Ford decided not to spin off its electric vehicle business.

• Wall Street analysts had called on Ford to spin off its electric vehicle business
• Ford announced a plan to separate its EV business from its traditional operations while still maintaining it under the Ford corporate umbrella.
• Investors broadly approved of the compromise.

On Wednesday, it was announced that the electric vehicle business of the company would be separated from its traditional automobile operations, although it will not be spun off.

Some investors and analysts on Wall Street are urging legacy automakers like Ford to separate their electric vehicle divisions in order to achieve higher valuations, similar to those given to EV start-ups.

Ford executives, including CEO Jim Farley, believe that while separating the company's EV efforts from its legacy internal-combustion-engine business makes sense, a full spin-off would have put Ford at a disadvantage to both old and new rivals.

Farley stated that our corporate structure is hindering our ability to concentrate and that we need to prioritize the ICE business to generate cash and serve Ford's iconic brands. Additionally, he emphasized the need for our electric and digital businesses to focus on innovation, as asking the team to excel in both areas simultaneously is not feasible.

Why didn’t Ford just spin off its EV business?

A spin-off of Ford's EV business could potentially result in a comparable valuation to other pure-play EV makers.

Currently, experts predict that Ford's mature internal combustion engine (ICE) business is hindering the company's overall valuation. Morgan Stanley analyst Adam Jonas stated in a November report that the de-adoption of ICE could outpace Ford's ability to increase EV production, and that the company may need to take "nontraditional" actions, such as a spin-off, to attract the capital and talent required to succeed with electric vehicles.

According to Ford executives, it will be advantageous for the company and its investors if the EV and ICE businesses are united, although with more separation than before.

Ford gains "advantage" from areas where the two organizations, along with the Ford Pro commercial-vehicle unit, can utilize each other's strengths.

Farley stated that the two organizations would not establish separate brands and compete against each other. Instead, the focus should be on what each organization needs to concentrate on, allowing for greater collaboration and leverage between them.

Spinning out one or both entities or all three carries the risk of losing leverage.

Separating the units has advantages, up to a point

Ford intends to operate its new electric vehicle (EV) unit, known as Ford Model e, with a start-up approach, featuring agile, adaptable teams, a culture of innovation, and the capacity to develop unique designs that do not rely on the existing Ford product portfolio.

As Model e's president, Farley will oversee its day-to-day leadership, which will be led by Doug Field, a former executive from Apple and Tesla.

Unlike other EV start-ups, Model e has the advantage of an integrated relationship with a profitable legacy automaker, but it will also see advantages from the separation.

Field emphasized the importance of cultivating a culture that attracts top technical talent for new technologies, including clean sheet EVs. He stated, "We want the best people, regardless of their attire, but we must have the best talent."

Attracting new talent will be facilitated by making the EV business a standalone unit under the Ford umbrella, according to Field.

He stated that we require a new approach to work in a different setting and the ability to perform tasks such as remote work. This is a component of Model e, which aims to provide us with access to top talent.

Ford doesn’t need to raise capital for its EV plan

Some experts believe that separating Ford's EV division as a spin-off could help it leverage its higher valuation as a pure-play EV company to obtain funding at a lower cost. This capital could then be utilized to finance the company's ambitious product plan or an even more ambitious plan.

According to Ford executives, the company's EV business plan does not require external funding as the substantial profits earned from ICE trucks and SUVs will be sufficient to fund the plan.

The F-Series truck franchise, which has been the best-selling vehicle in the U.S. for decades, is currently generating $42 billion in cash for Ford.

By keeping both businesses in-house, Ford can use profits from traditional operations to fund the expansion of EVs and other advanced technologies, including autonomous vehicles.

We considered spin-offs but ultimately decided to fund this project ourselves as we have the resources to do so," Farley stated. "Additionally, he explained that spinning off one or the other would result in a loss of synergies and leverage.

A compromise that appeased Wall Street – for now

Ford's restructuring plan is a compromise to satisfy analysts and investors. It involves separating operations and providing greater transparency by presenting results separately for next year, while keeping the company intact, as Farley believes it is necessary to reduce costs for both operations.

The change is not about managing the company's finances," Farley stated. "It's about enhancing our focus, capabilities, products, and customer experience. That's how we'll succeed as a business.

The stock price increased by 8.4% to $18.10 on Wednesday, despite being down approximately 15% this year.

Although analysts widely praised the split, some still have hope that Ford may spin off its operations in the future.

As the BEV business develops, strategic possibilities may arise in the future, similar to how multiindustrials are constantly improving their offerings, according to Barclays analyst Brian Johnson in a note to investors on Wednesday.

On Wednesday, Ford's shares increased by 8.4% and closed at $18.10. A previous version contained an error regarding the price.