Ford CEO explores ways to separate his EV business | Business

Ford Motor Co. is looking for ways to separate its electric vehicle business from its century-old legacy business, hoping to earn the kind of respect from investors enjoyed by Tesla Inc. and other pure electric vehicle makers.

Chief executive Jim Farley wants to separate Ford’s electric business from its internal combustion engine business and has even considered parting ways with one or the other, people familiar with the effort have said. . A spin-off could generate the kind of earnings multiples that have given Tesla a market value approaching $1 trillion.

But splitting the business, which Ford says it’s not planning, may prove too difficult, so Farley may simply separate the EV business internally as its own unit as part of a broad reorganization that aims to give Ford an edge in the electric age. .

A spin-off could be a tough sell to the Ford family. They control the automaker through a special class of shares and fear losing influence over the 118-year-old company, said the people, who did not want to be identified, revealing internal deliberations. The founding family, led by executive chairman Bill Ford, has three seats on the board.

The company is facing pressure from Wall Street to spin off its fledgling electric vehicle business to increase value by reducing legacy costs and gain better access to capital markets. Investors have placed immense value on makers of pure electric vehicles, such as Rivian Automotive Inc., whose market value briefly surpassed that of Ford late last year despite producing relatively few vehicles.

Ford shares jumped 5.4% after Bloomberg News reported on the company’s plans, rising the most intraday for the month.

“We are focused on our Ford+ plan to transform the business and thrive in this new era of electric and connected vehicles,” the company said by email when asked about a possible spinoff. “We do not intend to divest our battery electric vehicle business or our traditional ICE business.”

Earlier this month, however, Farley did not rule out divesting either operation when asked about it during the company’s earnings call.

“Running a successful ICE business and a successful BEV business are not the same thing,” Farley said. “I’m really excited about the company’s commitment to running the business as it should.” The EV business is “fundamentally different” in the customers it attracts, the way its products are built, and the engineering and design talent that must be hired.

“We’re not looking for half measures,” Farley said on the call. “We are done with incremental changes. We have a clear plan, a penchant for action and a mindset of whatever it takes.

Late last year, Ford held talks with financial advisers to explore some options for the EV operation, including a potential reorganization and raising private capital for it, according to two people familiar with the matter.

As Farley sought to maximize the value of Ford’s EV operations, his vision evolved over time, initially from a smaller spinoff to a complete breakup and then to an internal split, people familiar with the company said. effort.

Even an internal split would be complicated. Bringing engineering and operations together at an automaker, where some engineers and factories create and build both types of vehicles, is no easy task, one of the people said. Even if everyone is in favor of a real split, it would be a lot of work to manage the complexity, the person said.

Ford has committed $30 billion to its EV strategy through 2025 and is expected to spend another $10 billion to $20 billion by the end of the decade to convert factories to build plug-in models.

Farley has tripled production of the electric Mustang Mach-E and doubled production of its F-150 Lightning plug-in mic, which goes on sale this spring. The company plans to produce 600,000 electric vehicles a year in two years and generate up to half of its sales from battery-powered vehicles by 2030.

Under its current structure, the automaker does not have access to financing available to Tesla and other electric vehicle makers that are viewed more favorably by banks and investors. Creating pure plug-in play could give Ford access to cheaper capital and give investors a chance to put value on its electric vehicle business, the people said.

Farley is working closely on the effort with Doug Field, the former Apple Inc. automotive project manager, whom Ford hired in September as chief technology officer, the sources said. Field, who previously worked as Tesla’s chief engineer, would have a lead role in any new entity, the people said.

Field and Farley would have their work cut out if they chose to pursue a full fallout.

In addition to having to convince the founding family, car dealerships and the United Auto Workers union also had to be convinced that they would not be left behind.

Analysts said Ford needed to shed its legacy business model to achieve the profit margins Tesla commands, which Farley estimated at $10,000 per car. To offset the higher cost of electric vehicles, analysts say automakers need a direct sales model, like at Tesla and Rivian, that bypasses dealerships and the reduced revenue they receive. Automakers also need to cut labor costs.

“Ford is making great strides in the electrical business,” Morgan Stanley analyst Adam Jonas said in a November note to investors. Legacy automakers “face serious challenges from electric vehicles and, in our view, will require ‘non-traditional’ actions to address them.”

Ford is already building the Mustang Mach-E in Mexico, where wages are a small fraction of what they are in the United States. The automaker is also building its first all-new assembly plant in half a century, to manufacture F-Series electric trucks in Tennessee. , and the UAW has no assurance that it will represent these workers.

There is precedent for what Farley and Field envision. In 2017, automotive supplier Delphi Technologies Plc spun off its combustion engine powertrain business and renamed the remaining company Aptiv Plc, which focuses on electronics and software for electric vehicles and self-driving cars. Aptiv started trading at higher multiples.

As a large-scale automaker, Ford has a bigger lift, though Farley seems keen to shake things up.

“It’s a culture change at Ford,” he said on the earnings call. “It’s part of the change of pace.”

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