When all the eggs are in one basket, it’s hard to see what each part of that basket contains. The new Ford business model is similar to separating eggs.
Ford, while one of the most highly respected and recognizable legacy automakers in the world, has split into three parts. The radical reorganization allows three areas of focus for the brand, electric vehicles, gas-powered vehicles, and commercial vehicles. These three quasi-independent businesses can run separately from each other but under one large Ford umbrella, making it much clearer how Ford competes in the EV market.
Restructuring and allocating assets
With three new separated parts of Ford comes the need to create financial reporting for the redesigned companies. This can take some time, but Ford should have the results by the beginning of May. These reports will show the profits and losses for each business line, which is likely to show the electric vehicle part of the company in trouble compared to the other two parts of Ford. That said, The EV brand is still getting its feet wet and starting out, which comes with expected losses that can eventually be turned into profits.
Ford aims to compete with Tesla
Tesla has always been an electric vehicle automaker and has a huge lead over all other brands, including Ford. Still, Ford intends to compete with the world’s most valuable automaker and its high-profit margins. To do so, this new Ford business model was necessary. By splitting the company into three parts, it’s easy to put the Ford electric segment up against Tesla directly when making comparisons. As other automakers such as GM, Stellantis, Hyundai, and Volkswagen gain more footing with EV models, they might also need to follow this model and split the electric division into a separate company.
Ford is now the second-place EV seller in America
As you might expect, Tesla controls two-thirds of the US EV market, which is a nod to their development and head start in this arena. Unlike Ford, Tesla doesn’t have to worry about the gas-powered business or commercial business, which have been staples of Ford for the past century plus. That said, Ford is the second-place EV seller in America, with the impressive Ford F-150 Lightning and Mustang Mach-E becoming extremely popular. Currently, Tesla’s margins are three times Ford’s highest expectations, and Ford wants to reach these heights with its EV segment.
The new Ford business model creates accountability
Instead of being hidden near the bottom of reports as a few lines on the financial statements, the Ford EV operations working as its own separate company can be fully accountable for profits and losses. This new arm of Ford is called Model e, and many financial experts are curious how things will look when the first round of financial reports is released. Those financial experts are looking forward to seeing the first legacy automaker report EV number outside of the parent company.
The transparency might not be the same as before
Although Model e allows Ford to give the EV side of the business the desired transparency, something else is changing. In a similar vein as Tesla, Ford will no longer report regional numbers. Instead, the Model e numbers will be as a whole and not broken down into automotive markets. This is a bit annoying and has been something that many have grumbled about with Tesla for years. That said, it makes sense for the new Fore business model to have the same reporting structure as Tesla if Model e is to be a direct competitor to the EV giant.
A long and short road to profits
There’s no denying the Ford EV arm is operating at a loss right now. When the company is taken as a whole, electric vehicles are pulling things down and margins aren’t as high as Ford would like them to be. In an effort to win investor confidence, Ford has pledged it will turn these losses into an 8% profit margin by 2026. If they can achieve this, they will be on the way to competing with Tesla in the electric vehicle world.
Tesla still has a stranglehold on the EV market and doesn’t seem anxious to give it up anytime soon. Will this new Ford business model be the key to transparency and direct comparison with Tesla as these two automakers battle it out for EV supremacy?
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