Dauch (DCH) BofA Securities Automotive Summit 2025 summary

Strategic initiatives and acquisition plans

• Announced a strategic combination with Dowlais, aiming to diversify geographically and by customer/product, reducing North American concentration from 73% to 55%-57% and GM exposure from 40% to 25%.

• Dowlais brings complementary driveline and metal forming businesses, with strong positions in side shafts and powder metallurgy, and a robust joint venture in China.

• The acquisition is expected to close in Q4 2024, with all antitrust filings nearly complete and U.S. clearance already obtained.

• Over $300 million in synergies identified, with potential upside due to conservative auditor discounting; past acquisitions have met or exceeded synergy targets.

• Combined entity targets $550M-$600M in free cash flow post-restructuring, with a focus on strengthening the balance sheet and potential for shareholder-friendly capital allocation after reaching leverage goals.

Market conditions, tariffs, and operational resilience

• Tariff impacts are currently minimal due to local sourcing of steel and aluminum, and most parts are USMCA compliant; ongoing analysis for potential changes in U.S. content requirements.

• The supply chain remains fragile, with the company emphasizing local production to mitigate tariff and logistics risks.

• Labor markets are tight, with automation and robotics seen as key to offsetting labor shortages and cost pressures; potential to automate 10%-30% of operations depending on investment.

• Labor costs in the U.S. are 2.5-3x higher than in Mexico, influencing decisions on production location versus tariff exposure.

• The company maintains a highly variable cost structure and a proven playbook for managing industry downturns, focusing on rapid cost adjustments and capacity rationalization.

Product mix, customer relationships, and industry trends

• Product mix remains resilient, especially in trucks and SUVs, with high confidence in continued strong volumes from major customers.

• Outsourcing opportunities remain significant, particularly with Chinese and European OEMs, while insourcing risk is considered low in traditional ICE and hybrid segments.

• Electrification is growing but at a slower pace than previously forecast; the company is positioned for ICE, hybrid, and EV markets, with a strong backlog and long-term contracts secured.

• Recent quoting activity has shifted back toward ICE and hybrid programs, reflecting current market demand.

• Program extensions are viewed positively, leveraging depreciated equipment and well-maintained assets for extended volume production.