That seem like a good idea. Why have the value of the EV business tainted by the legacy auto assets?
https://www.cnbc.com/2022/02/18/ford-shares-pop-on-report-of…
intercst
7 Likes
Why have the value of the EV business tainted by the legacy auto assets?
Would they also “spin off” the accrued liabilities of the “legacy auto assets”–and then let that business (and those liabilities) die as sales went into the toilet due to the shift to EVs?
2 Likes
As we learned circa 2008 when GM let Saturn, Oldsmobile and Pontiac die it was a difficult thing to do. There are contracts in place that make it hard to get rid of a dealership, for example. And I have a feeling that the EV revolution will require a very different kind of dealership, one where parts and service are not as large and not intended to financially float the company.
Tesla has a big leg up here, not having a traditional dealership network. But it does have a big problem, in general, with service, spare parts, etc. Tesla does not know how to be a mature automotive company, but Ford sure does. If Ford gets this spin-off right (if it happens) it could be a very, very good thing.
…as a part of a reorganization in an effort to capture value that investors have been awarding some EV startups.
That old “unlock shareholder value” line eh?
Assuming Farley is like most CEOs, looking to put the most money in his own pocket the soonest, I see two different possibilities: turning on the hype machine to push the EV operation to Tesla valuations, or, moving all the up front costs of the EV operation off of Ford’s income statement, to juice Ford Motor profits over the short term, to juice the CEO’s bonus.
Steve
5 Likes
https://www.reuters.com/business/autos-transportation/ford-m…
The story I saw said that Ford denied the report. But also mentioned they were considering spinning off their internal combustion engine business.
If the future is electrics in big volumes, Ford probably wants to convert its disused plants to make electrics and batteries. But they have the problem that their dealer network relies on maintenance for ice vehicles as the core of their business. Conversion to electrics will probably put many of them out of business. Splitting the businesses could make sense. But much depends on how serious buyers are about electrics.
Too soon to say. We shall see. Stay tuned.
If the old Ford Motor company keeps the debt you know who the odds on favorite is.
If the new EV company gets the debt there is a lack of confidence engineering wise in EV.
Report out in an NPR interview, the major oil companies are all greenwashing things. No plans are being met by the oil companies for alternative energy.
Ummm… did anyone notice this?
“Ford has no plans to spin off its electric vehicle business or its traditional ICE business, the company said in an emailed statement.”
Somebody at CNBC speculates about something. Who cares? Except the sky is falling chickens in METaR.
2 Likes
That seem like a good idea. Why have the value of the EV business tainted by the legacy auto assets?
https://www.cnbc.com/2022/02/18/ford-shares-pop-on-report-of……
intercst
Why spin off at all? I would think within a decade legacy auto sales will be a fraction of the business anyway?
Why spin off at all?
Have you seen the price to sales multiples for auto companies?
RIVN 45,000
TSLA 18
NIO 7
.
TM 1
F 0.5
GM 0.5
VWAGY 0.5
HMC 0.4
HYMTF 0.1
DB2
Why spin off at all?
To take advantage of bankruptcy for the dying business (stick it to the creditors).
The Captain
1 Like
Why spin off at all?
—
To take advantage of bankruptcy for the dying business
When would you expect this bankruptcy to happen? Next year, five years from now, 10 years from now, 20 years from now?
DB2
1 Like
I don’t see why it’s a good idea. Would Ford create a whole new brand, sold by a brand-new network of dealers competing against dealers who sell gas-powered Fords? There is value in having an established dealer network. That’s what Tesla hasn’t got. And that really makes me question the market valuation of Tesla, considering the absolute number of vehicles sold, and the difficulty of increasing sales implied in those valuations, without a dealer network.
Ford already has a few hybrid models. I think GM is ahead of them somewhat, with all-electric Chevrolets.
Toyota and GM may be ahead of Ford, but Ford can probably catch up soon. For the life of me, I can’t imagine what’s attractive about an electric Mustang, but maybe that’s just me. But Toyota and GM are keeping the EV vehicles under the same brand names.
Bill
2 Likes
When would you expect this bankruptcy to happen? Next year, five years from now, 10 years from now, 20 years from now?
Today, in Shinyland, bankruptcy isn’t failure, it’s a business plan. I have mentioned before the regional furniture store chain here that was sold to a PE group a few years ago. It took the PE group three years to suck all the money out of what had been a very profitable chain, and dump it into bankruptcy, stiffing all the other stakeholders. Several of the stores were then bought by another PE group, who spent a year running up a lot of debts, sucked all the cash out of it, and dumped the stores into bankruptcy liquidation a second time.
