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 Complete Acquisition of Delphi Technologies conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press the pound key. If you're using a speakerphone, please pick up the handset before asking your question. 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 for joining us today. Today's call is meant to provide an update on the now-completed acquisition of Delphi Technologies. We will be conducting our earnings call on October 29th to discuss our Q3 earnings and our 2020 outlook. We ask you to reserve questions on both those topics for our call later this month. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involves risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. Please note that we posted a presentation for today's call 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 Fréd.
Thanks, Pat. Welcome, everyone, and thank you for joining us today. We're excited to give you an update on the now-completed acquisition of Delphi Technologies. Let's review the key points of this transaction on slide three. First and foremost, it strengthens our leadership position in electrified propulsion systems as we gain scale, expertise, and capabilities in electronics at a time when the industry is moving towards electrification, opening obvious growth opportunities for us.
At the same time, it enhances our combustion, commercial vehicle, and aftermarket businesses, driving an even better market balance for us. As we bring our offerings together, I know we will be better positioned than ever before to be the propulsion partner of choice to our customers. Finally, as we will discuss today, we remain confident that this transaction will deliver enhanced returns for stockholders, both in the near term and long into the future.
Let's turn to slide four and take a more in-depth look at what Delphi adds to BorgWarner from a product perspective. Most importantly, we have added a broad electronics and software, including high-voltage power electronics portfolio, to serve most emerging xEV architectures. We now have great product leadership and proven technology in electronics and power electronics at scale on three continents. The engine and transmission control unit products provide scale in purchasing, manufacturing, and customer reach in electronics.
A broad aftermarket product portfolio spans across passenger, commercial, and off-highway vehicles and is complementary to our existing aftermarket business. The powertrain product segment is expected to bring strong profitability and cash generation. It complements quite nicely the other products that we have in this area. Lastly, we're adding a strong position in high-pressure fuel injection systems for light and commercial vehicles.
The commercial truck side of this business brings very high product leadership, good market share, and great technology. We see opportunity in the light vehicle injection business as diesel headwinds subside in the coming years. We will be laser-focused on successfully launching a backlog of gasoline direct injection programs over the next few years. Fundamentally, we will do what BorgWarner is good at, i.e., take a superior technology, commercialize it, and manufacture it at scale around the globe.
On slide five, we show an example of how Delphi technology will further strengthen our electrification portfolio. BorgWarner, as you know, has tremendous expertise in mechanical, clutching, and hydraulic controls. We also have award-winning electric motor technologies. Delphi brings leadership in electronics, software, and controls. What you have on this slide five is an example based on the BEV Integrated Drive Modules, also called iDM.
Bringing these products together and at scale, the mechanical, motor, electronics, software, we expect to optimize all aspects of an iDM, including size, interfaces, software, noise, vibration, harshness, systems efficiency, thermal management, and controls, as well as costs. As a result, we will partner with our customers to deliver a truly differentiated iDM. We believe this equation of mechanical, rotating electric, and electronics, software, and controls is a winning equation and is applicable to many other combinations, including all hybrid modules, P2, P3, and hybrid transmission. It also applies to eTurbo, eBoosters, for example, and many other electrified products in our powertrain space. We expect that having all three of these product categories under one roof at scale will allow BorgWarner to not only drive increasing system expertise but also support world-class component capabilities.
This is expected to unlock new opportunities for the combined company as we will be able to offer customers a suite of both integrated and standalone offerings of mechanical, motor, and power electronics products. Let's look at a sampling of those new revenue opportunities on slide six. Our sales and engineering teams have focused on identifying the key customers that we expect to pursue modular solutions with for various hybrid and electric programs. Within this customer list, we then drill down to hybrid and electric programs that are likely to be awarded by these customers over the next 12 to 24 months. What you see on slide six are the top 17 programs that we identified as our pursuit opportunities. We estimate the large majority of these programs to launch in the 2024 to 2025 timeframe. There are two takeaways from this slide that I would like to highlight.
First, the size of the list reinforces our view that the opportunities in electrification are accelerating and have expanded over the past eight months. Second, we believe that the revenue opportunities are significant, with these programs alone representing $900 million in potential annual revenue by 2025 and growing to $1.4 billion by 2027. It is both the size and acceleration of these opportunities that are attributed to our long-term growth outlook. Let's turn to slide seven, which summarizes what we now look like as a combined company. Our largest exposure remains with the light vehicle market, which we feel very good about given the growth opportunities that we believe we have in that market across combustion, especially across hybrid and electric vehicles. We're also enhancing our end market exposure to the commercial vehicle and off-highway markets.
