Executive Summary / Key Takeaways

• Dana is executing a radical transformation through the $2.7 billion sale of its Off-Highway business to Allison Transmission , which will create a more focused on-highway supplier while unlocking $2.4 billion in net proceeds for debt reduction and shareholder returns.

• Aggressive cost reduction initiatives targeting $310 million in annual savings are driving meaningful margin expansion, with adjusted EBITDA margins expanding 260 basis points to 8.5% in Q3 2025 despite revenue headwinds in key end markets.

• A strategic pivot to integrated ICE-EV business models—requiring 100% customer funding for new EV programs without existing ICE business—derisks capital allocation while positioning Dana to capture hybrid growth as pure EV adoption delays persist.

• The Commercial Vehicle segment faces severe cyclical deterioration, with North America Class 8 production down 28% in Q3 and management seeing no "green shoots" through mid-2026, creating a critical execution test for the new leaner cost structure.

• Trading at 0.70x enterprise value to revenue and 6.98x EBITDA, management views the stock as "significantly undervalued," a conviction reflected in $251 million of share repurchases in Q3 and a $600 million capital return plan for 2025.

Setting the Scene: The Making of "New Dana"

Dana Incorporated, founded in 1904 and headquartered in Maumee, Ohio, has evolved from its origins as a pioneer of four-wheel-drive systems into a global provider of high-technology driveline solutions. The company has long supplied axles, driveshafts, and transmissions to the automotive industry, but recent strategic moves signal a fundamental repositioning. In June 2025, Dana announced the definitive agreement to sell its Off-Highway business to Allison Transmission for $2.732 billion, a transaction expected to close in Q4 2025 that will reshape the company's identity.

This divestiture represents more than asset pruning—it is the cornerstone of a strategy to become a more focused, nimble supplier to light- and commercial-vehicle markets. The Off-Highway business, which generated $1.888 billion in sales during the first nine months of 2025, had been a significant but cyclically volatile contributor. By shedding this exposure to construction, mining, and agricultural equipment, Dana is narrowing its focus to on-highway applications where it believes its technology and cost structure offer superior returns. The move also addresses a balance sheet that has carried elevated leverage, with debt-to-equity at 2.64x as of the latest reporting period.

The timing reflects management's recognition that the automotive supply chain is entering a period of profound uncertainty. EV adoption has delayed beyond initial forecasts, tariff policies have created market volatility, and key end markets—particularly commercial vehicles—are experiencing severe cyclical downturns. Rather than attempting to navigate these headwinds across a diversified portfolio, Dana is doubling down on its core competencies while simultaneously engineering one of the most aggressive cost reduction programs in the sector.

Technology, Products, and Strategic Differentiation

Dana's product portfolio spans driveline axles, driveshafts, transmissions, sealing and thermal-management solutions, and increasingly, electrodynamic technologies for electrified vehicles. What distinguishes the company's approach is its strategic pivot toward integrated ICE-EV business models. Effective January 1, 2025, Dana realigned its operating segments, integrating the former Power Technologies segment into Light Vehicle Systems and Commercial Vehicle Systems. This consolidation streamlines operations and enhances the go-to-market approach, eliminating duplicative overhead while creating a unified customer interface.

The most significant strategic shift involves Dana's revised EV investment criteria. The company now requires 100% customer funding for new EV pursuits where it lacks existing ICE business, a dramatic derisking of capital allocation. This addresses the core vulnerability that has plagued automotive suppliers: investing billions in EV programs that generate minimal returns as adoption stalls. By insisting on customer funding, Dana ensures it does not bear the risk of OEMs' electrification bets while maintaining the flexibility to invest where it has established relationships and clear pathways to profitability. This approach reduces the capex intensity of the business while preserving optionality for hybrid solutions that bridge the ICE-EV transition.

The company's 10th PACE Award for a hybrid transmission product exemplifies this strategy. This niche product generates approximately $25 million in sales but carries a highly accretive 20% EBITDA margin. Management sees a path to grow this business to $200-300 million over the next few years, representing a high-margin opportunity that leverages Dana's core competencies without requiring speculative EV investments. The hybrid transmission serves premium automotive brands like Aston Martin and McLaren, demonstrating that Dana can command pricing power in segments where performance matters more than cost.

In its core ICE plants, Dana plans to redeploy capital from deferred EV investments to increase automation. Management notes these facilities are "well below what you would see at other well-capitalized suppliers," representing a substantial opportunity for efficiency gains with relatively short payback periods. This shows the company is not simply cutting costs but actively improving the structural cost position of its remaining operations, creating durable margin expansion potential beyond temporary savings.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Dana's Q3 2025 results provide clear evidence that the cost reduction program is delivering tangible results. Sales from continuing operations were $1.917 billion, essentially flat year-over-year, yet adjusted EBITDA surged 51% to $162 million, expanding margins by 260 basis points to 8.5%. This margin expansion occurred despite a $50 million tariff headwind and $32 million in non-material inflation, demonstrating the structural nature of the cost savings. The company realized $73 million in cost savings during the quarter, bringing the year-to-date total to $310 million and putting it on track to achieve the full $310 million run-rate target by 2026.

