Dana Incorporated (DAN) Earnings Call Transcript & Summary

I'm Ryan Brinkman, the U.S. autos analyst at JPMorgan. Very excited to get going with Dana, including Jim Kamsickas, Chairman and Chief Executive Officer; and Timothy Kraus, Senior Vice President and Chief Financial Officer. I'm going to turn it over to Jim. I think he's got some slides, and then we'll have a chat.

Thanks for having us. Privilege of your time. We'll jump right into the presentation. Background, I'm pretty sure most of you know, Dana, a little bit, 120 years this year, marks 120, pretty proud of that. We believe iconic global mobility supplier, of course, across all end markets. Anything that moves, we support and we supply. So 1904, $10.2 billion, 42,000 people, 88 major manufacturing facilities around the world, so on and so forth. And you can see the kind of locations on the map. Just some background, all these should look relatively familiar to you if you're following Dana. These are right out of previous either earnings presentations or other presentations, of examples. I think we're starting to run out of drapes. We wish we could tell you more of the vehicles that the -- especially on the electrification side that are coming through the pipeline that we're designing, engineering and about to manufacture over the next years, but we're not going to gun jump our customers, of course, so we don't do that. But probably the second most important thing you should take away from this is the proliferation of the products and the way we designed the company in this transformation in 2016, we're all in. I think as you're well aware, when we did our enterprise strategy, refreshed it in '18 and retained the courage throughout the per se COVID era 2020 to 2022. And to make sure that we were completely energy source-agnostic, new energy, whatever it may be, hydrogen fuel cell, electrification via battery, internal combustion engine, it doesn't matter, represented down here, you can see the various markets. If you take the school bus is a good representative example where there -- in no uncertain terms, strong electrification. You can expect school buses, big picture to be around electrified around 75% by the end of the decade. It's just for all the right reasons. Again, taking it as an example, the use case relative to recharging throughout the course of the day, taking the emissions away from the school bus stops, et cetera, et cetera. So we're in a really strong position. And for us, it's all about. I'd like to say sometimes we don't sell parts, we sell capacity. And the way we've designed the company, we flex that capacity across the various end markets across the various products, because at the end of the day, there's still motors and burners, gearbox and then Thermal Management that surrounds the overall e-Propulsion system itself. That's a good straight [indiscernible] into the kind of some architecture of how to think about any propulsion system. These are very generic general way of thinking about it. In the upper left-hand corner, you can see some motors. Those are kind of sort of stand-alone motors. We also designed the motors where you have the enclosure actually integrated with the axle itself. I'm not going to belabor that issue. But when you think about electrification, big picture, think about it, low-voltage applications and high-voltage applications, that goes as well for the inverter side of the business, which is also in-house. And then if you continue on, you will see on the page that besides that, we also do the controllers and software, which brings it all together is a 4-in-1 system. What again is the fourth piece of the system, it's Thermal Management piece of the business. When thinking about how are we going to transform the company, how are we going to ensure that for -- after the first 20 years, what's the next 120 years look like? We took those extremely talented people in our Power Technologies group that had done ceiling, thermal management for the traditional diesel or internal combustion and engineered products, and said to ourselves, these are exactly the skill sets that you need to do battery cooling, electronics cooling, and arguably -- I wouldn't even say arguably, much more important is the actual thermal management, the system of an e-Axle or an e-Propulsion system. Very critical as it relates to vehicle capability, torque, payload, battery utilization, et cetera, et cetera. So the plan is coming together as the markets are pulling forward, and that's probably a good street of mind for this, which is sort of the, per se, breaking news coming out of our I guess it was April earnings -- or excuse me, July earnings presentation. There's a lot of questions early on. What would happen with e-axles? Will they be independent? Will they be rigid? Will they be in-source? Will they be outsource? We had strong conviction then and we have strong conviction now, and it's not about conviction anymore. The story has been told. You don't need to go get consultants to figure it out anymore. Trust me when we say, you can't make this stuff up, we're not going to come in front of an audience and say we're going to be on future generation pickup truck programs in North America with e-Propulsion systems. In this example, I can't -- again, I can't give you the customer, and I can't give you the specific products and systems on it other than to say of the 4 in 1 system that I just spoke to you about. At least 3 of the 4 will be on this system, and they're always different no matter which application we're using. And again, I'm going to remind you that we may be doing 3 to 4 in 1 systems anywhere from golf carts and stand up lawnmowers all the way to high-end