Ford creates separate departments for electric vehicles, gas engines in overhaul

The company also raised its forecast for the production and profitability of electric vehicles. Electricity is expected to account for a third of global sales by 2026 – or a total of around two million EVs – and half of global sales by 2030, up from the previous 40% target. Ford also raised its forecast for the operating profit margin to 10% by 2026 from the previous 8% target.

The plan is one of the company’s boldest steps to date with CEO Jim Farley to accelerate the development of new battery-powered models. This also comes when investors raise Tesla’s ratings Inc.

and other start-ups that are not burdened by a legacy business and focus solely on the sale of electric vehicles.

Shares of Ford were ahead by about 5% at $ 17.55 in morning trading. Before Wednesday, shares fell by about 20% year-on-year.

Mr Farley, who took the top spot in 2020, has repeatedly said that the business of developing and selling electric vehicles is significantly different from his conventional gas engine operations, which require new technical expertise and a separate sales strategy. .

“Our legacy is holding us back. We had to change, “he told a news conference on Wednesday.

Ford needs to continue producing gas and diesel vehicles – which today provide its entire end line – to boost profitability as it sharpens its focus on battery-powered vehicles, which it expects to boost growth over the next decade. . Said Farley. He said the new structure would help Ford reduce complexity and reduce annual costs by $ 3 billion from the gas engine business by focusing more closely on reducing quality issues and simplifying the model range.

Ford said the part of the business that will focus on electric vehicles and digital innovation will be called the Ford Model e. The other side, Ford Blue, will work to improve the profitability of its internal combustion engine vehicles.

Mr. Farley will serve as President of Ford Model e, while continuing as Chief Executive Officer. Ford Blue’s business will be led by Kumar Galhotra, now the company’s president for America and international markets.

The reorganization plans follow speculation among investors and the media about whether Ford can separate its electric vehicle business as a way to unlock value.

On Wednesday, Mr Farley said his team had considered a spin-off, but decided the company was able to fund the transition to EV without using the capital markets. He also said Ford needed a division focused on future technologies such as batteries and software, as well as the engineering and manufacturing experience of Ford’s legacy business.

“New startups would like to have our company’s industrial know-how,” he said. “Why separate Model e and risk it?”

Ford CFO John Lawler later added that there were no ongoing plans to separate or create another way for investors to bet on the EV part of Ford’s business, such as stock tracking.

“Once we start counting segments, you’ll be able to see value creation in each of the divisions,” he said. “We have to get credit for that.”

In the last few years, many of the world’s largest carmakers have set out strategies to shift capital spending to electric vehicles and digital services that are expected to generate revenue after initial sales. Ford, General Motors Co.

Volkswagen AG

pouring billions of dollars into battery plants and new electric vehicle factories as they race to launch more electric vehicles, which now account for only about 4% of U.S. car sales.

The creation of separate divisions by Ford goes further than most other car companies. Rival rivals, for example, split the management of their electric vehicle and internal combustion businesses in 2019 and set up new digital innovation and EV charging infrastructure, but focused on separate divisions with their own profit and loss statements.

Leaders of GM and other carmakers said they were open to options, but that there was too much overlap between the EV and the internal combustion parts business to separate one or the other.

On Tuesday, jeep maker Stellantis NV told investors it expected electricity to account for half of its sales in the United States and all of its European sales by the end of the decade.

Barclays analyst Brian Johnson said Ford’s actions should give investors a better idea of ​​the efficiency of electric vehicle operations and should accelerate Ford’s plans for electric vehicles. But as it seems unlikely to lead to secession in the short term, “we consider the message neutral,” he said.

Last year, Ford’s range included only one electric vehicle: the Mustang Mach-E. Ford sold about 27,000 SUVs last year, or 1.4 percent of U.S. sales. By comparison, Tesla sold about 352,500 vehicles in the United States last year, according to research firm Motor Intelligence. Tesla does not distribute deliveries by region.

Ford is adding to its EV offerings in the coming weeks, including the introduction of an electric version of its Transit cargo van. The F-150 Lightning, the electric version of the country’s best-selling pickup, is scheduled to go on sale this spring. Ford has said it will spend $ 30 billion on electric vehicles by 2025.

As estimates by Tesla and other electric car manufacturers have risen over the past few years, investors have questioned whether traditional car companies can set aside their assets for electric cars to boost their ratings.

Bank of America analyst John Murphy said the Ford overhaul should help Ford attract talent to help it move into electric vehicles and digital services. He also said it could reduce Ford’s capital costs by potentially allowing it to use the green bond market, which is issued to fund environmental projects.

Write to Mike Colias at [email protected]