Ford CEO Explains Why ICE/EV Split Was Crucial To Fight Tesla

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The two units will benefit from each other.

One of the key business advantages that Tesla has had over legacy automakers like Ford is that it has been an electric vehicle manufacturer from the start in an industry that is gradually moving over to electric power exclusively. For more traditional automakers, it's a delicate balancing act between diversifying their EV lineups while still investing in ICE cars.

But it goes beyond the cars we drive and extends to outdated business models that must be realigned and factories that must be upgraded. For instance, Porsche is spending millions to convert its main production plant to be able to manufacture the electric 718 there alongside the gas-powered 911. EVs have also initiated huge changes at Ford where this week, the Blue Oval announced a key business restructure that will separate its ICE unit from its EV one, and now CEO Jim Farley has elaborated on this decision.

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Ford
Ford

While some analysts and investors believe that legacy automakers like Ford should spin off the EV section of their business to capture high valuations like newer EV startups have done, Ford isn't going this route and both business units will remain under one Ford corporate umbrella.

"Today, our corporate structure is holding us back," said Farley according to CNBC. "It does not allow us to focus. We need the ICE business to be cash-generating and serving [Ford's] iconic brands. We need our electric business, the digital business, to be about innovation. We cannot ask the team to do both at the same time."

Farley elaborated by saying that the EV and ICE organizations are not meant to compete with one another; rather, Ford says that they can each draw from each other's strengths. With a dedicated, focused team working only on EVs, Farley believes that this is how the company can truly compete with Tesla.

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Already, Ford has seen great demand for its Mustang Mach-E crossover, and the F-150 Lighting pickup is also on the way. "You can't compete against Tesla if people work from 9 to 10 on electric cars," said Farley in an interview with Fox Business.

Ford's new dedicated EV unit will be known as Ford Model e and the ICE unit is called Ford Blue. By keeping the EV and ICE businesses under the Ford umbrella, Ford will also be able to turn to the substantial profits it earns from ICE models to fund Ford Model e. "We certainly looked at spin-offs but, No.1, we can fund this ourselves," said Farley. "We don't need access to capital markets."

Farley says that the capabilities and technologies from the two businesses will flow from one to the other, something that is simply "not possible" among Ford's competitors. Most analysts showed support for Ford's new restructuring plan and investors followed suit as shares went up by 8.4% on Wednesday.

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Source Credits: CNBC Fox Business

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