Ford splits EVs and legacy cars into separate units

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

Xinhua via Getty Images

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

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

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

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

Splitting operations but keeping them at home is halfway to appease some Wall Street analysts who have been pressuring longtime automakers like Ford to give up their electric vehicle operations to capture the value investors have given some new EV companies.

Farley said the new EV business will “generate as much excitement as pure EV competitors, but with scale and resources that start-ups can’t match.” He described the legacy business as a “machine of profit and money” for the company.

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

Investors lauded the plan, sending the automaker’s shares up 8.4% on Wednesday to $18.10 a share. Ford shares are down about 13% this year.

In announcing the new business, 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.

‘Different business’

The EV business will be called “Ford Model e.” The traditional operation is “Ford Blue.” The companies said they would “operate as distinct businesses but share relevant technology and best practices to scale and drive improved operations.”

Ford plans to release financial results for new units as well as Ford+ businesses in 2023, giving investors greater transparency into operations.

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“We will work hard, creating separate but complementary businesses that give us speed to get started and unbridled innovation in the Ford Model e along with Ford Blue’s industry know-how, volume and iconic brands like Bronco, which startups can only dream of. ‘ said Farley in a statement.

The move follows Bloomberg News’ first report that Farley is evaluating whether to separate EV and its traditional businesses, including a potential spinoff. Farley last week said Ford had no plans to relinquish any of those operations.

Ford’s plans follow a similar move by cross-town rival General Motors in late 2019 to largely split its EV and traditional vehicle engineering. GM said it has no plans to divest its EV business.

“Today, our corporate structure holds us back,” Farley said. “It didn’t allow us to focus. We needed the ICE business to make money and serve those iconic brands. We needed our electricity business, the digital business, about innovation.”

New leadership

The company said Farley would serve as president of the 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 the creation of the Ford Model e 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 custom vehicle platforms, batteries, e-motors, inverters, charging and battery recycling.

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The e-model will also lead the buying and ownership experience for future electric vehicle customers that includes “a simple and intuitive e-commerce platform, transparent pricing and personalized customer support.” The price aspect is key, as several dealers have raised prices significantly for high-demand vehicles, including the Mustang Mach-E electric crossover.

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

Ford veteran Kumar Galhotra, currently president of American and international markets, will lead Ford Blue, the automaker’s traditional business operations. He will also be tasked with cutting operational costs and waste from operations – a key mission of Farley’s turnaround plan.

“We have three areas, three big areas that we really need to pursue: complexity, quality, construction cost; and nothing is going to get off the table,” Galhotra said.

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