Ford Announces Separation Of Legacy Auto and EV Businesses To Give 'Startup Speed'

After weeks of speculation, Ford Motor Company F confirmed it is taking steps to unlock value of its EV business and improve operational efficiency, while also scaling EV manufacturing.

What Happened: Ford said on Wednesday it will create distinct EV and internal combustion businesses in a bid to take on EV startups and established automakers. The new businesses are to be named "Ford Blue" and "Ford Model e."

The former will focus on Ford's iconic ICE vehicle portfolio, with the dual objective of driving growth and profitability. Ford said it hopes to cut flab and improve quality, while at the same time providing "world-class hardware engineering and manufacturing capabilities," for all of Ford.

The EV-centric Ford Model e will help accelerate innovation and delivery of EVs at scale. It will be responsible for developing software, and connected vehicle technologies and services for the entire company.

Despite the separation, the units will share relevant "technology and best practices" to leverage scale and achieve operating improvements. The two businesses, along with Ford Pro, will have separate P&L statements by 2023, the company said.

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Ford Pro is meant to serve as a one-stop shop for commercial and government customers, providing a full suite of software, charging, financing, services and support on Ford and non-Ford products.

"We have an extraordinary opportunity to lead this thrilling new era of connected and electric vehicles, give our customers the very best of Ford, and help make a real difference for the health of the planet," Ford executive Chair Bill Ford said in a statement.

Ford says the separation will give the automaker startup speed and innovation in Ford Model e. The decision to separate was made based on the success of small, mission-driven Ford teams that developed the Ford GT, Mustang Mach-E SUV and F-150 Lightning pickup as well as Ford's dedicated EV division in China, it added.

CEO Jim Farley will serve as president of Ford Model e, in addition to his role as president and CEO of Ford Motor Company. Doug Field will head the Ford Model e's product creation in the role of chief EV and digital systems officer. Field, who previously worked for Tesla, Inc. TSLA, will also lead the development of software and embedded systems for all of Ford.

Kumar Galhotra, meanwhile, has been appointed as the president of Ford Blue. Stuart Rowley and Hau Thai-Tang will take on new global roles to support Ford's transformation, the company added.

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Ford+ Plan Update: Providing an update on the Ford+ plan unveiled by Farley in May 2021, the company said the Ford Blue and Ford Model e, along with the new Ford Pro business, will help realize the full potential of the plan.

The automaker noted that demand for its new EVs such as the F-150 Lightning and Mustang Mach-E is "off the charts."

FY22 Guidance Affirmed: Ford said it continues to expect 2022 adjusted EBIT to be at $11.5 billion-$12.5 billion. The high-end of the range suggests margins will hit 8%, a year earlier than expected, it added.

The company raised its long-term guidance. It now expects adjusted EBIT margin to be at 10% by 2026, up 270 basis points from the 2021 levels. This, according to Ford, will come on the back of higher volumes, improvements in the cost of EVs and a notable drop in the structural costs of up to $3 billion for its ICE business.

The company also expects to produce more than 2 million EVs annually by 2026, about one-third of the company's global volume. By 2030, the company expects EVs to make up half of its overall global volume.

Including capex, expense and direct investment, Ford targets spending $5 billion on EVs in 2022, a two-fold increase over 2021.

Ford reiterated its commitment to achieve carbon neutrality by 2050, and to use 100% local, renewable electricity in all of its manufacturing operations by 2035.

In premarket trading, Ford shares were rising 3.83% to $17.34.