Our combined product portfolio is very complementary, and we see the potential for revenue synergies over time. We believe our aftermarket revenue base positions us as a leading aftermarket powertrain supplier, which we view as positive for cash generation, margin, and countercyclicality. And if you look at the chart on the bottom left of this slide, you will see that our geographic mix remains a strength with more than 25% of pro forma revenue for each of our major operating regions. Before I hand it over to Kevin to discuss the updated financials in more detail, let me summarize the Delphi transaction. The completion of the acquisition represents the next step in accelerating our product and systems offering in electrified propulsion. We believe it positions us strongly to continue to deliver growth, top quartile margins within our industry, and strong free cash flow.
As the industry moves towards electrification, I am confident that we will be able to take advantage of this trend as we partner with our customers around the globe and believe that we will deliver significant value to our stockholders. I want to thank the employees from both Delphi and BorgWarner for their very good work during the integration planning period. We have not missed a beat. I am very proud of the team. It is a winning team. Now, I turn it over to Kevin.
Thanks, Fréd. I know I speak for the rest of the management team when I say that we are excited to move forward as a combined company. Before I dive into the financial details of the transaction, I'd like to summarize the important takeaways of our updated financial outlook. First, as part of this transaction, we've maintained our strong balance sheet. Having a strong balance sheet allows us to effectively manage our business through the demand cycle while continuing to invest for the future. Second, we remain bullish on the long-term margin profile of the company. Specifically, we expect to continue to deliver top quartile margins going forward.
And third, despite a more challenging industry backdrop that has developed over the last eight months as a result of the COVID-19 situation, we expect the acquisition of Delphi to deliver substantially similar earnings accretion in 2022 to what we estimated in January, driven in particular by expected higher synergies. Let's turn to slide eight. I would like to review the final funds flows that occurred as part of the closing of the transaction. First, remember that this was an equity-for-equity transaction. To execute the equity exchange, we issued 37.2 million shares of BorgWarner stock to the holders of Delphi Technologies Common Stock. As of the closing date, this represented an equity issuance with a value of approximately $1.5 billion. Next, last Thursday, we also paid down $891 million of Delphi Technologies' borrowings under its term loan and revolving credit facilities.
As you'll recall, we had already pre-funded this with the $1.1 billion bond issuance we executed back in June. Finally, earlier this week, we completed the obligor exchange related to Delphi Technologies' notes due in 2025. We had tremendous success with the execution of this transaction, with more than 97% of the value of the notes participating in the exchange offering. This transaction had the effect of converting $776 million of Delphi notes into BorgWarner notes with substantially the same economic terms and conditions.
Next, on slide nine, I'll discuss the pro forma leverage of the newly combined company. As you know, we view our liquidity and balance sheet strength as a competitive advantage. Part of the rationale for executing an equity transaction is that it allowed us to preserve our strong credit position and our investment-grade credit ratings. Let me take you through our key gross leverage metrics.
Based on second-quarter trailing 12-month EBITDA and debt balances, we had a gross leverage of 2.3x , and when combining Delphi Technologies' Q2 financials with ours, that leverage ratio increases to 3.0x . However, there are two issues with using the most recent quarterly financial statements to calculate these ratios. First, our second quarter debt balances were elevated due to our bond issuance that quarter. Remember, we issued $1.1 billion in new debt to pre-fund the anticipated debt paydowns required at the closing of the Delphi transaction, as well as to refinance our $250 million debt maturity this past September. Second, Q2 EBITDA was negatively impacted by the dramatic decline in global production arising from the impact of COVID-19. This lower EBITDA level will impact our calculated leverage ratios for the next several quarters.
However, we don't believe Q2 2020 EBITDA is representative of the underlying earnings power of the combined company. If we were to instead use the trailing 12-month proforma EBITDA of the combined company as of Q1 2020, then the adjusted proforma leverage of the company declines to 1.7x . That's roughly in line with the 1.6x leverage we told you to expect when we announced the transaction in January. The key point is this: we believe our balance sheet is strong at closing and will continue to remain that way going forward. And importantly, as we assess capital deployment strategies heading into 2021, we don't see the need to delever the balance sheet further from current levels. Now, let's take a look at our updated view of synergies on slide 10. We spent the last eight months following the announcement of the transaction focused on integration planning activities.
One of the key activities involved building a robust pipeline of detailed actions to support our cost synergies. I'm pleased to say that the integration team has done a great job of building that pipeline of potential cost synergies such that the pipeline has increased from our original expectations. Specifically, today we are announcing that we're increasing our expected run rate cost synergies to $175 million compared with our initial guidance of $125 million back in January. These savings continue to be driven by SG&A and procurement synergy opportunities. As you can see, we still expect 90% of these savings to be in our P&L in 2022. Also, it's worth noting that these cost synergies are entirely incremental to the existing restructuring plans that both companies had previously announced over the last year.
