Why Ford’s big EV split decision may get even bigger in the future

In the biggest deal it has done in a long time, Ford Motor Co. decided to split its electric-vehicle business from its traditional auto business last week – but notably, not spin off the EV business in pursuit of the white-hot stock valuations that have followed EV leader Tesla and, intermittently, fast followers like Rivian and Lucid Group, whose stock prices have suffered recently.

The company met Wall Street halfway in its restructuring plan, which is still significant, and analysts were roundly positive on the decision.

DataTrek co-founder Nick Colas, a former Wall Street autos banker who has been saying for a while that the auto companies will need to convince the street that these spinoffs shouldn’t be done sooner rather than later, called Ford’s move “an interesting reorganization.”

“Auto companies don’t often shuffle their reporting/org charts in such a dramatic manner and such moves are always risky in terms of productivity. Still, it does allow for clearer management accountability and that’s always good in the long run,” he said.

The message from Ford management is that the EV business, despite solid sales of the well-received Mustang Mach-E, isn’t ready for prime time. Ford chose the safer course of keeping its promising emerging business tied to the profitable mother ship for longer. That lets the EV unit, to be dubbed Ford Model e, and other tech efforts, invest up to $50 billion mostly out of the cash flow from the existing Ford, to be called Ford Blue. That cash flow was $40 billion over the last two years, meaning Model e won’t have to turn to bond or stock markets to fund expansion.

At the same time, Ford may be able to undo part of the significant discount its shares trade at compared to the EV pure plays. The compromise Ford chose was to keep its businesses aligned, but report their results separately beginning next year so Wall Street can begin to assess the EV business’ growth and value it independently.