electrified construction equipment, such as front-end load or so on and so forth. So we scale it, scale it not only on the equipment, but also on the human capital. And an update, I guess, this -- we presented this. We said we were going to -- we presented it at the ACT conference out in Anaheim in May, and it's kind of just filling out the full suite of what we believe we need to have be successful. And by successful, I define that as having all of the capabilities, depending on the use case, depending on the end market for all of the mobility markets, which we support. This is the last piece of it. It's the e-transmission or the transmission portion in the Commercial Vehicle segment. As we've talked about in the past, we are not a passenger car supplier. We're not in the Class A, B, C, whatever. We never have been other than some of our Power Technologies products, but we are in the super sports car business for a lot of good reasons. That's Aston Martin, Lamborghini, so on and so forth. You can see that on the upper right-hand side of the slide. Obviously, a big transmission supplier, and therefore, you are a transmission supplier in off-highway, adding to the kind of portfolio of products is the last piece of it. We did that because we were able to scale the technology, scale the people, scale the components, scale everything across and that puts us in a position to have an application that fits really well in the Commercial Vehicle segment when it's not going to be a rigid e-axle application. Backlog. Just again, just to remind you what we -- I guess, we communicated to you in February. I guess, without going through the whole page, you can see the actual -- it's the table sort of tilted per se. 65% of the backlog now is in electrification. It's just where the market is going. When you think about what we call the RFIs and then turn into RFQs, so on and so forth, that is our business. That is what our engineers are working on. That is what people are doing. The internal combustion engine, diesel engine will be here for years to come, decades to come, but there's going to be a balance. And we're in a position to be able to balance that very, very well. The other thing that could be a question for anybody in an audience could be, well, what's the confidence in this backlog. I'm not sure you're going to find a company that could probably stand up and say, I think proof is in the pudding more than Dana. As you may know, $5.8 billion of sales in 2016, we're now guiding to 10.7%. That's an 85% increase in growth over the course of 7 years. That's not a victory lap. It's a fact. It's about customer satisfaction about having the right product technology and it's about being able to launch and execute accordingly, which we've had some great launches again this year and a year of a record high 120 new program launches across Dana Incorporated. Just some real quick information on the operating environment. You know this as well as I do. Big picture on the commodities and currency and the commodities, obviously -- steel has came down compared to last year, just not quite as fast or as much as we thought it would. So there's a little bit of headwind there compared to what we expected. Overall inflation and operational costs, but fortunately, and they've done a really nice job. Our customers continue to get a little bit better and a little bit more stable every day, not just for what they can control, but what can others can control the balance of their supply base, whatever their other challenges are. You can see that, I'm sure, in some of the other people that I have spoke today and yesterday. But just you can see it in the numbers, it does matter in terms of running a complex manufacturing company. But things are headed in the right direction, good line of sight there. And then, of course, over on the market demand in new business. I would say the best word for it across all of our markets is steady state. Steady state would be a good number. I don't see any really crazy green shoots that volume are going to go dramatically higher, but I also don't see any line of sight that there's going to be some significant pullback for one reason or the other. At least not, as you guys all know -- all of you know is that we look at our material leases and customer forecast, et cetera. And so we got a pretty good city state for some period of time in front of us. And then last but not least, just sort of an outlook. As Tim took you through in the earnings call, I guess, it was in July, is just that we've -- we've raised guidance for our midpoint up to $10.7 billion. That's obviously a $545 million increase over the prior year. Feel good about that. You can see why in the bottom left, some of the drivers, not just for the short term, but the long term. We look at EV products, we're about $700 million of sales this year in EV products. We raised our guidance from $800 million to $850 million. As you recall, we were $700 million in EBITDA last year. So that's a 20%. If we land on $850 million, that's about a 20% increase over the last -- over the prior year. We also raised the midpoint for free cash flow and moved it from $25 million to $75 million obviously, for all the reasons, not only the profitability but also the efforts that we're putting for on working capital. On the upper right-hand side, you can see some of the other industry trends. There are certainly some inflation concerns and order pattern. But I think we're navigating those quite well. And then profit and free cash flow, everything that we've already talked about. So with that, I purposely made it quick. I hope that was okay. And I guess I'll move back to the table. If that's okay, Ryan.