As it relates to those restructuring efforts, we're pleased with the progress we and Delphi have made thus far in 2020, and we remain confident in our ability to continue to execute on the balance of these plans post-closing. But looking past these cost synergies and restructuring plans, what's really exciting for us is the potential for significant revenue synergies, which would be additive to the cost savings as we look beyond 2023. As we pursue programs like those Fréd highlighted earlier, we expect to capture our fair share of those opportunities, which would drive significant revenue synergy potential. So while we believe the transaction delivers near-term financial returns to our shareholders in part through cost synergy performance, it's the long-term upside potential that we're most excited about. Now, let's turn to slide 11, where you can see the margin profile of the combined company.
In 2019, BorgWarner's adjusted operating margin was 12.1%, while Delphi Technologies' operating margin was approximately 7.2%. If you simply add those two income statements together, it would suggest that the combined margin profile of the company would be 10.3%. But we expect to do better than that. We pride ourselves on having delivered top quartile margins consistently over an extended period of time, and we expect to continue to deliver such top quartile margins going forward. As we factor in the expected $175 million in cost synergies, which are partially offset by $55 million-$60 million in incremental purchase price amortization, we expect that the company's pro forma margin will be more than 11%. As we benchmark an 11 + % operating margin against peers in the industry, we believe that we would still be among the strongest, most profitable companies in our industry. Now, let's turn to slide 12.
You'll see that we continue to expect that this transaction will deliver meaningful earnings accretion as early as 2022. Even though COVID-19 has increased the pressure on end markets over the next few years, we believe that the improvement in our synergy outlook will effectively mitigate that headwind. Specifically, we expect adjusted EPS accretion of approximately $0.30 in 2022, which is roughly in line with our prior expectations from January. And on a cash basis, excluding the incremental purchase price amortization, we expect the accretion to increase to around $0.44 in 2022. The important message here is that by the second full year of this transaction, we expect to deliver real, tangible value to our shareholders through a meaningful increase in bottom-line earnings per share.
This expected accretion and our demonstrated ability to convert earnings to cash flow is what supports our planned $1 billion share repurchase program over the next three years. So let me wrap up with how I think about the financial outlook of the transaction relative to what we discussed back in January. Despite the impact of COVID-19 on global volume expectations, as a company, we've identified an even larger amount of long-term revenue synergy potential. We've closed the transaction with a strong balance sheet and adjusted pro forma leverage in line with our initial expectations.
We've driven our teams to identify increased cost synergies, and we've positioned ourselves to deliver meaningful earnings accretion in line with our original guidance. All of this contributes to our belief that we are a company that will continue to deliver long-term revenue outgrowth while sustaining a top-tier margin profile. With that, I'll now turn the call back over to Patrick.
Thank you, Kevin. Sharon, ready to open it up for questions.
At this time, I would like to remind everyone, if you would like to ask a question, press star one on your telephone keypad. If you're using a speakerphone, please pick up the handset before asking your question. In the interest of time, please limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. First question comes from John Murphy with Bank of America.
Good morning, guys, and thanks for the update. Just a first question. When we look at slide 10 and 11, synergies, and then the ultimate, the 11% + operating margin that you think you can get to, coupled with what you're talking about on slide six of the revenue synergy opportunity, it just seems like this greater than 11% operating margin that you're talking about on slide 11, maybe more appropriately, greater than 12% ultimately. And I'm just trying to understand the timeframe for this greater than 11%.
It seems like it's 2022, 2023, just based on the way you're talking about the cadence of synergies. But ultimately, this greater than 12% might be where things land beyond that. So I'm just curious if I'm maybe being too optimistic and just how you really think about sort of the timeframe for getting greater than 11% and then maybe back to what BorgWarner had been doing at greater than 12% historically?
Yeah, I'll take that, John. A couple of things on that. As we look at that greater than 11%, I mean, it's contingent on delivering the full run rate of synergy. So it's really more linked to what I would say is a 2023 timeframe getting to that level. And based on our planning assumptions, which assumes that we're able, on a BorgWarner standalone basis, to get back to the types of margin levels we delivered in 2019 and before, which we fully expect to be able to do as revenue recovers.
And it's also dependent on Delphi Technologies getting back to its 7% range that it delivered on in 2019, which we expect to do as industry recovers and they deliver, and we deliver now on the Project Pioneer restructuring initiatives. The combination of those two plus the synergies gets you to greater than 11%. If we have opportunity to do better, we'll consider that. But we feel very good about delivering a top quartile margin, which we think aligns with 11%, bringing these two companies together as early as 2023.
Again, the pioneer cost saves and rationalization there, that's included in your thought process as you're talking about the numbers right now. Is that correct? A full execution on that?
