a bold reorganisation revives investor interest in the automaking giant
for a couple of years now, Ford was seen by investors as being past its prime. this was largely due to its struggles with gaining a foothold in the electric vehicle (EV) space, which has seen a boom since around the onset of the pandemic. while it hasn’t been for a lack of effort, Ford, which also holds a 12.5% stake in Amazon-backed EV-maker Rivian, is now going “all in” on the segment.
a major announcement on March 2 saw the company’s stock jump over 8% to register its biggest single-day gain of the year. why are investors excited?
Ford announced that it would split its internal combustion engine (ICE) and EV businesses into separate units. it also upped its investment target into the latter from $30 billion to $50 billion, by 2026. this move will decouple the profitable ICE unit (named Ford Blue) from the loss-making EV unit (named Ford Model e) in which the company does not expect to see a profit before 2025. while some profits from the ICE unit will still flow into the EV unit, it will make a positive difference on the balance sheet, which often influences markets. the move also allows Ford to raise capital separately for the EV unit if it so wishes.
the reorganisation appears to make good business sense going by sales figures for the company as well. its lately monthly sales report, for February, shows an overall drop of 21% from the same month last year. but in the same month, Ford claims it witnessed a 55.3% jump in EV sales. while on an absolute scale there’s a massive difference in the numbers of vehicles sold, focusing on a segment that’s demonstrating growth promises to pay off in the long run.
as mentioned above, the announcement was a hit with investors at least on the day. this represents a deviation from recent market sentiment on EV businesses. most of them, apart from market leader Tesla, have little to show in terms of sales and are even struggling to meet their promised deadlines and vehicle prices. Ford’s $500 million investment in Rivian, for example, has halved in valuation now from $11 billion at its peak when the latter’s stock was trading at over $100/share.
there seems to be little doubt that the future of mobility is electric. the price of crude oil rocketing on the back of the conflict in Ukraine just goes to show another reason why. perhaps the trust gained from nearly 12 decades of existence and the cash to support innovation might see Ford outperform young challengers who have only sprung up in recent years.