Ford announced today that it will split its electric and fossil fuel business into two separate divisions. The announcement attracted investors to the shares, but left many unanswered questions about the future of the 118-year-old company.
The reorganization limits weeks of speculation that the carmaker could split into two separate companies. Ford said its future is in electric vehicles, but so far most of its profits come from cars and fossil fuel trucks.
“We’re entering everything, creating separate but complementary businesses that give us start-up speed and unbridled innovation in the Ford Model e, along with Ford Blue’s industrial know-how, volume and iconic brands like Bronco that startups can only dream of “Ford CEO Jim Farley said in a statement.
The new electrical division, to be called the Ford Model e, will report directly to Farley. Meanwhile, Fossil Fuels, Ford Blue, will report to Kumar Galhotra, who is currently president of Ford’s group for America and International Markets.
The two drive modes are not necessarily in conflict, but have different requirements for engineering, development and marketing. Investors and analysts tend to believe that EV-only companies can move faster to capture more of the growing EV market than those burdened with legacy technologies.
Investors and analysts are pushing Ford to separate its EV business from its legacy vehicles, but the Ford family is unlikely to completely divest one business or another. And yet, as capital markets have flooded electric electric car companies with money, Ford is clearly asking for some of that money. Tesla, for example, has a market capitalization of more than four times Ford, GM and Stellantis combined, although it sells far fewer vehicles.
It remains to be seen whether this move is the best of both worlds. The structure can just as easily turn Ford into a carmaker’s futon – somehow good in electric cars, somehow good in internal combustion, but not in either.
In a sense, the move makes sense. Specialized platforms for electric vehicles are different enough from fossil fuel equivalents to benefit individual engineering teams. Without having to have internal combustion engines, the process of designing and developing a special EV can move faster and allow more innovation. Meanwhile, the fossil fuel country may operate more as a legacy business with a focus on cost reduction to squeeze the most profit from products that rely on old technologies that aren’t improving nearly as fast.
In fact, “Ford Blue will be an engine of money and profitability for the whole company,” said Galhotra. In a way, this is the way Ford works today. Although his Mustang Mach-E is reported to be profitable, sales of the electric crossover almost certainly don’t waste as much money today as the gas-powered F-150. Maintaining the two divisions in the same company will allow the fossil fuel country to subsidize the development of new platforms and models for electric vehicles, while providing funds for the construction of new factories.
Still, the two divisions are expected to prepare separate profit and loss statements by 2023, Bank of America said in a note to investors today. If the EV country manages to generate profits on its own, investors may increase the pressure on Ford to separate every business, especially if these statements reveal a declining dependence on fossil fuel margins.
This move could also create internal struggles between the two divisions as they compete for resources. Based on Galhotra’s comments and Farley’s position as CEO, the Ford Model is clearly the company’s future, and the Ford Blue is a dairy cow that is designed for milking. Even in the laudatory language of press releases, Ford Blue doesn’t sound like it has a very bright or innovative future. One can only depict the reception that the message will receive from the inside. Jobs at Ford Blue, especially design and engineering positions, may be seen as less prestigious and the department may suffer from a brain drain.
And while investors seem to be in the news, Ford’s stock isn’t picking up as a pure electric car company. So while Ford’s access to capital markets may be a little easier, the carmaker won’t jump to Tesla-sized sets anytime soon.
“They see the share price of electricity-only companies relative to the share price of traditional producers and they want to participate,” a former Ford insider told Ars. “They’ll find out the rest later.”