It is. And they've been executing successfully against that plan thus far in 2020. We're pleased with what we've seen there, and we'll continue to execute the balance of the plan. The bulk of the remainder, which happens in 2021. There's a little bit of a tail end to 2022. But that, combined with market recovery, is what we believe is necessary for Delphi's margins to return to the profile that we saw back in 2019.
Gotcha. And then just one quick follow-up housekeeping. You said there would be no need to delever going forward, obviously, as the EBITDA grows. So what are the priorities for cash flow? Could we expect to see more aggressive share buybacks coming back in or dividends being hiked over time? Just curious what your priorities are there for free cash flow.
Yeah, I think you should expect we're going to continue to maintain that disciplined approach, balanced approach to capital allocation, which just means, hey, as we look at our balance sheet, we don't think we need to set aside incremental cash to support liquidity or debt reduction. So that cash is available to support more shareholder value-enhancing initiatives, whether that's investing in growth, organic or inorganic, or returning value to shareholders such as the buybacks or our dividend policy.
As it relates to the buybacks, based on our margin profile, our confidence in the $175 million, and our confidence in the accretion of the transaction, and our ability to convert earnings to cash flow, we remain convinced about our ability to deliver strong, positive, and increasing cash flow over the coming years, which is what gives us a lot of confidence and conviction in our ability to deliver on the $1 billion buyback program over the next few years.
Great. Thank you very much.
Next question comes from Rod Lache with Wolfe Research.
Good morning, everybody. A couple of things. Just first of all, there are a lot of signs of acceleration in EV. I think we're all seeing that. But there've also been some indications from a few automakers on insourcing of EV drivelines. GM, Volkswagen, and Daimler have mentioned that, and I'm wondering two things on this. Number one, are you seeing any patterns in terms of the types of companies that are looking to outsource entire iDMs?
I noticed that there's seven customers on your list now versus five at the beginning of the year that were targets for you, and secondly, can you talk about any updated views on power electronics? So just since that particular product may be the highest content opportunity that there is in EVs, do you see any signs of any major automakers looking to insource that, or is almost everybody looking to outsource the power electronics side?
Yeah. So Rod, we see different customers taking different directions. And even within a customer, we see different programs that different programs could take different directions. As far as we are concerned, we are positioning ourselves pretty uniquely to be able to do the system. Not too many people can do what we are able to do now with mechanical, motor, and power electronics under one roof. So I think we're going to create something pretty unique there, in line with my prepared remarks.
The iDM opportunities are in multiple regions and in multiple continents with multiple OEMs. We don't have to sell a system. We are positioning ourselves to talk system, to be able to support system. But it's only a part of the discussion. To your point around insourcing power electronics, yes, we think that if there is insourcing of components, that might be a component that would be outsourced last.
Okay. And Kevin, just hoping you can maybe clarify two things just separately for.
Excuse me, Rod, I misspoke. To be insourced last, the power electronics.
Power electronics is the least likely of the products that you have that would be insourced.
That is correct.
Okay. That was clear, and Kevin, just separately from the merger synergies, can you talk a little bit about the performance of Delphi? They were originally targeting $150 million of pioneer savings. And I think last quarter, they were suggesting, based on the less than one-year payback on restructuring, it might be higher than that, maybe closer to $200 million, and they had also put out a filing a couple of months ago, late June, about forecasted EBITDA out in 2022 and 2023 that would suggest margins that get even higher than that, maybe like 11.5% EBIT margin by 2022. Are there differences in the way you're looking at things versus them, or are you incorporating more conservatism? Just how should we be looking at some of those data points?
Yeah. I think starting with performance of Delphi Technologies, I mean, we've been keeping close tabs on the performance of the company over the balance of the year assessing as they've been delivering each month. There were obligations for them to provide us with financial information, and so what we've seen, we've been pleased with the performance of the company thus far this year, including the performance in executing on their restructuring plan. As we look ahead, we feel like the commitments that they've made to deliver on that restructuring plan are intact and will continue to execute on the balance of those plans that need to be executed on in 2021 and a little bit of a tail in 2022. We believe that those restructuring plans are critical elements of the need for their ability to stabilize their margin profile as we look ahead.
So for their ability to recover back to the types of margin levels we saw in 2019, I think that restructuring program plus some end-market recovery is really what's required. In terms of their forecast, I mean, I'm not going to comment on the forecast information that they put out in the pro formas that they filed because those don't necessarily align with ours. Those were independently developed by Delphi, and they use them for whatever internal purposes they need to. But what I can tell you is, as we look at the two companies and the plans we see in the path forward, we feel very confident about the combined company delivering that top quartile margin above 11% as we look out over the next few years.
Okay. All right. Thank you.
Thanks, Rod.
Next question comes from James Picariello with KeyBanc.
