Executive Summary / Key Takeaways

• Strategic Pivot for Value: Dana Incorporated is undergoing a profound transformation, divesting its Off-Highway business for $2.7 billion to focus on higher-margin Light Vehicle and Commercial Vehicle markets, aiming to unlock significant shareholder value and achieve a best-in-class balance sheet.
• Operational Excellence Driving Margins: Aggressive cost reduction initiatives, targeting a $310 million run rate by 2026, coupled with ongoing operational efficiencies, are propelling Dana towards double-digit Adjusted EBITDA margins (10-10.5%) for its continuing operations by 2026.
• Deleveraging and Shareholder Returns: Net proceeds from the Off-Highway sale will substantially reduce debt, targeting a net leverage of 0.7x expected EBITDA post-close, and fund an increased $600 million share repurchase program in 2025, signaling strong confidence in the company's intrinsic value.
• Differentiated Technology in Evolving Markets: Dana's advanced hybrid and electric vehicle technologies, exemplified by its PACE Award-winning modular hybrid 8-speed dual-clutch transmission, provide a competitive edge and high-margin growth opportunities, even with a refined, customer-funded EV investment strategy.
• Resilient Performance Amid Headwinds: Despite market softness in Commercial Vehicle and Off-Highway segments, and tariff-related challenges, Dana's continuing operations demonstrated robust Q2 2025 Adjusted EBITDA margin expansion of 210 basis points year-over-year, showcasing operational agility and effective cost management.

A Century of Evolution: Dana's Focused Future

Dana Incorporated, with a rich history spanning over 120 years, has long been a foundational player in the global automotive and industrial sectors. From its origins in 1904, the company established itself as a leader in highly engineered internal combustion engine (ICE) powertrain, sealing, and thermal management solutions. Today, Dana stands at a pivotal juncture, strategically reshaping its portfolio to become a more focused, agile, and higher-margin provider of power-conveyance and energy-management solutions for on-highway Light Vehicle (LV) and Commercial Vehicle (CV) markets. This transformation is driven by a clear vision: to unlock significant shareholder value through strategic divestitures, aggressive cost reductions, and a refined approach to electrification.

The company's strategic evolution is evident in its recent actions. In June 2025, Dana announced a definitive agreement to sell its Off-Highway business to Allison Transmission Holdings, Inc. (ALSN) for $2.732 billion, a transaction expected to yield approximately $2.4 billion in net cash proceeds and close in the fourth quarter of 2025. This divestiture represents a strategic shift, allowing Dana to concentrate on its core on-highway markets. Concurrently, Dana has streamlined its operational structure, integrating its former Power Technologies segment into its Light Vehicle Systems and Commercial Vehicle Systems segments, effective January 1, 2025. This realignment is not merely an organizational change but a move to enhance efficiency and leverage best practices across its focused business units.

Technological Edge in a Dynamic Landscape

Dana's competitive strength is significantly bolstered by its differentiated technology and innovation, which are central to its strategy in an evolving mobility landscape. The company's portfolio spans drive systems, electrodynamic technologies, sealing solutions, thermal-management technologies, and digital solutions. A prime example of its innovation is the Dana Graziano modular, high-performance, hybrid 8-speed dual-clutch transmission. This state-of-the-art platform, recognized with an Automotive News PACE Award, offers unparalleled power and torque density. It provides versatility, enabling vehicles to operate in ICE-only, pure EV, or various hybrid blended modes, allowing users to amplify efficiency and performance.

This technology is not just theoretical; it delivers tangible, quantifiable benefits. The hybrid 8-speed DCT, currently a niche product with approximately $25 million in sales this year, is projected to grow to $200-300 million over the next few years, boasting a "highly accretive EBITDA margin" that pushes 20%. This is exemplified by its use in high-performance vehicles like the 2024 Lamborghini Revuelto, which achieves over 1,000 horsepower and accelerates from 0 to 60 mph in 2.5 seconds, demonstrating how electrification can enhance performance while improving emissions.

Dana's approach to electric vehicle (EV) investment has also evolved. Recognizing the inherent risks and market volatility, Dana has refined its EV strategy to prioritize being a "partner's technology of choice" where existing ICE business relationships provide a strong foundation. For new electric business pursuits without an existing ICE footprint, Dana now requires 100% customer funding to mitigate capital risk. This disciplined approach has contributed to a "sizable piece" of the company's cost savings by optimizing engineering spend on next-generation programs, which are now aligned with more realistic market timelines. This strategic focus on high-value, de-risked technological development enhances Dana's competitive moat and supports its long-term growth strategy.

