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Besides the restructuring, Ford also confirmed giving a boost to its spending on EVs from $30 billion to $50 billion by 2026.
Ford Motor Co (NYSE: F) recently announced the restructuring of its auto business into two different units; one to run electric vehicles (EV) and the other for legacy combustion engine cars. Besides the restructuring, Ford also confirmed giving a boost to its spending on EVs from $30 billion to $50 billion by 2026. While the EV business unit would be called Ford Model e and the gasoline division is named Ford Blue. Model e was the name Tesla wanted for his 3rd generation car. However, at the time of the incident that happened nearly a decade ago, Ford barred Tesla from publishing the trademark.
Why Did Ford Split Its Business?
As per the press release, the automobile firm reasoned out its business reorganization stating that it will help optimize profits and operational efficiency. As the company’s staff including the engineers and designers can focus on each unit separately without having to split their time to focus on one, the output would be more, and the company believe sit would double its profit margins by the year 2026. Bottom line, Ford expects the new structure would augment its capacity for best-in-class products and increase growth and profitability.
Another reason according to Ford’s chief executive Jim Farley is the company wants the best in the industry to work on developing the electric vehicle division. As a separate entity, the Ford Model e would attract software and electric vehicle experts from across industries and not just limited to the automobile business. However, even though they will be two separate units, the two divisions will feed into one another. While the software systems developed by Model e would be put to use for the company’s gasoline-powered vehicles too. On the other hand, Ford Blue would be negotiating with the suppliers of automobile parts on behalf of the electric vehicle division. Thus, there will be a relevant exchange of technology as well as industry best practices and the two units will work on hands in glove to drive performance.
The Way Forward and Company Expectations
Ford expects the new plan to help it hit the EBIT margin of 10% and predicts the production of more than 2 million electric vehicles in 2026. Although no profit is expected from its EV unit at least till 2025, Ford wants its EV production share to be 50% of its total volume by 2030. It also expects a cut down on its structural costs in the internal combustion engine business by up to $3 billion. For its strategy to fully work, it needs to raise earnings through Ford Blue and use it to spend on EV with a strong focus on innovation. It is planning to make an investment of up to $5 billion on EVs in 2022, a figure two times the amount spent in 2021.
While Doug Field will be the chief EV and digital systems officer for the electric vehicle division-leading its product development segment, the unit’s industrialization section will be headed by Lisa Drake. Beginning with 2023’s first quarter, the new divisions, Ford Blue and Ford Model e alongside its commercial vehicle division, Ford Pro, would be reporting separate financial results. A Business Insider report stated the company’s stocks increased by as much as 9% on Wednesday after the company unveiled its new plan.