Absolutely. Thanks for the overview. I heard your comment on stable end markets. That was my first question, so thank you for that. Next question I wanted to tell a little bit more into the supply side. I did catch the late 2Q improvement comment. Maybe just to follow up on that. What do you think is driving the improvement? And then also here we are in the middle of '23, where do you think we stand relative to the semiconductor chip shortage, port delays, labor availability or any of the other various different supply chain bottlenecks that had previously impacted the level and stability of customer production?

Well, there's a lot on impact rate there. I pretty much just told you the story of the COVID right, 2020 to 2022. From our standpoint, there's -- the Microchip issue isn't completely gone, but it's nowhere close to what it once was. And overall, labor stability, overall supply stability, much, much better. You obviously see that now as you cascade that into customers' ability to run more consistently putting what we call releases in the business schedules, whatever you want to call it, predictable. So you're not sort of guessing at it by the day at some times. Over the last couple of years, it was almost by the day, is to what were we going to produce and that creates, needless to say, an incredible amount of operational waste and other factors. So big picture, we see a lot of stability, nothing is perfect. I'd say it's a little bit different, by not only end market, light vehicle, commercial vehicle, off-highway markets, but also by customer and also by geographical reasons. But I hope I don't get redundant getting to this point, but I would tell you, in my view, 2020 to 2022 is the best thing that ever happened for a manufacturing company, one silver lining to it. Because if you were ever curious as to where your opportunities were to improve your operations, your systems, your controls, so on and so forth, that was it. So we navigate much better in the world, take your example, Ryan, sea container management, et cetera, et cetera. Just stable. It just kind of did it saying, no, I think we're all getting better at it.

Great. Next, I wanted to ask on the backdrop for operating margin for suppliers, generally, EBITDA margin for the 12 suppliers we cover averaged 11% last year maybe it will be 12% this year, but it was more like 13% or 14% before the pandemic. So considering all the various different industry and macro factors that roll up into the backdrop for supplier margin such as the aforementioned level and stability of customer production, the timing of commodity and non-commodity inflation and related recoveries. Also, they needed spending on R&D to support industry change ahead of the revenue. . I mean where do you think we are on the path back to what was a normal type backdrop for industry margin? Or are we headed to a new normal where you have structurally higher input costs even if fully reimbursed would result in lower optical margin even if the same EBITDA dollars, thus suggesting maybe we should look at return on invested capital or another performance metric?

Yes. Ryan, I think the -- your last comment, I think, is where at least for the foreseeable future, the industry is going to be, even in situations where we're recovering every single dollar of the inflationary costs that are impacting the business, they're going to result lower mathematical percentage margin. So I think that persists for quite a while. Your point, the place where we're really concentrating is making sure we're getting program economics to where they were or better than they were prior to the pandemic. And that's really the focus because I think that's where you see the value being driven into the business and for the shareholder. To talk a little bit about a couple of your other points, we're continuing -- I can't speak for the industry as a whole, but we're continuing to invest sizable amounts in our EV build-out. This is not just engineering, but you have to think about it in terms of building an entire business from the ground up. So program management, purchasing, all the things that go into building what we believe will be a $3-plus billion business by the end of the decade. Really does come with a lot of upfront investment, both in capital and in OpEx. As you probably saw in our second quarter, the business -- the EV business on a contribution margin basis is profitable. You saw that both first and second quarter, a little bit of profit peaking through due to some timing of when the spend came in and whatnot. Now for the full year, we still expect the incremental business to be at a loss of about $20 million. And as the business grows and some of the core investments start to level off or at least the growth in that investment level off, we think by 2025, the business is breakeven and then after that, a contributor to profit. So longer term, we think we're on a good path to getting the -- our overall margins back to double digits. And obviously, the performance in the business this year, it makes us even more confident in our ability to deliver that.