Strategic Transformation and Operational Excellence

The strategic divestiture of the Off-Highway business is a cornerstone of Dana's transformation. The sale to Allison Transmission (ALSN) for $2.732 billion, representing 7x the expected 2025 adjusted EBITDA of the Off-Highway business, is set to significantly reshape Dana's financial profile. Post-divestiture, Dana will become more North American-centric and have a higher proportion of its business in the Light Vehicle segment. This move is designed to create a more focused and nimble company, better positioned to capitalize on opportunities in its core on-highway markets. The company has also divested other non-core assets, including its 48% ownership interest in Axles India Limited for over $40 million in cash and its ownership interest in Switch Mobility Limited, further streamlining its portfolio. A previous attempt to sell its European hydraulics business in Q1 2024 fell through due to the buyer's financing, serving as a reminder of potential execution risks in divestitures.

Complementing the portfolio changes are aggressive cost reduction initiatives. Dana has committed to a $300 million cost reduction program, which has been increased to a $310 million run rate by 2026. By the end of Q2 2025, $110 million of these savings had already been realized. These savings are largely structural, with approximately 70% stemming from headcount reductions and engineering optimization, and an additional 10% from segment consolidation. Management is "highly, highly, highly confident" in achieving these targets, viewing them as "real structural cost changes" that will drive "enduring margin improvement." The integration of the former Power Technologies segment alone is expected to contribute $30-35 million to these savings.

Financial Performance and Outlook: A Path to Double-Digit Margins

Dana's recent financial performance reflects the early successes of its strategic transformation and operational discipline. For the second quarter of 2025, sales from continuing operations were $1.94 billion, a $112 million decrease year-over-year, primarily due to lower end-market demand. However, Adjusted EBITDA from continuing operations rose to $145 million, achieving a robust 7.5% profit margin—a significant 210 basis point improvement over the prior year. This margin expansion was driven by $52 million in incremental margins from cost reduction initiatives, $31 million from material cost savings, and $23 million from operational efficiencies, effectively offsetting lower sales and tariff impacts. Gross margin as a percentage of sales also improved by 140 basis points to 7.10%. Selling, general, and administrative (SGA) expenses decreased by $9 million in Q2 2025, a direct result of global headcount and cost reduction initiatives.

The Off-Highway business, reported as discontinued operations, saw net income decrease by $34 million in Q2 2025, primarily due to weaker global construction/mining and agricultural equipment markets, particularly in Europe, and $14 million in divestiture-related transaction costs. This highlights the rationale behind the divestiture, as this segment faced significant headwinds.

Looking ahead, Dana's full-year 2025 guidance for continuing operations projects sales of approximately $7.4 billion (midpoint), an increase of $250 million from previous expectations, driven by anticipated tariff recoveries and favorable currency translation, which will offset some softening in Commercial Vehicle markets. Adjusted EBITDA for continuing operations is expected to reach approximately $575 million (midpoint), a $35 million increase from prior guidance, reflecting the impact of cost savings and performance improvements. Adjusted Free Cash Flow is guided to approximately $275 million (midpoint), up $50 million, driven by higher profit and working capital efficiencies.

The company has a clear roadmap to achieve double-digit Adjusted EBITDA margins of 10-10.5% for its new Dana operations by 2026. This target is supported by the annualization of the $310 million cost savings program, an expected 60 basis points contribution from accretive new business backlog, and the planned elimination of at least 50% of the $40 million in "stranded costs" by the end of 2026, with full elimination by 2027. Management views this 2026 margin target as a "commitment" and a "tap in," expressing high confidence in its achievement. This improved profitability, coupled with lower cash taxes and interest post-divestiture, is expected to drive free cash flow to a 4% of sales range in 2026, significantly higher than 2025.

Strengthening the Balance Sheet and Shareholder Returns

Dana's financial flexibility is set to dramatically improve post-divestiture. The net cash proceeds from the Off-Highway sale will be primarily used to pay down debt, with management targeting a net debt leverage of approximately 0.7x expected EBITDA upon closing. This is a substantial reduction from previous levels and positions Dana with a "best-in-class balance sheet" in its sector, aiming for a conservative 1x net leverage target through the business cycle.

