Ford splits EVs and legacy autos into separate units


People visit Ford’s all-electric SUV Mustang Mach-E at the 2019 Los Angeles Auto Show in Los Angeles, the United States, Nov. 22, 2019.

Xinhua via Getty Images

DETROIT – Ford Motor said Wednesday it will reorganize operations to separate its electric and internal combustion engine businesses into different units within the automaker.

The company expects the move will streamline its growing electric vehicle business and maximize profits. It’s a similar strategy to how Ford is operating its Ford Pro commercial vehicle business under CEO Jim Farley’s “Ford+” turnaround plan.

Ford also upped its expected investment in EVs and other technologies to $50 billion by 2026, up from a previously announced $30 billion through 2025. It plans to spend $5 billion on EVs this year, double its 2021 total.

“We’re announcing one of the biggest changes in our history today,” Farley said Wednesday morning.

Separating the operations but keeping them in-house goes halfway to appeasing some Wall Street analysts who have been pressuring legacy automakers such as Ford to spin off their electric vehicle operations to capture value that investors have been awarding some EV start-ups.

Farley said the new EV business will “produce as much excitement as any pure EV competitor, but with scale and resources that no start-up could ever match.” He described the legacy business as “a profit and cash engine” for the company.

That leverage and interconnectivity between the two is why Ford decided to not spin off either of the operations, Farley said. Ford also does not need additional capital to fund the operations, he said.

Investors applauded the plans, sending shares of the automaker up 8.4% on Wednesday to $18.10 a share. Ford’s stock is down about 13% this year.

While announcing the new businesses, Farley said Ford plans to generate 10% adjusted operating profit across the company and produce more than 2 million electric vehicles by 2026. The company plans to cut $3 billion in structural costs by 2026.

‘Distinct businesses’

The EV business will be called “Ford Model e.” The traditional operations will be “Ford Blue.” The company said they will “operate as distinct businesses but share relevant technology and best practices to leverage scale and drive operating improvements.”

Ford plans to breakout financial results for the new units as well as its Ford+ business by 2023, giving investors greater transparency into the operations.

“We are going all in, creating separate but complementary businesses that give us start-up speed and unbridled innovation in Ford Model e together with Ford Blue’s industrial know-how, volume and iconic brands like Bronco, that start-ups can only dream about,” Farley said in a statement.

The move follows Bloomberg News first reporting that Farley was evaluating whether to separate its EV and traditional businesses, including a potential spinoff. Farley last week said Ford had no plans to spin off either of the operations.

Ford’s plans follow a similar move by crosstown rival General Motors in late 2019 to largely split up its engineering of EVs and traditional vehicles. GM has said it does not have plans to spin off its EV business.

“Today, our corporate structure is holding us back,” Farley said. “It does not allow us to focus. We need the ICE business to be cash generating and serving those iconic brands. We need our electric business, the digital business, to be about innovation.”

New leadership

The company said Farley will serve as president of Ford Model e, in addition to his roles as president and CEO of Ford.

Former Tesla and Apple executive Doug Field, who Ford hired last year, will lead Ford Model e’s product creation as chief EV and digital systems officer.

The Ford Model e business will be responsible for all aspects of the automaker’s electric vehicle operations. That includes designing and creating future EV technologies, parts and services such as dedicated vehicle platforms, batteries, e-motors, inverters, charging and battery recycling.

Model e also will lead buying and ownership experience for its future electric vehicle customers that includes “simple, intuitive e-commerce platforms, transparent pricing and personalized customer support.” The pricing aspect is key, as some dealers have significantly marked up prices for vehicles in high demand, including the Mustang Mach-E electric crossover.

“This new structure will enhance our capacity to generate industry-leading growth, profitability and liquidity in this new era of transportation,” said Ford CFO John Lawler.

Ford veteran Kumar Galhotra, who currently serves as president of the Americas and international markets, will lead Ford Blue, the automaker’s traditional business operations. He’ll also be tasked with cutting operating expenses and waste from the operations – a main mission of Farley’s turnaround plan.

“We have three areas, three big areas that we really need to go after: complexity, quality, construction costs; and nothing’s going to be off the table,” Galhotra said.

Source : CNBC