Ford split both ‘radical and rational’
Ford Motor Co. stock rallied Wednesday as Wall Street cheered the auto maker’s decision to split itself into two businesses and “go all in” toward electric vehicles.
Ford F, +7.11% shares were on track for their largest one-day percentage increase in two months, snapping a two-day losing streak.
Ford stock has gained nearly 43% in the past 12 months, compared with gains of around 13% for the S&P 500 index. SPX, +2.04%
Ford’s “bold reorg can help accelerate transformation” and being more competitive, Joseph Spak with RBC said in a note.
“We applaud this move as it can help investors better understand the business,” but the transparency and key performance indicators for each unit will be key, he said.
See also: Rivian raises EV prices, citing inflation, supply-chain problems
“We wouldn’t be surprised to see other OEMs follow a similar template,” Spak said.
Ford earlier Wednesday said it was forming two “distinct” auto businesses, one focused on electric vehicles, which the company dubbed Ford Model e, and the other on internal combustion engines, called Ford Blue. They join Ford Pro, the auto maker’s commercial-vehicle unit.
Chief Executive Jim Farley will lead the EV business as president.
Ford is “going all in, creating separate but complementary businesses that give us startup speed and unbridled innovation in Ford Model e together with Ford Blue’s industrial know-how, volume and iconic brands like Bronco, that startups can only dream about,” he said.
Related: Lucid stock falls 14% after luxury EV maker slashes production outlook
The news was “another encouraging proof point of action in the company’s Ford+ Strategy outlined earlier this year, and adds to a list of positive announcements made by the company in recent months,” including plans to double production capacity of the F-150 Lighting and investments to EV plants, B. of A. analyst John Murphy said in his note.
Ford will strengthen its core business to fund its future business, he said.
Moreover, despite the volatile macroeconomic backdrop, “Ford is starting to hit a more sustainable inflection in earnings, driven by the combination of a favorable product cadence in the (U.S. and North American) market; redesign efforts; and a real push into electrification, autonomy, connectivity, and other future businesses,” Murphy said.
Ford’s split managed to be both “radical and rational,” said Edmunds analyst Jessica Caldwell.
It can be challenging for a company to juggle disparate businesses, she said.
“It’s evident that the future of the industry is electric, and legacy auto companies like Ford need to put themselves in the best position to compete with EV-only companies” such as Tesla Inc. TSLA, +0.01%, which are not trying to make ICE vehicles while also rolling out their EV strategy.
“By separating Ford’s future from its present, Farley is empowering different, specialized teams to laser focus on their specific tasks,” Caldwell said.
Garrett Nelson at CFRA said that Ford likely intends to help narrow the “massive valuation gap” between Ford and EV pure plays such as Tesla and also Lucid Group Inc. LCID, -2.12% and Rivian Automotive Inc. RIVN, -12.19%
It would also help an EV spinoff if the company so chooses, he said.
“Ford quietly became the second bestselling U.S. EV manufacturer in 2021 thanks to the Mustang Mach-E and its EV sales are poised to accelerate further in the coming months with first deliveries of the F-150 Lightning,” Nelson said. The analyst raised his rating on the stock to a “strong buy” from buy.
The auto maker also reported February sales earlier Wednesday that fell 21% from a year ago, including a 26% stumble in truck sales and a 12% fall in SUV sales.
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