Great. And how are you thinking about the upcoming UAW negotiations? Is there anything you can do to help mitigate the risk around that? I mean maybe there's not a ton, and then also, I mean, right up about half of your business not impacted, right? But how do you go about thinking or how do investors understand that the percentage of your revenues that could be exposed?

I'll take the first thing. Thanks for the question, Ryan. I'm going to have to reinforce the fact that Dana, that wasn't by accident. It wasn't by happenstance. There were a lot of people that asked a question early on in my days at Dana about by being in end markets and all that other stuff, exactly 1 proof point as to why there's a value-add in doing that. So we're pretty well split between 50% light, 50% heavy-duty business. And then even in the light vehicle business, and that includes both Power Tech and Light Vehicle. I mean obviously, there's only a percentage of that that's going to be in the United States of America that could be impacted this. So we still have plenty of operations supporting Light Vehicle in South Africa and Argentina and Thailand, and so on and so forth. So it's going to be something significantly less than maybe a pure play. And then relative to how you manage the business, if somebody is talking about a playbook, it's kind of ridiculous because if you don't have a playbook on a flex cost, you shouldn't be in the business in the first place. We've all lived through this many times. I hate to bring it up. We all lived it in COVID, we lived through different other issues over our collective careers to how to flex labor quickly. And then so we'll flex labor. We'll flex other overhead costs the best we can. But again, a good chunk of our business is still going to operate as is. Tim?

No, I think that's pretty much it, right? Obviously, we tend to deliver axles, products just in time, there's really no opportunity from our perspective to prebuild. So we'll have to continue to monitor the situation, and we'll react as Jim mentioned, based on the playbook that's pretty tried and true, and we'll take the costs out that are certainly direct and will continue to work. Some of it depends on what's the overall backdrop? Do you think it's going to be prolonged or relatively brief. So we'll continue to monitor the situation, and we'll react accordingly.

And I wanted to ask about what you're calling now 4-in-1 systems. Others might call 3-in-1 systems. I think some of the others who have the thermal capabilities call them 3-in-1, you called them 4-in-1. On the other hand, there are people in this market who don't have the thermal capabilities. So there is clearly some distinction there. And I was just curious the extent to which your ability to thermal regulate the power electronics, et cetera, helps you sell the power electronics. To what extent is just selling the power electronics bring along the Power Technology, Thermal Management and there's some sort of revenue synergy there. So talk a little bit about if they make each other better and if they kind of help each other out in terms of go-to-market?

Yes. Thanks for the question. So an easy way for me, I hope anyway, to visualize this for the audience is to think about the business, right? And if you're agnostic, by now, you're aware that we're doing the battery cooling for the Ultium platform or GM or we're doing the Ford Lightning or the Rivian and other customers, so on and so forth. And we do electronic schooling, across both our internal products as well as for other customers, so on and so forth. And then the other piece, the Power Technologies, Thermal Management piece, all of the thermal management around the e-Propulsion system. If you ask me to rank which one was most important, it would be the latter. If you go ask any technical person as it relates to propulsion systems at OEMs or whatever the case may be, I will almost guarantee you that they will say the thermal management around the e-Propulsion system is, if not the most critical, one of the most critical factors in terms of driving performance, in terms of risk mitigation, in terms of torque, in terms of efficiency, in terms of alignment as it relates to the battery technology, so on and so forth. So it is mission-critical for us. And not only -- not to mention, there are components within Power Technologies that go within the motors. There are components within the Power Technologies group, the thermal components, which obviously go into the inverter such as most important -- I think anyway the most important product with inside of the product of inverter is the power module. Oh, by the way, we cool the power module. I can't really speak for why? Maybe our competitors, if they are competitors, I don't call it a 4 in 1. I can't imagine why you wouldn't call it a 4-in-1. So most important -- kind of the tip of the spear, the way I think about it.

