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Ford boosts EV spending to $50 billion, sets up new Model e unit -Breaking


© Reuters. FILEPHOTO: This is a photograph of a man standing in front the Ford logo, during the media day at the Auto Shanghai exhibition. Shanghai, China. April 19, 2021. REUTERS/Aly Song

Aishwarya Narayana, Abhijith Ganapavaram, Paul Lienert

(Reuters) -Ford Motor Co. on Wednesday announced that it would spend $50 billion on electric vehicles, an increase of $30 billion over the prior year, and separate its legacy combustion engine unit from its EV unit. This move was made to catch industry leader Tesla (NASDAQ) Inc.

Jim Farley, the Chief Executive Officer of Farley’s company electrification strategy, is responsible for the restructuring and further investment.

Farley claimed that Ford will build over 2 million EVs annually by 2026. That’s about one-third the annual global production. By 2030, EVs could account for half of total Ford’s worldwide production.

John Lawler, Chief Financial Officer of the company said that the company won’t make any profit from its EV business before the next generation models are produced in 2025.

Ford Model e, an EV company, will not be separate from its internal-combustion engine unit (ICE (NYSE.)), Ford Blue. But, both divisions will continue to share “best practices” and technology, according to the automaker.

These two businesses will, in addition to Ford Pro commercial-vehicle, report their financial results separately by 2023.

“We see the news positively because it contains strong industrial logic. It will allow investors to value separately the money-losing EEV business.” Wells Fargo Colin Langan, analyst at NYSE: said this in a note.

Ford shares rose more than 7% during early trading, before settling at $17.47 by mid-morning, an increase of 4.6%.

Doug Field, chief EV/digital systems officer at Ford Model e, will oversee product development for Ford Model e. Lisa Drake will be responsible for EV industrialization.

Farley’s decision does not address the calls of some investors that Ford and GM have made to them to sell their EV businesses to get more value.

Analysts in the industry said Wednesday’s announcement would set the stage for Ford to possibly spin off its EV unit.

Ford stated that it hoped reduce structural costs by up to $3Billion in its ICE company, however, he did not specify if this would mean reducing the headcount. In order to ensure that critical materials are available for the batteries, the EV unit will have to spend billions.

Farley stated, “We need to have the ICE company to make cash, and the EV to be focused on innovation.”

His management had stated previously that he believed the automaker’s EV- and ICE business were underperforming in terms of earnings.

Reuters reported Tuesday that Ford had planned to separate the two companies but it would maintain its corporate umbrella.

Ford claimed it will spend $5 billion this year on EVs, a 2x increase from 2021. Ford also targets an adjusted earnings before taxes and interest (EBIT), margin of 10% in 2026, compared to the 8% that it hopes for this year.