In the Electric-Car Race, Ford Is Stuck in a Hybrid
(Bloomberg Opinion) -- Ford Motor Co. is splitting, sort of. Ford Model e, as the electric-vehicle operations will now be called, is getting its own bit of corporate space, distinct from the legacy Ford Blue business making gas-guzzlers. The two units will be run separately, albeit with Jim Farley, the current chief executive officer, as president of both (and CEO of Ford Blue) and supporting each other in shared areas such as engineering. They both will feed the fleet business, Ford Pro; the company’s autonomy development effort, Ford Drive; and … Lincoln. Ford Credit will continue to support all of it.
But for now, the much-anticipated spinoff of the electric business isn’t happening. The logic for doing that would have been to garner a stratospheric valuation multiple for a separate stock and use that to fund the EV development costs, now put at $50 billion, or more than two-thirds of Ford’s current market cap. Instead, Farley says, profits on vehicles using engines will pay for building Ford Model e’s expanding lineup.
Investors seem fine with the fact that the central feature of Ford’s approach hasn’t changed, with the stock jumping almost 8% in early trading Wednesday. Perhaps the incessant turmoil everywhere else makes them OK with this evolution rather than a full-on revolution.
And there are real benefits to keeping Ford intact. Its cash flow, long-established manufacturing capabilities and heft in procurement are resources that many startups would love to be able to draw upon. Meanwhile, the Ford brand is not, like Tesla, synonymous with EVs. On the other hand, in a recent survey of almost 5,000 consumers, Cox Automotive found that Ford’s electric efforts had greater brand awareness than those of any other legacy automaker.
Ford has displayed a certain, perhaps unexpected, agility in tackling electrification. Unlike General Motors Co., which is building dedicated EV platforms from the ground up, Ford has taken a more direct route to market, leaning on existing architecture and technology to get the Mustang Mach-E and the forthcoming F-150 Lightning on the road. Prioritizing speed requires some performance compromises — for example, the Mach-E’s relatively heavy weight — and limits the new vehicles that can be built off the same platform.
In this game, speed seems preferable, and separating Model e into its own unit looks like a natural next step. This operation is tasked with developing those dedicated EV platforms and associated services to build on Ford’s early advantage. When Ford poached Tesla veteran Doug Field from Apple Inc. last fall, I wrote that one reason was to advertise that Ford was now “the sort of place where someone like Field wants to work.” Field reiterated that during Wednesday morning’s announcement, talking of creating a business “where people in tech who never dreamed of being in the auto industry have a place.” He added that, in seeking the best and brightest, “I don't care if they come to work in bunny slippers.” How very Silicon Valley.
The danger, of course, is captured in the way this reorganization ends up as something of a matrix — a hybrid rather than a true EV, if you will. In trying to catch up to Tesla — namechecked by Farley on Wednesday’s webcast — Ford faces the classic dilemma of trying to protect its existing profit source while fostering a startup-like operation with the freedom to innovate and eventually eat most of those profits. In attracting the bunny-slipper mavericks he needs, Field will have to finesse his unit’s continued links with Detroit’s distinct culture and his lack of Ford Model e stock to hand out.
That said, Ford’s creativity to date earns it some benefit of the doubt. Separate income statements for the businesses beginning next year will mark an important step toward putting a value on their different growth trajectories and margins, even if there’s still no way to buy (or short) them separately. And if the evolution holds, a genuine split must follow at some point down the road.
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Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.
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