Ford’s decision to separate its EV business from traditional autos stopped short of a spinoff Wall Street wanted, but that could still be in the future.
"We like the move, and think it was driven by frustration," CFRA Research analyst Garrett Nelson said."Ford's [price-to-earnings ratio] stock trades in the high single digits, a fraction of Tesla's, [dropping this year] even though they became the number two seller of EVs and will grow much faster when the F-150 Lightning pickup ships in a few months."
The centerpiece of the plan is to cut up to $3 billion in annual costs by 2026, with major targets including Ford's advertising budget – estimated at $1.8 billion in 2020 by Statista for just U.S. spending – and $4 billion a year cost of warranties, which Ford Blue President Kumar Galhotra said will be addressed by improving the quality of Ford vehicles.
All of this may still lead up to, in fact better position Ford to, do the rest of the deal and completely spin off its Ford E unit by about 2024, said Wedbush analyst Dan Ives.
"Today, there is still value in Ford's traditional auto and EV businesses remaining integrated, whether because of cash flow or other operational interdependence. At some point in the future, though , the calculus will change." Other automakers like General Motors and Volkswagen will be watching to see if they can make similar moves, Morgan Stanley analyst Adam Jonas said. But Jonas, who doesn't recommend Ford stock, argued that relying on the cash flow of the existing business is expensively priced capital invested in a high-risk EV business.
His view of the auto sector based on his time as a banker: car companies tend to do the right thing when their backs are against the wall financially, in a weak economy."In every other part of the cycle, they are reluctant. They want to retain critical mass," Colas said.
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