Ford Reportedly Plans To Separate Its EV Business: Here's Why
Photo: Courtesy of media.ford.com.
Ford Motor Company's (F) CEO Jim Farley acknowledged on the company's fourth-quarter earnings call that running an ICE business and a EV business are not the same. The Ford CEO did not explicitly mention a separation or spin-off, but reports suggest that the company could be toying with those options.
What Happened
Ford is exploring a way to separate its legacy auto and EV businesses in a bid to unlock value of the latter, Bloomberg reported. Going a step further, Farley is leaning toward a spin-off of either of the businesses so that the EV unit gets an earnings multiple, similar to that of EV pioneer Tesla, Inc. (TSLA).
Tesla shares have recently been trading at 88.50 times the estimated forward earnings, compared to Ford's 8.38 forward price-earnings ratio. The Elon Musk-led company's elevated valuation is due to the premium investors are willing to pay for Tesla's future growth.
Ford, however, isn't favoring a spin-off but is instead leaning toward internally separating the two businesses through a broader reorganization, the report said. The company is also under pressure from Wall Street for a breakup, it added. This will reportedly add value by "shedding legacy costs" and make it easier for tapping capital markets to raise funding.
The reorganization plan may draw opposition from Ford's founding family, which controls the company through a special class of stock and has three seats on the board, Bloomberg said. Benzinga has reached out to Ford for comment, but did not hear back at the time of publication.
Why It's Important
Ford has embarked on an ambitious electrification plan, named Ford+, under which it has earmarked $30 billion in spending by 2025. The company plans to electrify about 40-50% of its global vehicle volume by the timeframe.
The company has nearly doubled the production target for its F-150 Lightning EV pickup truck and tripled the target for its Mach-E all-electric SUV. Deliveries of the F-150 Lightning are expected to begin in Spring. Ford closed Friday's session up 2.85% at $18.04.
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Chief Executive Officer #JimFarley wants to wall off #Ford’s electric operations from its internal combustion engine business and has even considered spinning off one or the other, people familiar with the effort said. A spinoff could generate the kind of earnings multiples that have given #Tesla a market value approaching $1 trillion.
But splitting the company, which Ford says it isn’t planning, may prove too difficult, so Farley instead may simply separate the EV business internally as its own unit as part of a broad reorganization that seeks to give Ford an edge in the electric age. $F $TSLA
What would this mean for #Ford stock holders? $F