Executive Summary / Key Takeaways

• Strategic Transformation Underway: Dana Incorporated is undergoing a significant strategic transformation, divesting its Off-Highway business for $2.7 billion to focus on core on-highway Light Vehicle and Commercial Vehicle markets, aiming for a more nimble and financially robust enterprise.
• Accelerated Cost Savings and Margin Expansion: The company is aggressively executing a $310 million cost reduction program, with $235 million expected to be realized in 2025. This, combined with operational efficiencies, is projected to drive a substantial 290 basis point margin improvement in continuing operations for 2025 and achieve double-digit EBITDA margins (10-10.5%) by 2026.
• Fortified Balance Sheet and Shareholder Returns: Proceeds from the Off-Highway sale will significantly reduce debt, targeting a conservative 1x net leverage ratio through the cycle. Dana has authorized $1 billion in capital returns, with $600 million planned for 2025 primarily through aggressive share repurchases, reflecting management's strong belief in the stock's undervaluation.
• Differentiated Technology and Market Positioning: Dana leverages its deep expertise in drive systems, electrodynamic technologies, and thermal/sealing solutions, particularly in high-content, full-frame light trucks and emerging hybrid applications. Its award-winning hybrid transmission and integrated energy-management solutions provide a competitive edge.
• Outlook and Execution Confidence: Despite market softness in North American Commercial Vehicle and some EV program adjustments, management expresses high confidence in achieving its 2025 guidance (sales of $7.4 billion, adjusted EBITDA of $590 million, adjusted free cash flow of $275 million for continuing operations) and 2026 margin targets, citing consistent execution and a strong backlog.

Setting the Scene: Dana's Core Business and Strategic Evolution

Dana Incorporated, with a history spanning over a century since its founding in 1904, stands as a global provider of high-technology power-conveyance and energy-management solutions. Headquartered in Maumee, Ohio, Dana has evolved from its roots, which notably included creating the Jeep for the U.S. government during World War II, into a critical supplier for major on-highway vehicle manufacturers worldwide. Its comprehensive portfolio encompasses drive systems (axles, driveshafts, transmissions), electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, fuel cell plates), sealing solutions, thermal-management technologies, and digital solutions.

The company's strategic direction is currently defined by a transformative pivot towards its core on-highway markets. This shift is highlighted by the definitive agreement in June 2025 to divest its Off-Highway business to Allison Transmission Holdings, Inc. for $2.7 billion. This divestiture is not merely a transaction; it is a strategic realignment designed to create a more focused and nimble Dana, dedicated to serving the Light Vehicle Systems and Commercial Vehicle Systems segments. This strategic focus is expected to streamline operations, enhance market approach, and ultimately drive superior financial performance.

Technological Edge and Innovation

Dana's competitive strength is deeply rooted in its differentiated technology, which spans across its core product lines. The company's expertise in drive systems, including axles, driveshafts, and transmissions, is foundational. These systems are critical for the performance and efficiency of light and commercial vehicles, particularly in high-content applications like rear-wheel drive, four-wheel drive, and all-wheel drive platforms.

A key differentiator lies in Dana's electrodynamic technologies. These include advanced motors, power inverters, sophisticated software and control systems, battery-management systems, and even fuel cell plates for electric vehicles. These offerings position Dana at the forefront of the evolving mobility landscape, providing integrated solutions for hybrid and electric powertrains. For example, Dana recently earned its 10th PACE Award for a hybrid transmission product. This niche technology, currently generating $25 million in sales, boasts a highly accretive EBITDA margin pushing 20% and is projected to grow significantly to $200-$300 million over the next few years. This demonstrates Dana's capability to develop and commercialize high-value, technologically advanced solutions.

