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Ford Separates Electric Segment; Raising Fair Value

We think the move will help the the company attract talent in the competitive electric vehicle industry

At a Feb. 23 investor conference, Ford F CEO Jim Farley gave a blunt assessment of Ford's combustion business, saying it has too many people and that because battery electric vehicles have different customer needs, he cannot ask his combustion team to beat Tesla. Ford took action on March 2 by announcing effective immediately, combustion, now known as Ford Blue, and the BEV business, now called Ford Model e, will operate as separate businesses while remaining together under Ford Motor Company. Ford will report separate profit and loss information for Blue and e starting in 2023. The company also confirmed 2022 total company adjusted EBIT guidance of $11.5 billion to $12.5 billion and introduced a 10% total company adjusted EBIT margin target by 2026, up from 7.3% in 2021. Ford raised its projected 2030 global BEV mix of annual volume to 50% from at least 40% and sees 2026 BEV volume of 2 million units, or about 33% of volume. It also is doubling 2022 BEV investment from 2021, which includes non-capital expenditure, to $5 billion. We are raising our fair value estimate to $24 from $22 after raising our midcycle total company EBIT margin number to 8% from 7%. We don't model 10% due to 2026 being the midcycle year in our model. The plan should allow for excellent focus across the company for combustion and BEV products and service, but it will entail ramp up costs to increase BEV investment and hire new talent. We think this new Ford Model e segment, plus the presence of former Tesla and Apple veteran Doug Field, who is now Ford Model e's chief EV and digital systems officer (Farley is president of Ford Model e), will help Ford attract talent that would otherwise work in the tech industry and perhaps make capital raising easier via more Green Bonds. Ford Blue, led by Americas and international markets head Kumar Galhotra, will focus on reducing its fixed costs by about $3 billion and continuing to invest in popular combustion models such as Bronco and F-Series.

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About the Author

David Whiston

Strategist, Equity Analysis
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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