Ford to spend up to $20bn reorganising for shift to electric cars

Ford Motor C0 is planning a major reorganisation to prepare for the electric future, using Tesla Inc’s success as a road map and accelerating electric vehicle (EV) spending by as much $20bn (roughly R305,391,000,000).

The effort, led by a former Apple Inc and Tesla executive, calls for Ford to spend an additional $10bn (roughly R152,708,000,000) to $20bn (roughly R305,391,000,000) over the next five to 10 years converting factories worldwide to EV production from making petrol-powered cars, according to people familiar with the plan. 

The move is part of CEO Jim Farley’s initiative to challenge Tesla’s dominance in EVs even as he takes pages from the playbook of the EV pioneer, now the world’s most valuable automaker. Investors have bought into Farley’s vision for Ford, briefly lifting the company’s market value above $100bn (roughly R1,526,970,000,000) in January.

Ford shares rose in afternoon trading, climbing as much as 2.7%. They traded up 1.3% to $20.56 as of 1.48pm in New York.

The new plan also envisions a reworked Ford organisational chart, including the hiring of an unspecified number of engineers specialising in disciplines relatively new to the company, such as battery chemistry, artificial intelligence and EV software. 

As part of the reorganisation, the company has evaluated spinning off a small portion of its EV business to capture some of the immense value investors are giving electric startups, said one of the people, who asked not to be identified because the deliberations aren’t public. The potential move would involve lower-volume models, allowing the company to focus its efforts on mass market EVs, the person said.

Ford declined to comment on the planned reorganisation and potential spinoff. 

“We are executing our Ford Plus plan to transform the company and thrive in this new era of electric and connected vehicles. We would not comment on speculation,” said Mark Truby, the company’s chief communications officer. 

Doug Field, the former head of Apple’s car project, is leading Ford’s overhaul, the people said. Field was also a top executive at Tesla, where he engineered the Model 3.

The new investment would be on top of the $30bn (roughly R458,091,000,000) Farley has committed to EVs through 2025. Since becoming CEO 16 months ago, Farley, 59, has accelerated Ford’s EV plans, including tripling output of its electric Mustang Mach-E and doubling production of the F-150 Lightning plug-in pickup coming this spring. Ford also is spending $11.4bn (roughly R174,035,820,000) with South Korea’s SK Innovation to build three battery factories and an EV truck plant in Tennessee and Kentucky.

Poached from Apple

Ford poached Field from Apple in September to disrupt the 118-year-old company. He’s working closely with Farley to make the legacy automaker more nimble, like Tesla, by adjusting Ford’s operational and manufacturing structure, the people said.

The restructuring is a work in progress and some elements may be changed or dropped, including the EV spinoff idea, the people said. The Ford family, which controls the automaker through a special class of super voting stock, would have to be convinced a spinoff is worthwhile.

Farley has expressed admiration for Tesla CEO Elon Musk and acknowledged Ford is rethinking its mission as the company prepares to manufacture 600,000 EVs a year by 2024. The Dearborn, Michigan-based automaker wants to generate as much as half of its global sales from EVs by the end of the decade.

To drive home his desire to emulate Tesla, Farley has taken to sharing news articles about the EV maker with others internally, according to one person. 

Farley, who did not comment for this story, has said he’s learned “a lot” from watching Musk transform his company from a struggling startup to a high-profit, global EV leader that investors value at more than $1-trillion (roughly R15,266,300,000,000).

“I really admire the difficulties they had and the way they managed those difficulties into the success they had,” Ford’s CEO said in an interview last week with Bloomberg TV’s Emily Chang.

“They are now making more than $10,000 (roughly R152,663) a vehicle because of their scale. I like that kind of business.”

It’s unclear which Tesla practices Farley plans to adopt as Ford builds t its own EV manufacturing capacity and accelerates its shift from a mechanical engineer-led workforce to one that increasingly is made up of software engineers. 

Keeping ICE business

Unlike Tesla, Ford also must manage the slow decline of vehicles powered by internal combustion (ICE) engines, which generate all the profit necessary to fund the company’s EV aspirations. That’s an area Ford also is intensely focused on as it reinvents itself.

Farley sees petrol-fueled vehicles as a core part of the company for many years to come and intends to invest enough to keep it competitive with rivals, he said in a separate interview last week. One way is to boost the services Ford sells to car owners, a business that could generate $20bn (roughly R305,391,000,000) a year in revenue. 

That could include selling drivers software to upgrade their car’s performance or enhance dashboard touchscreens. Or it may involve getting more business in the service bays at Ford’s dealers, which see 90% of owners go elsewhere for maintenance after their warranties expire, Farley said.

Ultimately, Farley wants even more Ford customers driving EVs, and that’s the future he and Field are preparing for. Ford hopes to eventually overtake Tesla, but for now is trying to solidify its standing as America’s No  2 seller of EVs. 

“What it takes to succeed in this digital, connected, electric product are talents and know-how and a way of managing the business that’s different than what we’ve done in 118 years,” Farley said last week.

“It’s kind of like snowboarding and skiing. We both share the lift, but as soon as you get off the lift the intuitions are wrong between both businesses. You have to relearn to how to get down the slope.”

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