Ford Motor Co. is doubling down on plans to compete with Elon Musk’s Tesla, General Motors and other global rivals in the race to dominate the fast-moving electric vehicle market by creating Model e, a new business unit within the company dedicated solely to EVs. The stock’s rise suggests investors and analysts think that’s a smart move.
CEO Jim Farley is moving current and future battery-powered products, including the Mustang Mach-E crossover and F-150 Lightning pickup truck, to the new division while the 118-year-old manufacturer’s gasoline, diesel and hybrid models will be overseen by the new Ford Blue unit. Doug Field, previously a top engineer for both Tesla and Apple, is to lead Model e’s product development as its chief EV and digital systems officer. He’s also in charge of developing software and embedded systems for Ford.
Model e “will be Ford’s center of innovation and growth, a team of the world’s best software, electrical and automotive talent turned loose to create truly incredible electric vehicles and digital experiences for new generations of Ford customers,” Farley said on Wednesday.
The stock rose 8.4% percent after Farley rolled out his plan, closing at $18.10 in New York trading.
The Dearborn, Michigan-based automaker, which expects to be selling at least 2 million electric vehicles annually within four years, intends to spend $5 billion in 2022 to build up its capacity to produce electric models, as well as the battery packs, motors and key components they’ll need. Farley has said the company is racing to double production of the fast-selling Mach-E, a rival to Tesla’s Model Y, to 80,000 units in 2022 and boost the annual production target for the F-150 Lightning to 150,000 units from an earlier 80,000-truck goal. Ford has said it has orders for hundreds of thousands of the battery-powered pickups.
Ford, which began its business over a century ago with the Model T, in 2014 blocked efforts by Musk to use the Model E name for a Tesla vehicle, foiling the billionaire entrepreneur’s plan for a vehicle line that spelled out SEXY. Tesla instead added the Model 3 in late 2017. Ford also previously shifted its commercial vehicles to the Ford Pro unit, with all three business lines operating under Farley’s Ford+ strategy.
“Ford’s move to split up its business is simultaneously radical and rational,” said Jessica Caldwell, executive director of insights for auto researcher Edmunds. “It’s evident that the future of the industry is electric, and legacy auto companies like Ford need to put themselves in the best position to compete with EV-only companies like Tesla that aren’t attempting to produce (and depend on profits from) ICE vehicles while also rolling out an aggressive EV strategy.”
The plan led Garrett Nelson, vice president at CFRA Research to boost his rating on Ford shares to a “Strong Buy” from “Buy” on shares of Ford Motor Co.
“The move is intended to help narrow the massive valuation gap between Ford and EV pure plays, such as Tesla, Lucid and Rivian, and help facilitate an EV spinoff if it so chooses,” Nelson said in a research note. “Ford quietly became the second-best-selling U.S. EV manufacturer in 2021, thanks to the Mustang Mach-E, and its EV sales are poised to accelerate further in the coming months with first deliveries of the F-150 Lightning.”
Though the plan looks “bold,” and could provide investors with more transparency into Ford’s EV business growth, Emmanuel Rosner, an equity analyst for Deutsche Bank, thinks Farley’s goal of raising the carmaker’s new profit margin with the new structure won’t be easy.
“Ford also set out a target for 10% EBIT margin for the entire company by 2026, up from 8%,” he said in a research note. “We view this as ambitious, as a 10% margin combined for Ford Blue and Model e will require considerably higher Blue margin, given that EVs will be much less profitable.”
