Ford Motor made a stunning announcement on Wednesday, March 2, saying it will reorganize the company's operations to separate its internal combustion engine and electric businesses into two different units.
Company CEO Jim Farley delivered the news, saying "We're announcing one of the biggest changes in our history today." It is a big move indeed, one which Ford expects will help streamline its growing electric vehicle business and in the process maximize its profits in that department.
This strategy is similar to how the company is operating its Ford Pro commercial vehicle business under Farley's "Ford+" turnaround plan. To help usher in this new era for Ford's EV business, Ford increased its expected investment in electric vehicles and other technologies to $50 billion by the year 2026.
That figure is significantly higher than Ford's previously announced $30 billion outlay for EVs through 2025. The Dearborn automaker plans to spend $5 billion on electric vehicles this year, double the amount it spent for EVs in 2021.
Ford's decision to split EVs and legacy autos into two separate units but keeping them in-house will help appease to some extent Wall Street analysts. They have been pressuring for quite some time now legacy automakers such as Ford to spin off their EV operations to get value that investors have been giving to some EV start-ups.
Farley highlighted the two units in his speech, saying that Ford's new EV business will produce as much excitement as any pure electric vehicle competitor right now. The main difference with Ford's EV unit according to Farley is its scale and resources, which he says cannot be matched by any other EV start-up out there.
Farley did not leave out Ford's legacy business in his statement, describing this unit as "a profit and cash engine" for the carmaker. That is the main reason why Ford decided to not spin off either of the two operations, with Farley emphasizing the leverage and interconnectivity between the EV and traditional business. Farley also made it clear that Ford does not need additional capital to fund its operations for both units.
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Ford's traditional operations will be called "Ford Blue" while its EV business will be named "Ford Model e." Ford announced that "Ford Model e" and "Ford Blue" will "operate as distinct businesses" but both units will "share relevant technology and best practices to leverage scale and drive operating improvements."
Investors were happy with Ford's decision to split operations, with shares of the automaker jumping 8.4 percent on Wednesday to $18.10 a share. That is a welcome development for Ford's stock, which is already down 12.4 percent this year.
Farley also announced that Ford plans to produce more than 2 million electric vehicles and generate 10 percent adjusted operating profit across the company by the year 2026. Ford also plans to cut $3 billion in structural costs by that time.
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