Great. I guess we've come a long way from 5-plus years ago when it was deemed -- Power Technologies to have the least strategic coherence. Now we're hearing it, it's critical. Maybe just to break down Power Technologies, though. Are there elements within it that are more internal combustion? So I don't know maybe the Sealing business does strike me as a little bit fuel -- liquid fuel related, but we had Cooper Standard up here earlier today, and they were talking about how they handle liquid within the car, and do some sealing. And they love the EVs because of all of the glycol and what that. So maybe just talk about the leverage of obviously, the battery cooling plate is very levered to EVs. But what about the rest of power technologies?

Yes. Cooper Standard did me a big solid and took care of my answer. But no, seriously, it is. It's core. But I guess the way to illustrate it for you is if you ever -- if Dana or another place where you've done a product tear down, I think that's the right way to think about it and you reverse engineer and tear down a motor. They're sealing within the -- if you think about -- let's go to hydrogen fuel. So many of you know, maybe you don't all know that we do the intercell cooling plates and thermal management plates inside of a thermal and sort of a hydrogen fuel cell stack for commercial vehicle. In fact, it's coming up pretty strong in the back half of this year in terms of volume increases there. All the technology is tied into both thermal and sealing but even more towards the sealing side of our capabilities than it even was the thermal capability. So you're not -- you're changing the capacity utilization from something that looked like a gasket to gaskets on e-Propulsion systems or the sealing technology, in this case, on the hydrogen fuel cells. So there are plenty of applications. And again, besides that, it's really the depth in technology.

Maybe talk a little bit about battery cooling -- battery cooling plates. I'm not sure if it's the plates that you're doing, but I know you're doing -- I think you're doing better plates on Rivian, Lightning. I don't know if you're just doing battery cooling generally on ultimately for the plates as well. But it seems like you're -- I don't know if you have a market share estimate, but it seems like you might be quite a bit out in front on the battery cooling or at least the battery cooling plate side of the house. How do you view your competitiveness there?

As, Ryan, you're alluding to or inferring it. It's really difficult to do the market share breakdown. I think we all know that. What I would tell you is the way I think about at least leading the company, is only 1/3 of the business. You're always going to have 2 competitors in the business, at least, right? So that and with high confidence, I can tell you we're 1 of the top 3. You know the programs you referred to. We're also doing, just in another example, coming into production. We're doing the Jaguar Land Rover products, so on and so forth. So definitely it's a core business to us across the board.

Okay. And I saw on the 2Q call, it was specifically called out that battery cooling product sales would benefit in the back half of the year versus the first from higher EV volumes. And I think that does speak to the fact that you're on so many products that you just have this broad leverage to EVs. That being said, while EV volume will pick up from the first half to the second, there's no doubt, and I'm sure that will be that way through the end of the decade pretty much. There was some discussion on a couple well, on Ford's call, on BorgWarner's call about maybe EV uptake or adoption while sequentially improving, possibly being less than was expected. I'm curious if you're also seeing that -- I know you're going to see a tailwind sequentially, but what are you seeing in terms of EV production or mix of sales or production in the back half or generally relative to maybe what could have been expected.

