Ford to separate legacy auto and EV businesses into 'distinct' business units

Ford Motor Co. will separate its legacy auto and burgeoning battery-electric vehicle businesses into two "distinct, but strategically interdependent" units within the company, the Dearborn automaker said Wednesday.

The move amounts to a major organizational restructuring within the Blue Oval that reflects the changes needed to scale up an EV business that can effectively compete against startups — namely, Tesla Inc. — and legacy manufacturers alike. It is not a spinoff, CEO Jim Farley says, but the creation of new businesses — dubbed Ford Blue and Ford Model e — with separate design, supply chain and customer experience teams, among other things. Both will remain headquartered in Dearborn, and will work together on certain initiatives.

“Why we’re doing this is very simple: We want to beat the new players, and we want to beat the established players, and to do that we need focus now," Farley told The Detroit News. "But we don’t need to spin it out. Because we want that synergy and expertise to move between these groups in very specific areas.”

With the formation of those organizations in the coming months, Ford will have three separate units centered on different aspects of the business, including Ford Pro, the standalone commercial vehicle business the automaker launched last year. Commercial vehicles, electrification and digital connectivity are at the core of Ford+, the turnaround strategy Farley unveiled last May.

The full impact on Ford's workforce was not immediately clear. Farley said to expect Ford "to become more lean" but also characterized the reorganization as a growth strategy and described scenarios where employees could shift to different parts of the company. 

“The opportunity here is that there’s going to be growth in the company, but some parts of our company like the ICE side is going to get leaner, absolutely," he said. "We have too many people as we speak, in many parts of our ICE business. And so it will shift. But the most important shift will be the know-how and capability, the skills.”

In announcing the move, Ford raised some of its longer-term operating and financial targets while reiterating its financial guidance for 2022 of $11.5 billion to $12.5 billion in adjusted earnings before interest and taxes.

The company is targeting a company adjusted EBIT margin of 10% by 2026, driven by higher volumes, improvement in the cost of EVs and a reduction of up to $3 billion in structural costs tied to internal combustion engine vehicles. Ford has been targeting an 8% company adjusted EBIT margin, which it could achieve one year earlier than its previous target if it hits the high end of its earnings guidance for this year.

And Ford now is targeting annual production of more than 2 million EVs by 2026, representing about one-third of its global volume, and rising to half by 2030, with the same or greater market shares in vehicle segments the company leads in with ICE vehicles. Most recently, the company had said it was targeting 600,000 units of annual EV production by the end of next year.

The automaker also said it plans to spend $5 billion on EVs this year, a two-fold increase over 2021. Ford has said it will invest $30 billion in electrification through 2025.

“This new structure will enhance our capacity to generate industry-leading growth, profitability and liquidity in this new era of transportation,” John Lawler, Ford’s chief financial officer, said in a statement. “It will sharpen our effectiveness in allocating capital to both the ICE and EV businesses and the returns we expect from them — by making the most of existing capabilities, adding new skills wherever they’re needed, simplifying processes and lowering costs. Most importantly, we believe it will deliver growth and significant value for our stakeholders.”

ICE and EV businesses

As for what the two new businesses will look like, Farley described Ford Model e as Ford's "center of innovation and growth," staffed by a team of software, electrical and automotive talent. 

The unit will aim to attract leading software, engineering, design and user experience employees who will design and launch "high-volume electric and connected products and services for retail, commercial and shared mobility," according to Ford. Those employees also will develop technologies and capabilities around EV platforms, batteries, inverters and other elements of ground-up electric vehicles, as well as create software platforms and fully networked vehicle architectures.

Ford Model e also will focus on creating a new car buying and ownership experience for Ford's EV customers. Ford Blue ultimately will adopt some of those strategies, as well.

"We believe that our current experience is not competitive with Tesla, and to beat Tesla, which is our ambition, we’re going to have a dedicated team in Model e to go digital, remote, no inventory — all the things that Tesla does well," Farley told The News. "But we’re going to add on top of that, some experience that Tesla doesn’t give.”

Important to that strategy, he said, is Ford's dealership network and the deep relationships those dealers have forged with new and repeat customers.

Meanwhile, Ford Blue will be tasked with delivering a more profitable ICE business centered on Ford's most popular and iconic vehicles such as Bronco, Maverick and F-150. 

Ford Blue employees will develop new vehicle models and derivatives, as well as tailored brand and vehicle experiences and experiences enabled by software and embedded systems. They'll also focus on improving quality, reducing waste and cutting down on product, manufacturing and quality costs. 

That business, Farley told The News, will remain significant even amid the electrification race: "Those passion brands, we're going to nurture them with more investment.

"What's surprising to me is that everyone is trying to portray that the only future of our industry is BEV. We don’t believe that. We believe a Super Duty customer with a horse trailer up in northern Michigan is not going to go electric anytime soon. And a lot of the segments we’re in right now are those kind of customers."

Plus, he noted, the product designers and engineers from that side of the business have valuable expertise that will continue to be applied company-wide: “We don’t want to throw that away. That’s one of the reasons why we didn’t spin it off. Because we want these two organizations to work together. There’s certain things we are world-class at. The startups would die for that experience."

The move to separate the ICE and BEV businesses also will come with some reshuffling of high-level company leaders.

Farley will serve as president of Ford Model e, in addition to his existing role as president and CEO of Ford. Doug Field, a former Apple and Tesla executive who joined the Blue Oval last year, will lead Ford Model e's product creation as chief EV and digital systems officer. He'll also lead the development of software and embedded systems across Ford.

Marin Gjaja, senior partner and managing director at the Boston Consulting Group, will serve as Model e's chief customer officer. Kumar Galhotra, currently president of the Americas and International Markets Group, will serve as president of Ford Blue.

Stuart Rowley, who currently heads up Ford of Europe, will take on a global role as chief transformation and quality officer. And Hau Thai-Tang, Ford’s chief product platform and operations officer, will become chief industrial platform director.

jgrzelewski@detroitnews.com

Twitter: @JGrzelewski