Honeywell dumped all it’s asbestos liability into Garrett, then spun it off. Garrett has assets, products, and revenue, but not nearly enough to cover the liability, so went BK, while Honeywell goes it’s merry way.
We have seen over the last six months how J&J dumped it’s talc liability into an entity with no assets, no products, and no revenue, which declared BK the day it was created.
iirc, every old line airline in the US has gone BK, so it can give it’s stakeholders a haircut.
With GM and Chrysler both having gone BK, the attitude at Ford could very well be they are “unfairly burdened” by not having gone BK and given it’s stakeholders a haircut.
Steve
When would you expect this bankruptcy to happen? Next year, five years from now, 10 years from now, 20 years from now?
Five to ten years. Look at their Balance Sheets, huge amounts of debt. By contrast circumstances have allowed Tesla to raise prices and their factories are producing full blast and expanding. I expect Tesla to be selling 20 million EVs by 2030, 20 to 25% of all cars. The competition might be making 20 to 40 million EVs by 2030 which leaves ICE less than 50% market share. ICE will be in a tough spot.
Disruption happens faster than most people believe is possible.
The Captain
1 Like
I expect the idea is to be able to sell stock to fund the “new” enterprise, instead of borrowing or selling bonds, without diluting the value of the current Ford corporation. I suppose they can always merge later, if need be. But this stuff is over my head, really.
I expect the idea is to be able to sell stock to fund the “new” enterprise
It is more that the separate EV enterprise would be valued much more highly than as pat of the traditional car business (by an order of magnitude). If I were a stockholder or board member I would certainly vote for the proposition.
DB2
It is more that the separate EV enterprise would be valued much more highly than as pat of the traditional car business (by an order of magnitude). If I were a stockholder or board member I would certainly vote for the proposition.
Sell 10% of the EV operation. Hype the daylights out of it and watch those shares fly to the moon. Meanwhile, Ford carries the other 90% of the stock on their balance sheet, which is revalued to the moon, along with the 10% traded publicly, and, presto Ford isn’t leveraged out of it’s skull anymore.
Steve
4 Likes
It is more that the separate EV enterprise would be valued much more highly than as pat of the traditional car business (by an order of magnitude).
—
Sell 10% of the EV operation. Hype the daylights out of it and watch those shares fly to the moon.
You’ve got the idea, but there’d be no need to hype it. These days EVs hype themselves (go no further than these boards for examples).
DB2
The automaker on Thursday plans to begin reporting its financial results by business unit, instead of by region, ushering in the new reporting structure with a “teach-in” for analysts and media — on the theme of “Ford Refounded” — and releasing revised versions of its financial results that will reveal how the new business units would have performed in 2021 and 2022.
Those new business units include “Ford Blue,” Ford’s traditional internal combustion engine business; its “Model e” electric vehicle unit; the “Ford Pro” commercial and government fleet business; “Ford Next,” which includes nonautomotive mobility solutions and other future tech; and its existing Ford Credit financial services subsidiary…
Morgan Stanley’s Adam Jonas expects Ford Model e to have negative gross margins of between 10% and 20% with adjusted EBIT margins of between negative 20% and negative 30%. Both would imply significant losses…
Deutsche Bank analyst Emmanuel Rosner believes Ford could be incurring gross losses of about $9,000 per EV sold…“The EV business could report much deeper losses than investors expect, which could make Ford’s target for 8% EV EBIT margin by 2026 particularly difficult to achieve,” Rosner said Monday in an investor note…
Deutsche Bank estimates the Ford Blue traditional business could show an EBIT margin of 7.3% for 2022, more than offsetting last year’s EV losses.
Morgan Stanley’s Jonas said Ford’s new reporting structure should “confirm our view that the ICE business (Ford Blue) is highly cash flow generative and currently funding the capital consuming EV business.”
DB2
It’s all in the accounting. Ford could charge a lot of overhead to the EV op, where it would be excused, because of the “EVs are the coming thing” narrative, which makes the ICE division look healthier than it really is. Then, for instance, spin off the EV division, the way Kellogg’s is spinning off the snacks division, with the current Ford honchos going with the EV division. The honchos sell all their stock in the ICE division, then, a couple quarters later, the financial condition of both companies become apparent, because the EV division is no longer shouldering an outsized portion of overhead. The EV division stock flies, and the honchos have another big payday. The ICE division stock tanks, but the honchos don’t care, because they sold that stock.
Steve
1 Like