Yes. I think we may have talked a little bit about, Ryan, in our earnings that may be a little bit slower. Our PT -- our Power Technology -- sorry, our number is a little bit softer than maybe you would have thought, although I still feel pretty good about the year and there's a little bit of that in there. But I can tell you that I don't lose a lot of sleep on it. The Lightning, I think volumes seem to say you pulled back, but if you'd have gone back 3 to 4 or 6 months ago, the uptick in terms of where they were going, they've designed and engineered and manufactured a great vehicle there. Over the long haul, I think the volumes will be there. I don't think that's what you're getting at, Ryan. I would just tell you that if you just think about the business for a minute, in 2019 in the U.S., just take the U.S., right? EVs were 1% of the market. We know that. Now they're what, 7% of the market. We know year-over-year, there's a 50% increase from last year to this year. The demand will come. We will continue on EV. We will continue to see this thing, right? I've been doing this way too long. You're going to see this ebb and flow that we know for the last 5 to 6 years that demand has outstripped production as it relates to EVs. Maybe production is going to -- capacity is going to outstrip demand here for some period of time. That's all going to work itself out. I think we're at the very beginning of the journey, but especially for Dana, remember something, we are not the pass card. That's not where our focus is. We have some pass card products on the battery cooling side, but we are the truck side of the business, right? So that as well as commercial vehicle and off-highway. Those markets are going to come through and the way we've designed the company, this isn't by happenstance or accident. We designed the capital to be flexible. So if one end market moves a little bit faster, i.e., last mile delivery vehicles, one doesn't. I don't care, whatever you pick it with me. It could be in the agriculture space. One way or the other, we can flex the capital to meet the demand. So that's how we're doing -- that's how we're managing it at least on Dana's side.

Okay. And you announced at the Advanced Clean Transportation Expo, a family of transmissions across 3 different end markets. I mean already, you've got this in production today, right, on very high-performance light vehicles, hybrids from Ferrari, Lamborghini, McLaren. Also, I think it's relevant for these non-light vehicle applications, possibly for EVs in addition to hybrids. Maybe just talk about what your transmissions are? How they compare to [indiscernible] or 4-in-1 EDUs, which approach do you think will gain the most popularity?

Well, that's a big question. I'll do my best on it. First of all, and it depends on end markets, so I'll do my best here. But if you think about like is the -- let's take commercial vehicle for a minute. So if you think about commercial vehicle, maybe the transition might be a little bit slower for the reasons we know, right. In terms of -- you got to go maybe drive across the United States or whatever the case may be. So is there a torsion on return on return on investments, I don't like to speak for my customers, but if you're speaking for my customers for a minute, and they're looking at, is there a better way to kind of reconfigure and reverse engineers stay more with the historical diesel vehicle, but then adapt it to electric vehicle in large portion, it's quicker, often more cost-effective to go to any transmission versus going to the full scale e-Axle, which now is completely rigid axle, it goes across and it takes more time. So first, there's a speed to market play, which is a good reason for us to have that in here. As it relates to the adoption though, most of the time you look at that, it's kind of like the -- even on the internal combustion engine world. If you're not looking for significant payload or stuff like that, you're usually going with an independent type version, which is closer to a transmission. But if you're going to need like on a Jeep Wrangler in our case or a Super Duty -- for Super Duty, you're going to need a rigid e-Axle, those applications are going to be similar to like-for-like with a rigid e-Beam no matter which application we're doing either in light vehicle, commercial vehicle or off-highway. So I know there's a lot to unpack. I hope I answered your question, but that's a long -- that's a deep hole I'd have to go into.

Yes. Well, maybe just a follow-up because there are so many ways. It's kind of [indiscernible] to keep track. I guess we could add to the mix. There is also -- the in-wheel like hub motor too. And I remember it was a different company, but they talked about how they want to be seen as a trusted powertrain consultant or adviser. Some people might go in and "All we've got is the hub motor, all we've got is the [indiscernible]." So, of course, we're trying to push that solution on the customer as opposed to collaboratively working with the customer to determine which is the correct one in this particular application. So you seem to be one of the suppliers here who is covering the most basis. What are the merits to doing that, and do you specialize in one approach versus the other. I asked this of American Axle. I actually asked, well you have the word axle in your name. Does that mean -- you're better at this one than the other? They said, "No, no, no, it doesn't mean that." But I don't know if you have a preference here, if one is better for you, more content per vehicle or something like that or more profitable. But even though you've got a preference, you don't want to push it because you feel like you can get more business by being more open or flexible. I'm just thinking specifically by adding e-transmissions now to this mix.

