Ford’s CEO just made a convincing case to break his company up and go full EV
If there is one message Ford subliminally delivered to investors this week, it’s that the U.S. carmaker’s operations are on divergent paths.
During Thursday’s earnings call, chief executive Jim Farley inadvertently put forward a forensic case for why his internal combustion engine (ICE) vehicles could be spun off into a listed company separate from its activities in zero-emission battery electric vehicle (BEVs) to unlock greater value for shareholders.
When pressed whether the legacy ICE operations should be carved out to quarantine the growing electric connected car business from potential stranded assets, Farley told investors not to worry: He’s already running the two as if they were.
“I’m struck at how different the rhythm of this digital BEV business is versus ICE,” he said after posting results that showed its $2.0 billion quarterly operating income fell behind the $2.6 billion of Tesla. “Running a successful ICE business and a successful BEV business is not the same.”
The Ford CEO voiced his surprise at how much simpler the engineering can be in an electric vehicle. While the F-150 Lightning comes with just one cab and one bed, the combustion engine version features some 40-odd configurations from which a customer can choose. And added complexity saps margins.
Of course a product can afford to be similar when an industry is just starting its transition to EVs, as the pressure to stick out in the competitive field is much lower, with fewer rivals.
Nonetheless, the implications of Farley’s remarks extend beyond just Ford. Rivals like Stellantis and BMW have thus far eschewed adopting a dedicated approach to engineering and marketing fully electric vehicles built on bespoke architectures like General Motors’ Ultium and Volkswagen’s MEB platforms.
“The customers are different; we think the go-to-market is going to have to be different,” Farley described. “The kind of products we develop are different, the procurement supply chain is all different, the talent is different, the level of in-sourcing is different.”
TL:DR for legacy automakers—applying the same strategies is not a recipe for success, according to Farley.
Whatever it takes
Whereas Ford’s EV lineup, like the Mustang Mach-E, is primarily in need of scale, the CEO and his finance chief John Lawler said just the opposite is the case for ICEs.
There, complexity needs to be reduced. As a result, the execs said they would be seeking to squeeze as much profit from conventional ICE cars going forward, now that Ford has, in Farley’s view, the freshest lineup of any competitor.
Meanwhile, it’s full steam ahead for EVs, with the CEO describing his decision to quickly expand Lightning manufacturing just as its production hall had been built as “knocking down walls in our Rouge Electric Vehicle Center while the mortar was still wet.”
Whereas his other models just needed chips in order to be built, production of this spring’s Lightning EV truck is physically constrained by a lack of actual factory capacity.
“If we had full production today to meet our current demand, we would rival the [Tesla] Model Y as the leading BEV nameplate in the U.S. market,” Farley said.
The Ford CEO said he took no issue with naysayers who doubted a 118-year-old company could emerge a winner from the industry’s greatest transition since the invention of the modern automobile. Ford would behave like a challenger, he assured, not an incumbent.
“We’re not seeking half measures,” he said. “We’re done with incremental change. We have a clear plan, a bias for action, and a whatever-it-takes mindset.”
It’s almost as if he’s subconsciously embracing the idea of a breakup.
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