Dana Inc. DAN lost $31 million in 2020. But a $700 million book of new business — half in electric powertrains — should drive profit margins higher even as spending rises.
The maker of drivelines for internal combustion engines and integrated electric powertrain systems points to several new contracts boosting its profit margin to 12% by 2023. They include an electrified powertrain for a medium-duty chassis for Freightliner Custom Chassis Corp. Production begins in the third quarter.
Maumee, Ohio-based Dana also won business for an e-axle, electric motor, inverter and gears for an unnamed European heavy-duty truck manufacturer. The truck with the e-propulsion system debuts in 2024.
"A lot of the wins in the medium-duty and now the heavy-duty space are coming through. And there's going to be some spending to bring those online," Chairman and CEO James Kamsickas told analysts on the company's Q4 earnings call Thursday.
Dana also serves the light-duty vehicle market. It making cooling plates for General Motors' Ultium batteries that are central to the automaker's plans to sell only electric vehicles by 2035. The company also is making the electric driveline for the Jeep Wrangler 4xe due this year.
Getting an early start
Dana invested about $400 million in recent years to buy companies that built a portfolio of electrification expertise. Today's run on such companies by special purpose acquisition companies (SPACs) may lead Wall Street to reward Dana's early-mover advantage with a greater valuation.
"Back when we rolled out the strategy in 2016, there were a lot of people that thought that maybe we had lost our mind. Frankly, I think we were closer to reality than most," Kamsickas said. "It should create really attractive returns for our shareholders because of when we bought into the electrodynamic components."
Competitor BorgWarner Inc. BWA is paying a 23% premium to acquire German commercial vehicle battery supplier AKASOL for $880 million.
Dana's goal is balancing drivelines for traditional engines and integrated electric powertrains. It is also offering thermal management products — sealing, insulation and cooling engine fluids — and reducing the temperature of battery packs and electric powertrains.
"As you talk to any electrification engineer at any [manufacturer], I'll guarantee you won't get past the second sentence [before] they are talking about the criticality of thermal management around the full e-propulsion system," Kamsickas said.
Meanwhile, the off-road and off-highway customers Dana serves will likely stay with diesel-powered engines. Carmakers promise a transition to zero-emission electric vehicles over the next 10 to 15 years.
"We can have two swimlanes at Dana because we have the full in-house capability," Kamsickas said. "I feel very comfortable if it's a 15-year transition or a seven-year transition or an 80-year transition" to electric vehicles.
Microchip famine
Dana is somewhat insulated from the impact of a shortage of semiconductors causing downtime at light-vehicle manufacturers, said Jonathan Collins, Dana executive vice president and chief financial officer.
"We are in the midst of a chip famine," he said. "It's affected us less because a lot of our programs are critically important to the customers. And they seem to be preserving those. We're watching those carefully. And we'll keep an eye out going forward."
By the numbers
Dana's Q4 sales of $2.11 billion beat the $1.99 billion in the same period of 2019. Most of the $121 million improvement came from reducing the sales backlog in light vehicles. Fourth-quarter net income was $40 million, or 24 cents per fully diluted share,. That's compared to $85 million, or 67 cents in the year-earlier period.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for Q4 was $192 million. EBITDA was $226 million in the October-December period in 2019.
Dana's 2020 full-year sales of $7.1 billion fell $1.5 billion because of the pandemic. The net loss for the year was $31 million, or 39 cents per fully diluted share. Adjusted EBITDA was $593 million, or 8.3% of sales.
Dana shares closed down 7.98% at $20.99 Thursday.
Related articles:
Dana builds electrification vertical for commercial vehicles
BorgWarner buying European battery maker AKASOL for $880M
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