Ford boosts EV spending to $50 billion, creates new Model e unit

A man stands near the Ford logo during a media day for the Auto Shanghai show in Shanghai, China April 19, 2021. REUTERS/Aly Song

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March 2 (Reuters) – Ford Motor Co (FN) said on Wednesday it would increase spending on electric vehicles to $50 billion, from $30 billion previously, through 2026 and operate its electric vehicle unit separately of its legacy combustion engine business, in a move to nab industry leader Tesla Inc .

The reorganization and additional investment comes as chief executive Jim Farley is aggressively betting on the company’s electrification strategy.

Farley said Ford plans to build more than 2 million electric vehicles in 2026, about a third of its annual global production, with electric vehicles reaching 50% of its total volume by 2030.

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Ford shares were up 7.2% at $17.90 at midday Wednesday.

According to chief financial officer John Lawler, the company does not expect to make a profit from its electric vehicle business until production of the next-generation models begins in 2025.

Reuters was first to report on Tuesday that Ford plans to split its core vehicle efforts into two separate businesses to accelerate its electric vehicle efforts.

Although the EV business, named Ford Model e, will be separate from the company’s internal combustion engine (ICE) unit, Ford Blue, the two divisions will share technology and “best practices”, said the Car manufacturer.

The two companies, as well as the commercial vehicle unit Ford Pro, will release separate financial results by 2023, he added.

“We view the news positively as it has strong industry logic and will allow investors to separately assess the money-losing EV business,” Wells Fargo analyst Colin Langan said in a note.

Barclays automotive analyst Brian Johnson said in a note titled “Reorganization not restructuring” that Ford’s announcement suggests it is “likely to accelerate its progress towards a BEV future – but not towards a rotation short term”.

Doug Field will lead product development for Ford Model e as director of EV and digital systems, and Lisa Drake will lead EV industrialization for the unit.

Farley’s move falls short of calls from some investors who have pushed Ford and General Motors Co to divest their electric vehicle businesses in order to extract full value from these businesses.

Industry analysts, however, said with Wednesday’s announcement, Ford would set the stage for a potential spinoff of its EV unit on the road.

Ford said it hopes to cut structural costs by up to $3 billion in its ICE business, but did not say whether that effort would involve reducing the number of employees. Farley also said the EV unit will need to spend “billions” to secure critical battery raw materials as the volume of EVs grows.

“We need the ICE business to generate cash and the EV business to focus on innovation,” Farley said.

He previously said his management team believed the automaker’s EV and ICE businesses were underperforming in terms of earnings. Read more

Ford said it plans to spend $5 billion on electric vehicles this year, a doubling from 2021. It is also targeting an adjusted earnings before interest and tax (EBIT) margin of 10% by 2026 against 8% that he hopes to reach this year. .

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Reporting by Aishwarya Nair and Abhijith Ganapavaram in Bengaluru, Paul Lienert and Ben Klayman in Detroit and David Shepardson in Washington Editing by Mark Porter and Matthew Lewis

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