DEARBORN, Michigan (WXYZ) — A major announcement from Ford Motor Company sent stock prices soaring Wednesday. Ford stock closed at $18.10, up 8.38 percent.
This came after the company announced plans to split into two new business units.
“We’ve decided to create two separate auto businesses. Ford Blue that will focus on our internal combustion vehicles like Bronco and F150. Ford Model e, which will focus on connected digital vehicles. One that focuses on the traditional internal combustion engine vehicle and another that focuses on battery electric vehicles,” said Ford CEO Jim Farley in a video released by the company.
In recent weeks, there were calls from investors that Ford Motor should spin off its electric vehicle business into a new company to inspire investments from the market.
“I don’t think that was ever a realistic consideration. I don’t think the Ford family would want that,” said Oakland University Chair Marketing & Management Department Professor Janell Townsend.“I don’t think the people who are the shepherds of the Ford brand within the organization would want that. There is value in the Blue Oval. That wouldn’t make a lot of sense to split up the Ford brand.”
Ford decided to remain one company with separate business units instead.
Instead of giving up more company ownership to raise capital for a spin-off through the markets, Ford says it will use its internal combustion vehicles. The traditional gas cars are making more money, and the plan at Ford is to use them to fund the transition to electric. Ford says it plans to invest $5 billion in its electric vehicles this year, a two-fold increase over last year.
Professor Townsend says the split into two business units will help Ford draw attention to its investments in electric vehicles and potentially increase stock values.
“It is about perceptions. If we are perceived as being a tech company, we are going to get higher valuations,” said Townsend.
“It is a marketing ploy and a real change,” said Professor Erik Gordon, University of Michigan Ross School Of Business. “The real change is that technology people will be working at a technology company. The marketing ploy is this. A lot of people have thought Ford was falling behind in electric vehicles. I think they were wrong, but perceptions count.”
Gordon says Ford will use this change to recruit new talent to build software to run connected electric vehicles.
“You have a chance of creating a new culture that isn’t falling back on old practices and slowing down,” said Wards Auto Editorial Director David Zoia.
Zoia says Ford will need that new culture to rapidly innovate within the Ford Model e-business unit.
The change sends the message to workers, consumers, and Wall Street, we may not spin off electric into a new company, but it is our future.
“With this new set up, it is easy for Ford to draw a circle, or with Ford, we should say an oval and say look, Ford should be valued greater than, maybe not Tesla, but more than Ford has been in the past,” said Gordon.
Dealerships are paying attention. Ford CEO Jim Farley did speak about offering more direct-to-consumer sales in the electric vehicle side of the company, which could impact their sales reach. He also said dealerships are a key part of Ford’s ability to provide better service than new electric vehicle competitors.
The Model e name of the electric car business unit sends a message to Tesla. Ford took legal action several years ago to block Tesla from releasing a Model E, saying it sounded too similar to Ford’s historic Model T.