Ford Motor CEO Jim Farley is strongly considering separating the company's electric vehicle business from its traditional engine operations, sparking reports of a Ford EV spinoff. People with knowledge of the situation told Bloomberg News that Farley wants to create a separate entity for its growing electric operations. The chief executive is entertaining the idea of an EV spinoff for the Ford business.
The news came just weeks after it was reported that Ford had made an evaluation on spinning off a small portion of its electric vehicle business as part of its reorganization plans. Ford believes a possible EV spinoff could capture the value that investors have been giving to some EV startups.
Wall Street was delighted with the report of a possible Ford EV spinoff, with shares of the company jumping by more than 5 percent during early trading on Friday morning. Ford's shares were up by as much as 5.4 percent, to $18.48 on Friday, February 18. It leveled off during afternoon trading, with Ford's value closing at $18.04 a share. The car brand finished the day, still up by 2.9 percent.
Ford said it would not comment on speculation but did release a prior statement, saying, "We have no plans to spin off our battery electric-vehicle business or our traditional ICE business." ICE stands for internal combustion engines, which are the lifeblood of the gas-powered auto business.
Benchmark analyst Mike Ward was skeptical about the rumored spinoff, telling Barron's that such a move by Ford is "highly unlikely, but you always have to explore." Ward added that "unions, dealers, R&D assets, and manufacturing footprint are the biggest hurdles" for Ford in separating its EV business from its internal-combustion engine operations.
Ford spinning off any of its operations would be in sharp contrast to the decision made by General Motors, the automaker's biggest rival based in the United States. GM's top executives have already said that the carmaker has no plans of spinning off its EV business despite Wall Street pressuring them to do so.
GM President Mark Reuss said back in November 2020 that the company conducted a study analyzing the potential of an EV spinoff. The firm eventually determined that spinning off its electric operations would not be the right thing for the company, citing the high costs that such a move will entail and the benefits of having the EV business remain part of the larger GM brand.
The idea of spinning off the battery-powered vehicle business from legacy gas-powered vehicle operations has been going on for a while now and will linger on for more years to come. Valuation is the main talking point for breaking up car businesses, with Tesla providing the motivation for making such a move.
Shares of the world's leading electric car maker trade for roughly 11 times its estimated sales this year compared to GM and Ford's stock, which trade just 0.5 times their estimated sales for 2022.
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