I wish, I wish, I wish, I had a choice. I don't have a choice. At the end of the day, my customers have a choice. It's a use case question, right? They fill in the blank for what it is, depending on fuel efficiency, range of battery, all the different things that come into the equation or speed to market like I referred to in a minute. The way we think about it, though, is it doesn't matter. Yes, we're 3 end markets, but we're or 1 axle company, 1 transition company. We drive all those products up and down the rivers. I like to call it anywhere from bracketry to PCB board, so whatever the case may be. So whichever they want to go, it doesn't really matter to us. We had lots of discussion in in-wheel technology. Oh, by the way, we do in-wheel technology. We do it every day, twice on Sunday in the off-highway market. If you think about the [indiscernible] work platform. Okay, someone could say that's not tech. But it's still technology. It's still literally, you're still putting a motor, you're still put an inverter, you're putting it now to a planetary hub drive, and then you do that. There has not been the right application yet in commercial vehicle or in light vehicle in the space that we participate by the way, where you need payload and so on and so forth. Maybe someday it gets there. If it gets there, we'll come up that technology road map, we'll be able to provide it. It's just that, that is not where is at, not in the markets we participate.

Okay. I think part of -- the investors see their job is partly understanding 2 factors and then how they net together. So maybe we can talk about that focusing first on light vehicles. And the first factor is like what's the content per vehicle that this company is going to make in an electrified solution versus a purely internal combustion solution. But then they say, "Well, that's just half the job." I have to take into account what's the degree of in-sourcing that light vehicle OEM is going to engage in that will partly negate or I think -- they think differently for different companies, might be more than entirely negate the CPV uplifts. Where do you stand when it comes to light vehicle CPV uplifts. And then how do you think you fare in-source versus outsource?

I'll take this one. I think when you really think about the change in the vehicle, right, powertrain, you're losing the motor, the transmission and the driveshaft and really, all that power content is moving back on to the axle. So from our perspective, where we're selling a 4-in-1 system it's upwards to about 3x content per vehicle uplift. So if you think about it, it's an axle, the motor, the inverter and the cooling all packages. So it's about 3x. When you think about, "Oh, some of this is going to be in-sourced, some of this will remain outsourced." What we're seeing, and I think the win that we announced during our call for a North American OEM is the place we play in, which is rigid beam axles for large trucks, SUVs, where there's really a high duty cycle, a lot of technology, a lot of variability, lower volume, but more technology. It's no different in EVs as it is for our ICE vehicles. So as these ICE vehicles -- as the customer has outsourced those lower volume, higher complexity axles to companies like Dana, we believe the same thing is going to happen in the EV world. So -- and we're seeing that bear out with some of the announcements that have come out over the last few months, including ours, here just a couple of weeks ago. So I think for us, as these vehicles transition, we'll lose ICE volume gain the EV volume and that volume will come with about 3x the content. And of course, it depends which mixture do you have the motor and the inverter and the hard parts, but that's pretty much how we're thinking about it. So it's a really big opportunity for us in terms of the growth profile for the business, especially in light vehicle.

And I think there's a broad sense that as we to do the same math problem on the commercial vehicle side that it's going to net out more favorably for Dana. I mean on the one hand, maybe you can talk about what the CPV uplift on CVs is as opposed to LVs. Is that where the opportunity is? Or I think it's really looking like it's the light vehicle OEs that are wanting to engage more in the in-sourcing than the CV OEs. Is that the case? Why is that the case? Does it have to do with unions, I don't know, or just their perceived ability to do it themselves. And how does that calculus sort of net out for you on the CV versus LV side?

Yes. No, I think it's pretty much -- it's a very similar dynamic for some different reasons. I mean if you look at CV, some of that market is outsourced today or a lot of it is in-sourced today. We don't think that changes. But the CV truck manufacturers who have historically been outsourced on their axles, they have a lot of other things to think about in terms of investment that they need to make and they are not going to all of a sudden move to in-source the axle. So we think that continues to be out. And same dynamic on content per vehicle works in the CV world as it does in the light vehicle world, where picking up a motor, inverter, power electronics cooling, content on those vehicles, the same as we would for a light vehicle. I think there, you also have -- they want to get to market quickly, right? They want those solutions. So we today make -- we assemble the full battery electric vehicle for PACCAR because PACCAR wanted to get to market quickly. Now that doesn't last forever. But what that also puts us in is a very key position with a key customer to when they start to build EVs on their own lines, they will take a fully integrated e-Axle from somebody like Dana and know that we understand the architecture within that full vehicle and be able to give them a solution that's optimized for what they want. So it's a huge opportunity in terms of growth for Dana.