Hey, good morning, guys.
Morning.
Just to get a hit on the accretion. So obviously encouraging to see the deal's intact accretion for 2022 despite this year's pandemic. I'm just curious, what's the major driver behind the slightly more dilutive impact for 2021 for next year? Your cost-out synergies are higher. The deal's amortization is a little bit lower. I mean, is it because it's an equity deal? Is it more of a function of the gap between BorgWarner's earnings compared to Delphi's has gotten wider for next year, which would increase the dilution near-term?
Yeah. I mean, keep in mind, there's two major things impacting the outlook from what we provided back in January versus where we are today. One of those is our synergies have increased. I mean, $175 million versus $125 million, but the second big impact is, don't forget the impact of COVID-19 on end markets. And as we head into 2021, we're not at run rate on the $175 million of synergies or even at the 90% level we expect to be in 2022, but COVID's hitting us now. I mean, if you take a step back and just look at IHS numbers back at January versus today, looking out in 2022 and 2023 even, let alone 2021, those projections are down 7% from what they were back in January, so that's a headwind that we're dealing with as we look ahead for margin and accretion.
But in spite of that headwind, we're pretty excited by the fact that we're right on track to deliver the accretion that we're seeing in 2022 because the synergies, the lower purchase price amortization, and actually the lower dilutive impact of the equity purchase price are all working to mitigate the impact of the more challenging production environment. So we view that as really a positive. But as you look to 2021, the synergies aren't really yet completely in the P&L to be able to offset that revenue headwind.
Yeah. Okay. Got it. Staying on electrification and your content opportunity and the revenue potential, I mean, interestingly enough, Romeo Power recently published a press release. BorgWarner, of course, has 20% ownership of that company and also has a consolidated JV with Romeo. In that slide deck, there was a projection out to 2025 of the JV specifically, and the revenue for the JV was like $700 million for 2025. I'm just curious, would that be completely separate from the greater than $900 million funnel that you have on slide six? Yeah, just curious your thoughts on that detail that was provided.
Okay. Yeah. The Romeo Power joint venture has nothing to do with the opportunities that Fréd spoke of earlier in this presentation. They're completely independent of each other, completely different products. As it relates to the Romeo Power forecast, I mean, keep in mind, each joint venture partner has its own view of the future revenue expectations of the JV. And so what you see in the IR deck that Romeo Power put out, where we're a minority investor, is really their view.
And you shouldn't really take that to be BorgWarner's guidance as it relates to the JV revenue outlook. So for us, we'll update you on programs that we see as we're winning them. And those will be baked into our pipeline of revenue outgrowth opportunities that we'll talk about as we look ahead. But I wouldn't interpret that as necessarily BorgWarner's view of the JV's revenue as we look out the next few years.
Got it. Thanks.
Next question comes from Noah Kaye with Oppenheimer.
Good morning. Congratulations on getting this closed. Staying with the revenue synergies topic here, I mean, you're coming together with Delphi at a pretty unique time for the industry, and the question I have first is really about the timing of the potential revenue synergies. In upsizing the potential by 2025, you're obviously pointing towards increased expectations for opportunity there, but what about nearer term? I think not all of the players that you typically compete with are emerging from this with the same financial strength that you are. There's obviously some pretty dynamic conditions around sourcing and production in this environment. Could we maybe see, now that you actually have closed, you two go to market together and maybe try to fill in some gaps that OEMs may be looking at right now?
Yeah. We are. Actually, as we speak, meeting with a European customer on that topic. We are now ready to meet with customers. We're going to have a meeting with customers representing about 70% of the global industry volume over the next four months. And I think it's going to be done with them. Over the next year, you see quite some innovations on our combined iDM. And we're going to get a lot of input from all those customers. And I think, yeah, as you mentioned, I think we are closing this transaction at the right moment. It is going to be, I think, very well received from our customer base around the world.
Okay. Great. And the second question is really about how the market is trending with respect to fuel mix and the implications for what Delphi can bring in terms of margin performance. A big part of their struggles were obviously that you had the diesel mix declining and some of their GDI and power electronics products that were higher growers were still kind of at lower scale. So as you sit here today, in terms of what you hear from your customers and what you've seen in the market, do you believe that the conditions of the pandemic and how the industry has responded generally support the trajectory that the company that Delphi had envisioned that will continue to see higher penetration and therefore good margin improvements in those relatively young businesses for Delphi?
Yeah. So no, I think the diesel passenger exposure exists with the Delphi injection business. It does not exist on the truck business. We see growth on GDI. So you see some headwinds from a diesel standpoint. However, those headwinds abate over the next few years, and we see good potential and good backlog and very, very good technology from a GDI standpoint, which, as you know, the turbos and GDI are the two really key technologies to make great downsized gasoline engines and most of the time combined with hybrid powertrain architecture, so we see some good potential there. The management team at the fuel injection system business unit is in place. It's a great blend of Delphi people and BorgWarner people. We've put in this business unit some of our best operators, and I am confident that we are going to be successful in this business.