In conjunction with this deleveraging, Dana has increased its capital return authorization to $1 billion through 2027, with $600 million specifically earmarked for share repurchases in 2025. In Q2 2025 alone, Dana repurchased 14.61 million shares for $257 million, including a significant buyback from the Icahn Group. This aggressive share repurchase program, which is expected to reduce the share count to around 110 million by year-end (a 25% year-over-year reduction), underscores management's strong belief that Dana's shares are "extremely undervalued" given the company's future margin and cash flow potential.

Competitive Landscape and Strategic Positioning

Dana operates in a competitive landscape alongside major players like BorgWarner Inc. (BWA), American Axle & Manufacturing Holdings Inc. (AXL), Allison Transmission Holdings Inc. (ALSN), and Magna International Inc. (MGA). While Dana holds a competitive position, it has historically faced challenges in matching the profitability margins of some rivals. For instance, Dana's TTM Gross Profit Margin of 8.08% and EBITDA Margin of 4.92% are currently lower than those of BWA (19% Gross, 6% EBITDA), AXL (12% Gross, 7% EBITDA), ALSN (47% Gross, 31% EBITDA), and MGA (14% Gross, 8% EBITDA). The strategic transformation is explicitly designed to close this gap.

Dana's strengths lie in its diversification across Light Vehicle, Commercial Vehicle, and aftermarket segments, offering integrated solutions that leverage its long history and operational execution. Its proprietary technologies, such as the high-performance hybrid DCT and expertise in e-thermal management, provide a competitive edge by offering higher efficiency and potentially better margins in specialized applications. This contrasts with competitors like BWA, which may have an edge in certain advanced electrification technologies, or AXL, which focuses on cost-effective driveline solutions.

The divestiture of the Off-Highway business to ALSN, a former competitor in that segment, allows Dana to sharpen its focus and allocate resources more effectively to its core on-highway markets. This strategic move, combined with a disciplined EV investment approach that prioritizes customer co-funding, positions Dana to improve its competitive standing by concentrating on areas where it can achieve stronger risk-adjusted returns and leverage its integrated solutions. Dana's significantly reduced net debt leverage post-divestiture will also provide a strong financial foundation, enhancing its resilience against market fluctuations and supporting future strategic investments.

Risks and Challenges

Despite the compelling transformation, Dana faces several pertinent risks. The successful completion of the Off-Highway divestiture is subject to regulatory approvals and other customary conditions, and any delays or unforeseen developments could impact the anticipated benefits, as evidenced by the prior European hydraulics business sale falling through due to buyer financing.

The global market environment remains dynamic. While Light Vehicle schedules have shown stability, North American Commercial Vehicle markets are experiencing softness, with Class 8 truck orders "dropping fast" due to tariffs and general business uncertainty. The outlook for 2026 does not factor in any cyclical upturn in the Commercial Vehicle market, indicating a cautious stance. Tariffs, while deemed "manageable" with an expected 80%+ recovery for 2025, present a timing headwind, and their broader macroeconomic impact on end-vehicle demand remains a concern. Furthermore, Dana will incur approximately $40 million in "stranded costs" post-divestiture, though management is committed to eliminating these by 2027. Finally, the company's tax rate may experience volatility due to valuation allowances and shifts in the regional mix of profits.

Conclusion

Dana Incorporated is in the midst of a profound and deliberate transformation, shedding its Off-Highway segment to forge a more focused, financially robust, and higher-margin enterprise centered on Light Vehicle and Commercial Vehicle markets. This strategic pivot, underpinned by aggressive cost reduction initiatives and a disciplined approach to technological innovation, is designed to unlock significant shareholder value. The path to double-digit Adjusted EBITDA margins by 2026, coupled with a substantially deleveraged balance sheet and a commitment to increased shareholder returns through share repurchases, presents a compelling investment thesis.

While market headwinds and tariff uncertainties persist, Dana's operational agility and proven ability to expand margins amidst challenging conditions demonstrate its resilience. The company's differentiated technology, particularly in hybrid and e-thermal solutions, provides a strong competitive foundation for profitable growth in its core markets. Investors should recognize Dana's ongoing transformation as a strategic re-rating event, positioning the company for enhanced profitability and sustained value creation in the evolving mobility landscape.