With large automakers starting to dip their feet into the waters of electrification, there come questions as to whether or not separating the electric vehicle operations is a beneficial move. Ford Motor Company is currently facing that very question as creating a spinoff could generate the kind of earnings from investors who have given Tesla a market cap value approaching an unfathomable $1 trillion USD.
Bloomberg recently reported on Chief Executive Officer Jim Farley and his alleged consideration to wall off Ford’s EV operations from its internal combustion engine business and his thoughts on spinning off one or the other. This news resulted in the company’s market shares rising by 2.9% to close at $18.04 on the day. It’s speculated that Ford Motor Company could get an edge in the electric age by separating the EV business internally as its own unit as part of a broad reorganization.
Ford Motor Company: Major Decision Ahead
A spinoff would be an incredibly tough sell to the Ford family, which controls the automaker through a particular stock class and is likely not keen on losing influence over the 118-year-old company. Meanwhile, the company faces pressure from Wall Street to spin off its EV business to boost value by shedding legacy costs and gaining greater access to capital markets. Late last year, Ford had talks with financial advisors to explore options for the EV operation.
Over time, Farley has seen his vision evolve from initially considering a smaller spinoff to looking at an internal split. However, an internal split would still pose significant complications for Ford. The company would be splitting up engineering and operations, where some engineers and factories create and build both types of vehicles.
A spinoff of any of Ford’s operations would be a sharp contrast to the companies most significant rival, General Motors. According to CNBC, GM executives have said the automaker doesn’t have any plans at this time to spin off its electric vehicle business despite also receiving pressure from Wall Street to do so. Of course, it’s always important to remember that nothing is set in stone, and this is all just talk for the time being. Ford may conclude that a spinoff would be entirely too difficult even if there’s a potential to see high earnings generated by investors.
Farley’s Words During Q4 Earnings Call Could Be A Clue
Let’s look no further than to how Ford CEO Jim Farley answered a question from John Murphy, the head auto analyst at Bank of America/Merrill Lynch during the company’s recent Q4 2021 earnings call:
John Murphy: “Just a first question. Jim, there’s been a lot of speculation that you might consider spinning a portion of the future car business, whether it be EV or AV with Argo.
But there’s also the backside of that that might make more sense to spin some of your legacy ICE assets and have the entire company become a more pure-play EV/AV company in totality. So I mean, how do you think about this? And what would you be your motivations either way? And how you — I mean, how are you strategizing this?”
Jim Farley: “I don’t want to speculate on rumors or speculate on the speculation in the press. But I will go back to something we said and I’ve said over and over again, which is running a successful ICE business and the successful BEV business are not the same. The customers are different.
We think the go-to-market is going to have to be different. The product development process and the kinds of products we develop are different. The procurement supply chain are all different. The talent is different.
The level of in-sourcing is different. And actually, the rhythm of the business is different, fundamentally different. So I’m not going to talk about speculation in the press, but I will tell you that the way we’re operating the businesses acknowledges those differences. And I’m really excited about the company’s commitment to operate the businesses as they should be.”
What’s Likely To Happen Next
Indeed, Farley admits to the EV side of the business being a completely different species of animal than Ford’s core competencies of building and selling high-volume, high-margin trucks, utility vehicles and vans that top the sales charts. But when it comes to hedging a future being pushed into electrification by politicians, and not so much being demanded by customers at the moment, spinning off the company’s electrification operations may not be the go-to strategy at this juncture. Instead, the company may simply restructure.
Running two “different” businesses at once, however, may require some additional leadership hires (which are happening), and subsequent talent acquisitions (also happening) that trickle down from the C-suite to the plant floor. Time will ultimately tell how this all plays out.