Great. Thanks very much and good luck.
Next question comes from Joseph Spak with RBC Capital Markets.
Thanks for hosting this call. I'm not sure if we're exactly able to line up customer A, B, C in this presentation with the one from January. But it does seem like there's a lot more iDM on that slide six now versus prior. So is the implication that's how sort of conversations have evolved, that they are moving more towards that iDM product? And then, as you sort of showed with the Mark E Award, iDM can take a number of different forms in terms of what Borg is actually providing. So can you give us some indication as to how many of these current iDM programs you expect to get all the components?
That list is a list of opportunities that we see. It is not intended to tell you that we will book it all. Those opportunities are going to be looked at individually. And depending on different elements, we will pursue or not pursue that opportunity as a system. And depending on what the customer wants, as you've seen on the Mark E, we're able to integrate a full system now with our own power electronics, with our own motor. But if customers want us to integrate system with some other elements, we can also do that. That's the flexibility that we can offer. So that's really exciting for us. This is something that is going to create a tremendous amount of value. And when the customers look at make or buy, we're certainly one of the few that they're going to talk to from a system buy perspective.
Okay, so I mean, I guess I'm just a little unclear. When you say a customer might be looking at motor plus inverter, those are obviously two key components of an iDM. So, what's the delineation there?
You're fading away, Joe. Can you repeat, please?
Yeah. Sorry. I'll follow up with that later. The second one's just a housekeeping question for Kevin. In January, you sort of talked about combined 4.5% pro forma outgrowth. I just want to make sure that's still the number. And then do you have any preliminary thoughts on a combined tax rate?
Yeah. On the outlook, I mean, we're currently in the middle of our long-range planning process, which includes an updated analysis of our near-term and long-term revenue outlook, both for BorgWarner. We're going through the same process for Delphi Technologies. As has been our practice the past few years, we'll give an update on our outlook expectations in the first quarter. We're prepared to talk about that today in the midst of that process. In terms of tax rates, if you look at BorgWarner, we've been operating in the mid to upper 20s, call it 26%-29% the last few years. We're really trending toward 29% this year, just given the mix of earnings, the way the market's played out in this COVID-19 environment.
If you look at where Delphi Technologies is on a standalone basis, just given their mix of earnings and their tax structure, they're right now trending in the mid-20s, call it 25 + % ish. So we think as the two companies come together, we're probably in this environment running in that 28%-29% zip code. And as you think about cash taxes, cash taxes tend to run a point, point and a half below that. So book tax, probably 28%-29%. Cash, probably a point and a half below that.
Thank you.
Next question comes from Dan Levy with Credit Suisse.
Hi. Good morning, and thank you for doing this call. A question first just on the portfolio side, so we know that you see particular value in certain parts of the portfolio. I think that's really underlying the rationale of the deal, power electronics, but also GDI and aftermarket. But in the time that you've had to review the Delphi portfolio, are there any parts of the portfolio that you'd say are non-core, and specifically, we know you're talking about growing your EV exposure, but we look here, there is this powertrain product portfolio they have that's roughly a quarter of their business.
It's pure combustion. That's stuff like powertrain sensors, ignition switches. I think this is stuff that's, I think, I don't know, people view maybe to be not fully value-add. It's certainly powertrain 1.0. How does this fit in your portfolio, or is this something that over time could be reviewed? So what's the process of portfolio review and portfolio pruning?
Yeah. Dan, we have a portfolio management process in BorgWarner pretty detailed and well-run. And we will continue to do that with the overall combined company portfolio. And so far, as we stand here today, I'm pretty happy with what we see. We're positioning ourselves to grow no matter how the market evolves. Now, we will go through that process of portfolio assessment and product assessment. But this is too early to conclude. And again, we have a process in place. We're doing it for our own products. And we're going to add the Delphi products into that machine.
Okay. And then just to clarify also on the portfolio side, I believe there was very little overlap between your portfolio and Delphi's, but I think Valvetrain was one. So as part of the deal, were there any even small pieces of the portfolio that were pruned away to make the regulators happy or everything is intact as it was pre-deal?
Everything intact.
Great. A second question, thank you, on restructuring. Delphi was running its own process. You have your own restructuring process going into the deal. How do we view restructuring going forward? Are these effectively two separate processes that are being run in parallel, or is the combination of the two either does it accelerate restructuring? Does it slow it down? And what's a reasonable expectation on the magnitude of cash restructuring charges here going forward?
