Ford separating EV business from ICE vehicles in bid to boost profits

DETROIT — Ford Motor Co. on Wednesday said it's separating its internal combustion and electric vehicle businesses with a goal of increasing profit margins and getting engineers, designers and developers more focused on the unique needs of each powertrain.

EVs — which the automaker now expects to account for 30 per cent of its global sales within five years and half by 2030 — will be part of a unit called Ford Model e, while the combustion unit will be called Ford Blue. The two units, along with the recently created Ford Pro commercial unit, will collaborate in some areas but largely operate independently.

"We're literally splitting the business in half," CEO Jim Farley told Automotive News.

Ford shares rose 4.4 per cent in premarket trading after the 7 a.m. EST announcement.

With the new structure, Ford said it aims to achieve a 10 per cent total company adjusted pretax earnings margin by 2026, which is nearly double the 5.4 per cent it posted for 2021. It also plans to produce more than 2 million EVs by 2026.

“Our legacy organization has been holding us back,” Farley said on a Wednesday conference call. “We had to change.”

Ford also said it's planning big changes for its dealer body: The automaker wants a certain number of retailers to "opt-in" to selling EVs under a new set of standards that will include carrying no inventory, selling at nonnegotiable prices and being held to fewer facility requirements.

Farley, who declined to say how many dealers he wants to participate in the electric retail model, said Ford plans to discuss the upcoming changes with dealers over the next two months before finalizing the standards.

“Our message to the dealers is we’re betting on you,” Farley said on the call. “Get ready to specialize.”

The automaker is shuffling some executive roles. Farley will be president of Model e in addition to CEO, while Kumar Galhotra, president of the Americas and international markets group, will become president of Ford Blue.

"This new structure will enhance our capacity to generate industry-leading growth, profitability and liquidity in this new era of transportation," Ford CFO John Lawler said in a statement. "It will sharpen our effectiveness in allocating capital to both the ICE and EV businesses and the returns we expect from them — by making the most of existing capabilities, adding new skills wherever they're needed, simplifying processes and lowering costs. Most importantly, we believe it will deliver growth and significant value for our stakeholders."

Ford plans to report earnings for its EV, combustion and commercial units separately starting next year. In a news conference Wednesday, Farley said the business units would continue to be physically headquartered and run in Dearborn.

“Nothing’s changing,” Farley said. “Will we have new satellite operations where we have expertise, maybe in Tel Aviv or Palo Alto? Sure.”

He added that Ford planned to update work policies to add flexibility for where employees live.

ICE, EV DIFFERENCES

Farley, in an interview, said the approach is unique in that most other automakers producing EV and gasoline-powered vehicles have similar teams working on both.

"We're not going to go to ICE people and say, 'Go do a deal on lithium raw material,' " he said. "We're not going to ask our designers to design the next Lincoln EV and then the Super Duty at the same time. Most OEMs including us, until [today], have been asking our teams to do both."

To underscore the different needs and expertise of the teams, Farley recalled the product development team for the F-150 Lightning, made up of veterans of its gasoline pickups, originally projecting that Ford would need to produce just 20,000 Lightnings a year. It's now working to create capacity to build 150,000 annually, even before sales have started.

Although product development, supply chain and customer experience teams will be separated between the combustion and EV units, Farley said the two units will collaborate and complement each other in a handful of areas. At the Blue Oval City assembly plant being built in Tennessee, Ford Blue will handle body engineering and manufacturing operations, Farley said, while Model e will design the plant itself and source its advanced electrical architectures.

Model e also will handle upcoming digital services, software and over-the-air update experiences, although such services will be available in gasoline vehicles as well.

While Farley said Wednesday the automaker considered a spinoff, he told sibling publication Automotive News Ford is not spinning off its combustion or EV businesses into separate companies because doing so would require greater access to capital markets and make them less likely to work together.

The company also hopes to avoid the notion that it soon plans to wind down its gas-powered products.

"We still think that more than half our customers are going to be ICE, and they're going to be ICE for a long time," Farley said. "It's almost like our industry's kind of given up on that business. Even if the unit volume starts to fall over when mass adoption of electrification happens, in a lot of segments that's not going to happen, and we want to have a dedicated team to run that business with passion."

Galhotra said in a statement that Ford Blue plans to "unleash the full potential" of nameplates such Bronco and Maverick and the Raptor performance variant.

"We'll pair these great products with a simple, connected and convenient customer experience that earns higher loyalty," Galhotra said. "We are going to be hyper-competitive on costs and make quality a reason to choose Ford. And by doing all that, Ford Blue will be an engine of cash and profitability for the whole company."

Ford says it hopes to take out US$3 billion in structural costs from its Ford Blue business by 2026.

NEW EXECUTIVE ROLES

A number of executives will be taking on new responsibilities, effective immediately.

Doug Field, whom Ford hired from Apple last fall and is currently chief advanced technology and embedded systems officer, will lead product creation for Model e as chief EV and digital systems officer. Field also will lead development of software and embedded systems for all of Ford.

"Designing truly incredible electric and software-driven vehicles – with experiences customers can't even imagine yet — requires a clean-sheet approach," Field said in a statement. "We are creating an organization that benefits from all of Ford's know-how and capabilities, but that can move with speed and unconstrained ambition to create revolutionary new products."

Lisa Drake, Ford's North America COO, will become vice president of EV industrialization for Model e.

Marin Gjaja will be Model e's chief customer officer, heading the unit's go-to-market, customer experience and new business initiatives.

Ford of Europe President Stuart Rowley will become the company's chief transformation and quality officer. Ford said he will "establish quality as a reason to choose a Ford and lead Ford's drive to improved efficiency, reduced complexity and a lean, fully competitive cost structure across the enterprise."

Hau Thai-Tang, chief product platform and operations officer, will become chief industrial platform officer. Ford says he will lead product development, supply chain and manufacturing engineering for combustion products and common systems across Ford Blue, Model e, Ford Pro and the Ford Drive mobility unit.