Furthermore, Dana's sealing and thermal-management products are crucial for optimizing vehicle performance and sustainability. Sealing solutions, such as gaskets, seals, cam covers, and oil pan modules, ensure operational integrity. Thermal-management technologies, including transmission and engine oil cooling, battery and electronics cooling, and charge air cooling, are vital for maintaining optimal operating temperatures, especially in hybrid and electric vehicle applications. These integrated solutions offer customers enhanced efficiency, performance, and sustainability, contributing to Dana's competitive moat by providing comprehensive, high-performance packages. The strategic intent behind Dana's R&D is to be the technology partner of choice where it has existing ICE business, and to pursue new electric business only when 100% customer-funded, reflecting a disciplined approach to managing investment risk in a dynamic EV market.

Financial Performance and Operational Discipline

Dana's recent financial performance reflects a company in transition, demonstrating strong operational discipline amidst market headwinds. For the three months ended September 30, 2025, Dana reported net sales of $1,917 million from continuing operations, a modest increase from $1,897 million in the prior year period. Adjusted EBITDA from continuing operations saw a significant improvement, reaching $162 million, up $51 million year-over-year. This translated into an adjusted EBITDA margin of 8.5%, a substantial 260 basis point expansion compared to the third quarter of 2024. This margin expansion underscores the effectiveness of the company's cost-saving actions and operational efficiencies.

For the first nine months of 2025, net sales from continuing operations were $5,633 million, down from $5,960 million in the same period of 2024. Despite this top-line contraction, adjusted EBITDA from continuing operations increased to $445 million from $367 million, with the margin improving to 7.9% from 6.2%. Net income attributable to the parent company for the nine months ended September 30, 2025, was $135 million, a significant turnaround from $23 million in the prior year period.

The company's cost reduction initiatives are a major driver of this improved profitability. Dana is on track to deliver $310 million in annualized savings by 2026, with $235 million expected to be realized in 2025. These savings are broadly distributed across the cost structure, with a significant portion (70% of the $300 million target) stemming from headcount and engineering reductions, partly due to a recalibrated EV strategy.

Liquidity remains robust, with $414 million in cash and cash equivalents as of September 30, 2025. The company also had $765 million in availability under its Revolving Facility, bringing total liquidity to $1,179 million. Dana's adjusted free cash flow for the third quarter of 2025 was $101 million, a $109 million improvement year-over-year, driven by higher profitability and better working capital management. Capital expenditures are expected to be around 4% of sales, with a planned increase in automation investments, often with short paybacks.

Segment Performance and Market Dynamics

Dana's performance is segmented into Light Vehicle Systems and Commercial Vehicle Systems, with the Off-Highway business now classified as discontinued operations.

The Light Vehicle Systems segment reported net sales of $1,353 million in Q3 2025, up 5.3% year-over-year, and segment EBITDA of $126 million, a 53.7% increase, resulting in a 9.3% margin. This growth was primarily fueled by higher full-frame light-truck production volumes in North America, conversion of sales backlog, and favorable customer pricing and cost recovery actions. Key programs like Super Duty, Bronco, Wrangler, and Ranger continue to be strong contributors, with anticipated volume uplift and additional content for new variants.

Conversely, the Commercial Vehicle Systems segment faced headwinds, with net sales of $564 million in Q3 2025, down 7.8% year-over-year, and segment EBITDA of $51 million, up 13.3%, yielding a 9.0% margin. The market experienced deterioration in North America and Brazil, with Class 8 truck production in North America down 28% and Classes 5-7 down 23% in Q3 2025. Management anticipates a "fairly soft market" for commercial vehicles into mid-2026, with no immediate signs of a cyclical upturn. Despite this, Dana has gained market share with its "Big 3 customers" in North America, leveraging a cost-advantage model.

The Off-Highway business, soon to be divested, reported net sales of $625 million in Q3 2025, a slight increase from $619 million in Q3 2024. Net income from discontinued operations was $74 million, significantly higher than $32 million in the prior year, driven by improving global construction/mining and agricultural equipment markets in Europe and lower income tax expense, partially offset by divestiture-related costs.