Yeah. Dan, I'll take that one. It's Kevin. I bucket it into three categories. I mean, if you think about it, because BorgWarner announced the restructuring program back in February, which we said we expected would deliver $90 million-$100 million of annualized run rate savings, we're still on track for executing that program. As we talked about at the time, that program has an investment of about $270 million-$300 million over the next few years. We'd expect that about $100 million of that investment will have been completed in 2020. So it leaves over the next couple of years, probably $170 million-$200 million remaining, ballpark. That's kind of bucket one. Completely independent then is the Delphi restructuring program, which is what they refer to as Project Pioneer.
As you recall, that predominantly focuses on addressing some of their legacy R&D footprint associated with their combustion portfolio. I think they had previously announced they thought they'd be investing anywhere from $125 million-$175 million of cash to support that program. And I think what we see is they're coming in in line with those expectations. About $50 million of that cash cost will be incurred by the end of this calendar year. Most of it's already been incurred, which just leaves at the midpoint about $100 million to go of cash investment, which is predominantly 2021, with a little bit of a tail in 2022 as well. And then I would tell you there's a third bucket to keep in mind, which is costs associated with the integration, which are independent of those two restructuring programs.
These are the costs that help us ultimately achieve the $175 million of run rate synergies, 90% of which are in 2022. It involves both the cost of supporting the integration from a synergy perspective as well as some IT infrastructure spend. The cash costs associated with those programs are about $225 million. About $75 million of that happens this quarter. I mean, a lot of it happened at closing, and some of it happens shortly after the closing, which just means there's probably about $150 million left over the next couple of years. Those are kind of some of the big picture pieces of cash that we think help us deliver on the synergies and the long-term profitability of the combined organization.
But when you take a step back from that and say, "What does that all mean in the grand scheme of things?" I think the good news is with all that cash investment, we expect to deliver strong, positive, and increasing free cash flow in the coming years. And that's why we remain confident and committed to our billion-dollar repurchase program.
Great. Thank you very much. That's helpful, Kevin
Next question comes from Ryan Brinkman with JPMorgan.
Hi. Thanks for taking my questions. Firstly, what is the current view on normalized growth over market for the combined business? Has that thinking evolved any since the time of the announcement of the acquisition? Are you thinking any differently along the lines of revenue synergies similar to how you upgraded your outlook for cost synergies?
Yeah. As I mentioned earlier, we're currently in the middle of that long-range planning process right now, which is why we didn't give an update on that today. So as we look at our long-range, near-term, and longer-term outgrowth prospects, as well as the update of Delphi Technologies, we're in the middle of that process. We'll bring it together, and we'll talk more about that in the first quarter. I mean, sitting here today, nothing conceptually has changed in some dramatic magnitude that makes us think about the deal any differently. So we continue to expect to be a company that's going to deliver strong revenue outgrowth as we look ahead.
We just thought it was premature to provide a specific update on that until we get through our long-range planning process. And then keep in mind, the revenue synergy opportunities that Fréd spoke about are much longer term. They go out, they have starts of production in 2024 and 2025. So that's what we're really excited about because that has the opportunity to really bolster the long-term revenue outgrowth above even some of the numbers that we had talked about previously.
Okay. Thanks. Lastly, then, just to follow up on Romeo Power, I see that existing holders will own 67% of the post-money equity value of $1.3 billion. Is it as simple to say that you stand to benefit to the tune of 67% of $1.3 billion, or I'm not sure, maybe have subsequent capital raises diluted down to 20% somewhat?
I think it's fair to say the transaction that's currently structured there today anticipates that our ownership stake will get diluted from 20% down to something that's probably in, call it that 13-ish% range. And so we'll own 13% of a company that has potentially a much larger market capitalization. And so we potentially stand to benefit from that. And then on top of that, we still retain our ownership in the JV, the 60% ownership in the JV, and Romeo Power will own 40% of that entity.
Okay. Great to hear. Thank you.
Next question comes from Emmanuel Rosner with Deutsche Bank.
Hey, everyone. It's Edison for Emmanuel. I had a few questions. First, wanted to go back to the electrification powertrain trends. In the past, you've said that you've baked in about 50% insourcing. I want to see if that's still right for electric vehicles going forward, if that's still the right number. And also in terms of this 50%, is that by total volume? Is that by the number of automakers? And in terms of it, just feels like some of the OEMs planning to insource, I think GM heard rumblings from Daimler, they sort of have the highest outlook for EV volumes in the near term. And just how you're thinking about that.
So again, this varies by customer. It varies by component, the insourcing versus outsourcing. And again, within one customer, you see some that are going to be system going to be outsourced totally, some are going to be insourced, and some components are going to be bought or insourced. So there is not one size fits all. And it's pretty different across the different continents too. The 50% that we gave was a proxy that was focused on the motor itself. And we are still thinking that it is the right proxy for that particular component.
