The CEO of Ford Motor Co. has made a case for a significant restructuring of the 118-year-old auto manufacturer towards the electric future. He conceded that the company is underperforming on its internal combustion and battery-powered vehicle models.
The CEO’s initiatives
On Wednesday at an auto conference of Wolf Research, Jim Farley, the CEO of Ford Motors, said that the company has excess investment, people, and complexity but does not have the expertise to transition its assets. He said that the management team believes its BEV and ICE portfolios are underperforming.
The comments underscore Ford’s seriousness to push its EV business even as the legacy gas-powered auto business diverges to more investment demand, customers, and growth strategies. As per Bloomberg News last week, Jim Farley is looking at ways to run the internal combustion and EV units separately.
Farley reaffirmed Ford Motors‘ stance that it was not selling its business lines. The company had earlier considered such a move but later shifted focus on how to run the operations separately.
Ford Motors has been facing pressure from Wall Street to spin off its EV business which is still at a nascent stage, boost value by reducing legacy costs, and gain better access to the capital markets. Investors have rewarded the pure EV makers such as Tesla Inc. with huge multiples making it the world’s most valuable EV auto manufacturer.
Farley tried to reassure its investors, saying that he was pushing only for profitability and indicated that it might surpass its 8% gross margins goal. He, however, acknowledged that the company lacks the talent to restore and make the most of its internal combustion electric vehicle business.
Farley said that digital BEV and ICE talents are different, and one cannot ask the ICE people to do certain things. The company has plans to get the proper structure and people to compete and win.
Ford Motors shares fell by 2% in New York on Wednesday. The stock has declined by 18% this year compared to the 11% decline of the S&P 500 index.
As per Bloomberg News, Ford has committed $30 billion towards its EV strategy till 2025 and another $10 billion to $20 billion by the end of 2020s to convert its existing factories to plug-in models.
Fairley has tripled production of the electric model Mustang Mach E and doubled its F-150 plug-in pickup, which will be sold this spring. Ford plans to produce annually 600,000 EVs in two years from now and generate nearly half of its sales volumes from EV vehicles by 2030.
Ford also wants to wring the costs out from its distribution model, causing a $3000 to $4000 per car price disadvantage compared to Tesla. Tesla has a direct sales model and does not have dealerships, and Farley estimates that Tesla makes $10,000 plus per car.
Farley says that to get margins like Tesla, he needs real experts who can drive that scale as he cannot ask the ICE unit to become like Tesla. He is optimistic about Ford’s prospects once he gets the right talent and structure.
