributed amongst a bigger number of cells.

Tegus Client
Got you. And is there an advantage of having the technology on both sides, on the onboard charger and on

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the charging station? Or the standard is the same, it doesn't matter?

Former Electrification Expert at a Turbocharger Manufacturer

I would say that it doesn't really matter. But the standard between AC to DC charging, what you place on the
car is something at the moment everybody wants because there are not many companies doing this kind of
thing. Everybody wants it. It's a lower power charging, let's say, up to 22 kilowatts in Europe because the
charging stations do not give you more than 22 kilowatts in AC, they decided this kind of standard. But
everybody wants it and there is business now. There is a lot of business outside for this type of power
electronics.

There is more business out for this type of power electronics than the business for making DC charging
station, I would say. Because that business of charging, with monophase and with three-phase. Monophase
is what you do at home, yes. When you plug in at home, you use that thing. So, the number of AC/DC
charger is definitely going to be equivalent to the number of electric vehicles sold. The number of charging
stations is definitely going to be much slower, although the charging station is far more expensive.

Tegus Client
Yes. The last one I had, just your overall view on the auto market in Europe. It's been pretty healthy the last
few quarters. Just your overall view given the state of the economy. Do you think it stays strong at the
current unit production rate? Or you think it gets weaker here?

Former Electrification Expert at a Turbocharger Manufacturer

So, I can tell you that regarding EVs, nobody is capable of European makers, yes, VW first, normally is really
capable of sticking to their promise in terms of volumes and delivery times. So, if you want to buy a
Volkswagen ID4, that kind of stuff, ID3, you go there, yes. Well, I don't know exactly now. But up to three,
four months ago, because I have to buy a car. Three, four months ago, they basically were giving 18 months
of waiting list. 1.5 years, yes. So, nobody is speaking of making the numbers they are promising to investors
in terms of EVs, nobody.

Nobody in Europe. Tesla and BYD, of course, they do it. Then for internal combustion engines, coupled to
hybrid, numbers have been going up, maybe yes, but they're still recovering from COVID, because with
COVID numbers were hammered down. I do not know if numbers have come back to pre-COVID numbers. I
don't think so.

And then, in Europe, there is a fair amount. So, in Europe, all OEMs have already spent a massive amount of
money for the transition. And there's no way back. Luca de Meo, who is the Renault-Nissan-Mitsubishi CEO,
said that full profitability is going to be a big problem. But after we spend this amount of money, which is in
the region of EUR 700 billion to EUR 900 billion, all the OEMs together, there's no way back after we spend
this amount of money.

The transition has started, and it will land somewhere, maybe not at the time everybody hopes, but it will
land there. So, everybody is struggling to be profitable with EVs. The other vehicles, there is consolidation
now because now FCA has disappeared, well, maybe not in U.S., but what was called Fiat has basically
disappeared, yes. The number of vehicles produced are very little, very small number of vehicles and
everything is PSA, et cetera.

But Volkswagen is not making the numbers with non-electrified vehicles as far as I remember from what I
said. And also Daimler before Christmas, they made an announcement. Okay, Daimler, they make different
vehicles, premium cars and so on, but they said that they were not hitting the numbers. It's not easy to find
a job because now there are lots of people who have been made redundant at the end of 2023 because of a
rescope of the industry, I would call it.

But the industry, in my opinion, is not that healthy at the moment. It's really struggling for margins of EV,
and they haven't found a way to go on. They've not found the recipe. Maybe there's no recipe. It's just a
matter of catching up with the Chinese who have started well in advance. And the part of the biggest
companies in China, as everybody knows, are subsidized by the government. So, they would basically stay
out with money for many years. Which is now what happening in Europe and U.S.

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Tegus Client
Okay. Well, thank you again for taking the time to speak with us today. This was very helpful. Enjoy the rest
of your day.

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