Wanted to ask what has been the impact on your business, if any, positive or negative, maybe some positives and some negatives, of Cummins acquisition of Meritor?

I think your indirect tone there was right, Ryan. It hasn't really had any impact. I mentioned when it came out, a few of you probably asked me the question. And to me, it's a change the name on the wall. It just really is. We're always going to have not to overcook what I said. So we're going to go -- we're always going to have 2 to 3 competitors in the space and they're a good competitor. But -- we're doing our thing, leveraging technology, leveraging operational excellence, I've said it before, so I'll say it again. We're taking market share in that market. You see that our trajectory in that business, we're going to head right back to where our historical numbers are once we get stability in operating environment, so on and so forth, which is already getting better. So I'm not too worried about the competition. I'm worried about us, and we're going to make it happen.

Very helpful. Are there any questions in the audience for Dana? [ Jim Ervin ], Moon Capital got the microphone on its way, one second.

Yes, I can see you guys. Just wanted to kind of double check on as you're expanding the $3 billion in kind of the electrification space over the coming 7 years, and you walked us through that breakeven glide path. When you think about your carryover business on the traditional propulsion system, if the EV portion is moving faster or slower, your ability to rightsize the manufacturing footprint, so that you hit your targets on your ICE exposure, whether it's commercial, off-highway. I just want to kind of get your thinking on that 2025, 2026. I don't know if you're really thinking about it that way but it's -- the flexibility of capital, but I'm also thinking of the flexibility of manufacturing? You got a lot of flex between the 2 different simply defined. Kind of walk me through that. And also remind me, historically, it was low double-digit margin targets, right? Is that something that you think could be beaten, actually it'll be tough to hit on your core business today. It's a little convoluted question, but I think you get the gist of I'm getting at.

On the margin question, I'll take that one first and Jim can talk a little bit on the manufacturing side. I think we have -- we think getting back to double digits in the -- what today is pretty much a ICE business is still in sight. We're more confident today given where we're at now and where the business we took with taking guidance up. So getting to those double-digit margins by 2025, I'm more confident today than I was in February that we're on a glide path to be able to deliver that. And the same or better return economics on what we have invested in the business.

Yes. I'll take that on the manufacturing strategy side. The way we think about it anyway is that let's go to world-class operations in general, what's your sequence of what you need to have. First, you need to have outstanding customer performance on delivery, quality, warranty, et cetera. Then, you have to be -- you have to have a kind of a ninja approach on cost management, constantly taking out. But the world-class companies are also managing manufacturing strategy and floor space utilization. We are definitely in the culture and in the mode of, we're constantly focused on floor space utilization with our growth trajectory out there? And then the second question is, will you have the ability to repurpose your traditional ICE factories to be able to manufacture electrification product? We do it every day right now. We already do it around the world, and we're going to continue to do it. But here's a key point to that. It is a huge competitive advantage to do that because manufacturing is still manufacturing. I don't care if it's a motor, if it's an inverter, if it's battery cooling or if it's traditional mechanical products like we do. You think about some of the start-ups that have had trouble and so on and so forth. That's why they have trouble, right? You got to have that institutional knowledge you have to have depth in manufacturing, but everything that leads up to a program management, engineering, so far and so forth. So the way I look at it moving forward, we're going to continue to continue to improve by having floor space utilization benefits, the way we focus on that in the company, and we get to the end of the year, we're going to grow that $3 billion or $4 billion, whatever it's going to be. And we'll be largely in a similar floor space of our footprint to what we have today. We have high conviction that we'll get there. Team's doing a remarkable job.

Any other questions? All right. Well, it looks like we are out of time. So please join me in thanking Jim and Tim for all the great color and insight.