The Light Vehicle segment is performing as the stabilizing anchor. Net sales increased 5.3% to $1.353 billion in Q3, driven by higher North America full-frame light-truck production volumes (up 6%), customer pricing actions, and sales backlog conversion. Segment EBITDA margins expanded dramatically from 6.4% to 9.3%, a 290 basis point improvement that reflects both volume leverage and cost reduction. This performance is particularly noteworthy given the five-week downtime at JLR during the quarter and lower EV product orders in Europe and Asia Pacific. The segment's ability to grow margins despite these headwinds validates management's focus on truck and SUV segments, which benefit from stable demand and higher content per vehicle.

In stark contrast, the Commercial Vehicle segment reflects the industry's cyclical trough. Net sales declined 7.8% to $564 million in Q3, with North America Class 8 production down 28% and Classes 5-7 down 23%. Management's commentary is unambiguous: "We're not seeing any light at the end of the tunnel... I don't see any green shoots that would suggest it's going to turn around." The segment is running at a 200,000 unit annualized rate, historically depressed levels that management expects to persist through mid-2026. Despite this volume collapse, segment EBITDA margins actually improved from 7.4% to 9.0%, a remarkable achievement driven by $17 million in cost reduction initiatives and $11 million in pricing actions. This demonstrates the resilience of Dana's cost advantage model, which is gaining market share even as the market deteriorates.

The balance sheet is strengthening ahead of the Off-Highway sale. Total liquidity stands at $1.179 billion, with $414 million in cash and $765 million available under the revolving facility. The company amended its credit agreement in July to add a $250 million Term A Facility, which matures upon completion of the Off-Highway sale. This provides bridge financing while ensuring the company remains compliant with its 2:1 first lien net leverage covenant. The planned debt reduction of "a couple of billion dollars" from the sale proceeds will transform the capital structure, targeting net leverage of approximately 0.7x expected EBITDA by year-end.

Outlook, Management Guidance, and Execution Risk

Management has tightened its 2025 guidance for the continuing operations, now expecting approximately $7.4 billion in sales, $590 million in adjusted EBITDA (midpoint), and $275 million in adjusted free cash flow. The EBITDA guidance was raised by $15 million at the midpoint, driven by accelerated cost savings and quicker-than-expected tariff recovery. This demonstrates that management's confidence in the transformation is increasing as execution delivers tangible results.

For 2026, Dana is committed to achieving 10-10.5% EBITDA margins for the "New Dana"—the on-highway focused entity that will emerge post-divestiture. Management does not view this as a stretch target but as a baseline, with Bruce McDonald stating, "I don't see 10% or 10.5% as being our high watermark. I believe we've got opportunity to continue to grow it fairly significantly over the next couple of years." This confidence stems from the full annualization of $310 million in cost savings, contributions from new business backlog, elimination of stranded costs, and ongoing operational improvements.

The Q4 2025 outlook suggests margin performance will accelerate. Management expects Q4 margins to be "in top or even slightly on top of" the 2026 target range, driven by continued cost savings flow-through, improving mix, and the tail end of restructuring actions that created headwinds in Q3. This provides a "springboard into 2026," suggesting the company will enter the new year already operating at its target profitability levels.

However, execution risks remain material. The Commercial Vehicle market shows no signs of recovery, with order books running down and no pre-buy activity ahead of 2026 emissions legislation changes. While Dana's cost structure can maintain profitability at current depressed volumes, any further deterioration would test the limits of the cost reduction program. Additionally, the company experienced EV program cancellations in Q3 that resulted in $10 million in charges, though management expects recovery in Q4. This highlights the ongoing uncertainty in electrification timelines and the risk of customer-funded programs being delayed or canceled.

Risks and Asymmetries: What Could Break the Thesis

The Off-Highway divestiture, while strategically sound, carries execution risk. The transaction is subject to regulatory approvals, with one minor European country still pending. Management expects closure in Q4 2025, but any delay could impact the timing of debt reduction and capital returns. More importantly, if the sale fails to close, Dana would be left with a cyclically exposed business that management has already mentally divested, potentially requiring a strategic pivot at an inopportune time.

Commercial Vehicle market deterioration represents the most immediate threat to financial performance. While Dana has demonstrated remarkable margin resilience, a prolonged downturn through 2026 could overwhelm cost savings. Management's guidance assumes the market remains at historically depressed levels but does not anticipate significant further deterioration. If industry production falls below the current 200,000 unit run rate, decremental margins would pressure EBITDA and test the 10% margin target for 2026.

The tariff environment, while currently manageable, creates uncertainty. Dana incurred $50 million in tariff costs in Q3 but expects full recovery through customer pricing mechanisms. However, the lag between cost incurrence and recovery creates working capital pressure, and any change in trade policy could disrupt these arrangements. The company's exposure is mitigated by its North American manufacturing footprint and customer base weighted toward Detroit 3 OEMs, but remains a source of volatility.

