Wall Street Hails Ford's Decision to Split EV Business; Are EV and Profit Margin Targets Achievable?

Wall Street rejoiced with Ford Motor's decision to internally separate its electric vehicle and legacy businesses on Wednesday, March 2, with the carmaker's stock recording its fifth-highest daily gain in the past year.

The joy of Wall Street analysts is not 100 percent, though, as they are not completely sold on the changes chief executive Jim Farley is implementing for the Dearborn automaker with his "Ford+" turnaround plan. Wall Street views Ford's plan to split the two businesses as positives but far from a sure thing, with analysts voicing doubts about the company's new EV and profit margin targets.

Some analysts are still calling for the company to have a full spin-off for either one of the businesses that Ford just separated. Other analysts are also questioning Ford's statement that it can achieve a 10 percent operating profit margin across its EV and legacy businesses by the year 2026, while also increasing the company's global production of electric vehicles to 2 million units by that time.

Morgan Stanley analyst calls Ford's EV goal a stretch

Morgan Stanley analyst Adam Jonas was among those who is not fully sold on Ford's boast, calling the company's EV target a "stretch" in his note to investors on Wednesday. Jonas argued that he has little confidence in Ford securing enough supply chain resources, raw materials, and tooling in the next four years to ensure delivery of an EV number that the company just promised.

Based on Morgan Stanley's own estimates, it expects Ford to produce just 560,000 electric vehicles by 2026, less than a third of the company's EV target of 2 million EVs by that timeframe. Morgan Stanley also estimates Ford's adjusted operating profit margin on its electric business to be only 4 percent by 2026, and not 10 percent.

It is important to mention, however, that the research firm first issued those target numbers before Ford's ground-breaking announcement. Jonas said that there could be some upside from the split that Morgan Stanley is not taking into account just yet but at the present time, it is sticking with its previous EV forecast for Ford.

Also Read: Ford Splits EV and Legacy Auto Business: Carmaker Creates 'Ford Blue' and 'Ford Model e' Divisions

Deutsche Bank analyst shares concerns about Ford's profit margin

Deutsche Bank analyst Emmanuel Rosner also voiced his concerns about Ford's production goals, saying that the company's profit margin target of 10 percent is "ambitious". Rosner explained that for Ford to achieve that goal, the company would not only require "unprecedented" profitability in its legacy vehicle business but also substantial increases in profitability and production in its EV business.

Rosner told investors in Wednesday's note that Ford separating its businesses presents opportunities for the company to expand its ICE margins. That being said, Deutsche Bank has concerns those numbers will not be enough for the carmaker to reach its profit margin target of 10 percent by 2026, with Ford's margin-dilutive EVs taking a greater share of total production volumes over the next few years.

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