Dragonfly Energy's Strategic Shift to OEM-Driven Growth and Margin Expansion

Dragonfly Energy Holdings Corp. (NASDAQ: DFLY) has embarked on a transformative journey in 2025, pivoting from a struggling direct-to-consumer (DTC) retail model to a robust B2B and original equipment manufacturer (OEM) strategy. This shift is not merely a tactical adjustment but a foundational repositioning aimed at unlocking scalable growth, margin expansion, and long-term value creation. For investors, the company's transition offers a compelling case study in how strategic realignment can turn a capital-intensive, unprofitable business into a high-margin, industry-leading player.

The DTC Dilemma and the B2B Breakthrough

Dragonfly's DTC segment, once a cornerstone of its business, has faced headwinds due to macroeconomic pressures and consumer market saturation. In Q2 2025, DTC sales declined by 9% year-over-year to $5.9 million, underscoring the limitations of retail-driven growth. However, the company's OEM sales surged by 50.6% to $10.1 million, now accounting for its largest revenue stream. This shift reflects a deliberate focus on industrial and commercial clients, where Dragonfly's proprietary lithium battery technology is being embedded into factory-level systems.

The RV and heavy-duty trucking sectors have emerged as key beneficiaries. For instance, Airstream's Flying Cloud 25FB model now features Dragonfly's 200Ah heated battery bank and 300W solar charging system, while Stevens Transport is electrifying its 2,500-truck fleet with hybrid solutions powered by Dragonfly's LiFePO4 batteries. These partnerships are not just revenue drivers—they are strategic alliances that lock in recurring demand and position Dragonfly as an indispensable supplier in critical markets.

Margin Expansion and Operational Efficiency

The financial implications of this shift are striking. Dragonfly's gross margin expanded by 430 basis points to 28.3% in Q2 2025, driven by lower inventory costs and improved production efficiency. The company has also optimized fixed costs by leveraging higher sales volumes without increasing headcount, a testament to its lean manufacturing capabilities. While the net loss narrowed to $7.0 million (from $13.6 million in Q2 2024), the path to profitability is clear: Adjusted EBITDA improved from -$6.2 million to -$2.2 million, and the company projects further reductions in Q3 2025.

Strategic Partnerships as a Growth Engine

Dragonfly's B2B strategy is underpinned by a portfolio of high-impact partnerships. In the RV sector, collaborations with Forest River, nuCamp, and Tiffin have resulted in lithium-powered models that redefine off-grid travel. For example, the nuCamp Cirrus 920 truck camper integrates an 810Ah battery bank and 930W solar, enabling extended adventures without grid dependency. These partnerships are not one-off deals but long-term integrations, with OEMs standardizing Dragonfly's systems across their product lines.

Beyond RVs, the company's licensing agreement with Stryten Energy is a masterstroke. By granting Stryten the rights to distribute Battle Born Batteries in military, automotive, and marine markets, Dragonfly is expanding its reach into $30 million+ revenue streams without bearing the costs of new production facilities. This model mirrors Tesla's (TSLA) approach to scaling battery technology through third-party partnerships, offering a blueprint for sustainable growth.

Competitive Advantages and Market Positioning

Dragonfly's proprietary dry electrode process and nonflammable all-solid-state battery cells give it a technological edge over competitors. These innovations align with global onshoring trends and supply chain resilience demands, making Dragonfly a preferred partner for OEMs seeking domestic, reliable suppliers. Additionally, its ability to scale production without increasing headcount—thanks to optimized manufacturing throughput—ensures margins remain resilient even as demand surges.

Investment Implications and Forward-Looking Outlook

For investors, Dragonfly's strategic shift represents a high-conviction opportunity. The company's Q3 2025 guidance of $15.9 million in net sales (a 25% YoY increase) and its expansion into heavy-duty trucking and industrial markets suggest a clear path to revenue diversification. While profitability remains a work in progress, the narrowing losses and margin improvements indicate that the company is on track to break even within 12–18 months.

The key risks include macroeconomic volatility and competition from established players like Tesla and LG Energy Solution. However, Dragonfly's focus on niche markets (RVs, trucking, and specialty B2B sectors) and its OEM-centric model provide a moat that larger competitors may struggle to replicate.

Conclusion: A Catalyst for Long-Term Value

Dragonfly Energy's pivot to OEM-driven growth is a textbook example of strategic reinvention. By shifting from a capital-intensive DTC model to scalable B2B partnerships, the company has unlocked margin expansion, operational efficiency, and a diversified revenue base. For investors with a medium-term horizon, Dragonfly offers a compelling blend of innovation, execution, and market positioning. As the energy storage sector evolves, those who recognize the company's ability to adapt and lead in its chosen niches will likely reap significant rewards.