Competitive Landscape and Strategic Positioning

Dana operates in a competitive landscape alongside major players like BorgWarner (BWA), American Axle & Manufacturing Holdings (AXL), Allison Transmission Holdings (ALSN), and Cummins (CMI). Dana's competitive advantages stem from its diversified portfolio, global operational footprint, and integrated solutions across drive systems, electrodynamic technologies, and thermal/sealing solutions.

Compared to BorgWarner, Dana's offerings in drivetrain and electrification are competitive, with a qualitative edge in integrated energy management solutions. While BorgWarner is often perceived as more advanced in certain innovative electrification technologies, Dana's broader segment coverage, including its historical strength in off-highway (prior to divestiture) and power technologies, offers greater operational resilience. Against American Axle, Dana differentiates through its wider segment coverage and integrated system approach, while AXL may hold an edge in streamlined, cost-effective manufacturing for high-volume driveline production.

Allison Transmission, a specialist in automatic transmissions, is now set to acquire Dana's Off-Highway business. Prior to the sale, Dana's off-highway and power technologies offered integrated energy management solutions. With Cummins, a leader in engines and power generation, Dana's specialized power technologies and integrated off-highway systems provide differentiation, particularly in hybrid markets and specific components like bipolar fuel cell plates.

Dana's strategic positioning emphasizes gaining market share through a cost-advantage model and re-footprinting efforts, particularly evident in its Commercial Vehicle segment. The company's focus on high-content light trucks and SUVs, coupled with its technological differentiators, allows it to command stronger pricing and maintain customer loyalty in these segments. The company's ability to recover tariff impacts from customers also demonstrates its strong negotiating position within the supply chain.

Outlook, Guidance, and Risk Assessment

Dana's outlook for 2025 and beyond reflects a clear trajectory towards enhanced profitability and financial strength. For continuing operations, the company expects sales of approximately $7.4 billion and adjusted EBITDA of $590 million at the midpoint of its tightened guidance ranges for 2025. Full-year adjusted free cash flow is anticipated at $275 million. These figures represent an increase in profit guidance, driven by accelerated cost savings and performance improvements, even as lower profit from discontinued operations offsets some of the overall company gain.

Management is highly confident in achieving double-digit EBITDA margins of 10% to 10.5% for the "New Dana" by 2026. This confidence is underpinned by the full annualization of the $310 million cost reduction program, the expected mitigation of stranded costs from the Off-Highway sale (with at least half of the $35-$40 million in stranded costs removed by the end of 2026, and full elimination by 2027), and continued operational performance improvements. Free cash flow is projected to reach 4% of sales in 2026, benefiting from lower cash taxes and interest post-divestiture.

Despite this optimistic outlook, Dana faces several risks. Volume softness in North American Commercial Vehicle markets and Brazil is expected to persist into mid-2026, with no immediate signs of recovery. The company has also experienced EV program cancellations and delays, impacting its backlog, though it is actively gaining share and winning incremental programs. The dynamic tariff environment, while deemed "manageable" with 100% recovery expected from customers, introduces complexity and potential timing lags in cash flow. Macroeconomic uncertainty and inflationary pressures on non-material costs also present ongoing challenges.

Conclusion

Dana Incorporated is executing a profound strategic transformation, shedding its Off-Highway business to sharpen its focus on the Light Vehicle and Commercial Vehicle markets. This pivot, coupled with aggressive cost reduction initiatives and a disciplined approach to EV investments, is poised to unlock significant shareholder value. The company's commitment to achieving double-digit EBITDA margins and robust free cash flow by 2026 is supported by strong operational execution, a growing backlog, and a clear roadmap for mitigating transitional costs.

Dana's long-standing technological leadership in drive systems, combined with its innovative electrodynamic and thermal management solutions, provides a strong competitive foundation. The strategic decision to prioritize core on-highway markets and optimize its cost structure positions Dana for sustainable profitability and growth. While market headwinds in certain commercial vehicle segments and the dynamic tariff landscape present challenges, management's demonstrated ability to deliver on commitments and its aggressive capital return strategy underscore a compelling investment thesis for a leaner, more focused, and financially resilient Dana.