Okay. Great. And just a kind of follow-up question on the EV side. So there's obviously been a lot of buzz on the commercial vehicle electrification. Do you have any sense what kind of opportunity that might be for the combined entity going forward?
Yeah. And our position is to position ourselves from a system perspective and from a component perspective. And that applies in passenger car and in commercial vehicle and other segments too. So we see also, as you've mentioned, an acceleration of electrification in commercial vehicle. I'm pretty happy with what we are seeing from a booking rate standpoint in this field. There are a few things that we can't talk about. It requires customer approval, but pretty active in this field and pretty successful. It's always been a very important part of our business. It's also been a very important part of cross-fertilization of technologies across passenger car and commercial vehicle. We've done that in products that we've done in the past, and we're planning to do exactly that in the electrified products that we're launching also.
Next question comes from David Kelley with Jefferies.
Hey. Good morning, guys. Maybe just following up on one of the earlier power electronics discussions, I believe Delphi announced their second largest power electronics win, I believe, a record last month. It sounds like they're now the leading inverter supplier to the majority of premium global OEMs now. In your view, has the inverter TAM, let's say in the next five years, expanded given the upshift in EV interest you've discussed in the last few months? And then also just as a follow-up to that, you addressed the fact that there is more limited insource risk here. I guess from the supplier landscape, how competitive are inverters relative to, let's say, the balance of your product exposure?
First of all, we're seeing acceleration in the electrification of powertrain, both in EV and hybrids. Second, we're very pleased with the technology that we have seen and are seeing with Delphi from an inverter standpoint. We have done our own assessment for sure, but this is also confirmed by customers and key wins that have been announced. Finally, I think now that we have all those three elements of what I consider being the winning equation of mechanical plus motor and electronics and control under one roof, we're going to be able to work with full open books on making sure that we create a very unique iDM, if you want to take the iDM as an example. But as I mentioned before, it applies to a lot of other components than iDMs.
And I think that our technologies and product and at scale purchasing and manufacturing in the three continents is going to be very well received by our customers. And we're pretty confident that this is going to be a good joint development and a good open book collaboration between inverter, motor, and transmission. When you have all those components under that one roof, there is nothing that you can't share. There is nothing that you don't know. And it's when you know everything around those subcomponents that you can create a unique and very competitive system. If you don't have that under one roof, it's more difficult.
Okay. Got it. Appreciate that. And maybe just a quick housekeeping question, and maybe I missed this earlier, but I believe you were previously targeting more than $900 million in free cash flow in 2022 when you originally announced the transaction. Just curious as to how you're thinking about free cash flow timing now?
Yeah. I think from a free cash flow perspective, obviously the absolute level of free cash flow is tied directly to specific revenue expectations, and we're not providing those specific revenue expectations on this call today. But what I can tell you is with the cash investments we're making to drive the restructuring of both companies, to drive the integration of both companies and delivering the $175 million of synergies, what we think that adds up to is that even with that investment, that we're expecting to deliver strong, positive, and increasing free cash flow as we look ahead to the coming years.
All right. Great. Thank you.
We have time for one final question. And that question comes from the line of Mr. Richard Hilgert with Morningstar.
Thanks. Good morning, everyone, and thanks for doing the call.
Morning, Richard.
Yeah. Good morning. On a couple of questions. Given the increasing digitization in the industry and the software capabilities that BorgWarner has now acquired, in the coming years, we've got more over-the-air update potential happening in the industry. And I'm wondering, are control units that you're now gaining as part of your product portfolio something that could be updated over the air in the future? Is that a potential opportunity for BorgWarner revenue growth also in the future?
It's a good question. We see some potential, but it's not something that we've personally spent too much time on over the past four or five working days that we've closed on the transaction.
Okay. Great. And then my second question revolves around BorgWarner's discipline in ROIC per project being around a 15% number. Now that the invested capital structure has changed with Delphi coming in, the product portfolio has now been enhanced, and the kind of margins that you're talking about going forward, are there any changes around that thinking on the ROIC targets that you see going forward?
No. I mean, in fact, we've already rolled that out. We closed on the transaction last Thursday night, and we've already rolled out our delegation of authority and our appropriation request process, inclusive of the disciplines that we have around delivering 15% ROIC on projects as they come up from the business, and so that is a discipline that we will continue to drive through the organization going forward.
Okay. Great. Thanks.
Thank you.
With that, I'd like to thank you all for your great questions today. If you have any other follow-ups, feel free to reach out to me. Sharon, you can conclude the call.
That does conclude the BorgWarner Completes Acquisition of Delphi Technologies conference call. You may now disconnect.