EV program cancellations highlight the risk of customer concentration and technology transition uncertainty. While Dana's new funding requirements protect capital, they also limit growth upside if EV adoption accelerates. The company is essentially betting that hybrid solutions will dominate the transition period, a strategy that may prove correct but could leave Dana behind if pure EV architectures achieve rapid scale.

Competitive Context: Positioning in a Consolidating Supply Base

Dana's competitive positioning varies significantly by segment. In Light Vehicle, it competes with American Axle & Manufacturing and BorgWarner . AXL reported Q3 2025 driveline EBITDA margins of 14.9%, substantially higher than Dana's 9.3% Light Vehicle margin, reflecting AXL's more focused portfolio and stronger position in North American light trucks. However, Dana's integrated approach to sealing and thermal management provides content expansion opportunities that AXL lacks, particularly as OEMs seek single-source solutions for complex thermal challenges in electrified architectures.

BorgWarner presents a different competitive dynamic. With $3.6 billion in Q3 revenue and 6.9% operating margins, BWA is larger and more deeply invested in pure EV technologies. Dana's pivot to integrated ICE-EV business models contrasts sharply with BWA's broader electrification push. This reduces Dana's R&D burden and capital risk while positioning the company to capture hybrid growth—a segment where BWA's pure-EV focus may leave gaps. Dana's hybrid transmission PACE Award product, with its 20% EBITDA margin, exemplifies this differentiated approach.

In Commercial Vehicle, Dana's cost advantage model is gaining share despite market deterioration. Management explicitly states, "our business has gained share... we have a cost advantage model right now, and we are picking up share at our Big 3 customers." This is occurring while Allison Transmission (ALSN), the acquirer of Dana's Off-Highway business, reported Q3 revenue of $693 million with net margins of 19.8%—far superior to Dana's overall profitability. Post-acquisition, Allison will become a more formidable competitor in off-highway applications, but Dana's exit from that market eliminates direct exposure.

The broader industry trend toward supply base consolidation favors Dana's scale and integrated capabilities. As OEMs reduce supplier complexity, companies that can provide complete driveline and thermal management solutions gain bargaining power. Dana's realigned segment structure positions it to capture this trend, though execution will determine whether it can convert structural advantages into superior returns.

Valuation Context: Positioning for the Transformation

At $21.91 per share, Dana trades at a market capitalization of $2.87 billion and an enterprise value of $5.99 billion. The stock trades at 0.70x enterprise value to revenue and 6.98x EBITDA, multiples that reflect the market's skepticism about the company's ability to achieve its transformation targets. For context, BorgWarner (BWA) trades at 0.80x EV/Revenue and 5.86x EV/EBITDA, while American Axle & Manufacturing (AXL) trades at 0.48x EV/Revenue and 3.91x EV/EBITDA. Dana's multiples sit in the middle of this range, suggesting the market has not fully priced in the margin expansion potential.

Management's conviction in the stock's undervaluation is evident in its capital allocation. The company repurchased 9.5 million shares for $187 million in Q3 and an additional 14.29 million shares for $251 million from the Icahn Group in June. With $556 million remaining on its $1 billion repurchase authorization and a commitment to return $600 million to shareholders in 2025, Dana is deploying the Off-Highway proceeds aggressively. This signals that insiders believe the market is mispricing the earnings power of the transformed business.

The company's balance sheet metrics provide additional context. Debt-to-equity of 2.64x is elevated but will be dramatically reduced post-divestiture. The current ratio of 1.31x and quick ratio of 0.57x indicate adequate near-term liquidity, while the 1.78% dividend yield provides income while investors await the transformation's completion. Return on equity of 5.31% and return on assets of 3.40% are depressed but should improve as cost savings flow through and debt is reduced.

Conclusion: A Transformation at an Inflection Point

Dana Incorporated stands at a critical inflection point where strategic divestiture, aggressive cost reduction, and disciplined capital allocation are converging to create a fundamentally different company. The $2.7 billion Off-Highway sale will transform the balance sheet, enabling debt reduction and substantial shareholder returns while focusing the business on higher-return on-highway markets. The $310 million cost reduction program is already delivering results, with Q3 margins expanding 260 basis points despite severe Commercial Vehicle headwinds.

The central thesis hinges on whether Dana can achieve its 10-10.5% EBITDA margin target in 2026 while navigating a prolonged Commercial Vehicle downturn. Management's confidence is evident in its guidance raises and aggressive share repurchases, but execution risks remain material. The strategic pivot to integrated ICE-EV business models derisks capital allocation while positioning the company for hybrid growth, but may limit upside if pure EV adoption accelerates.

For investors, the key variables to monitor are the timing and completion of the Off-Highway divestiture, the trajectory of Commercial Vehicle production, and the pace of cost savings realization. If Dana executes on its plan, the current valuation multiples appear to understate the earnings power of the transformed business. However, any slippage in execution or further market deterioration could pressure margins and test the market's patience. The next twelve months will determine whether "New Dana" delivers on its promise of becoming a best-in-class, focused supplier with superior returns.