Ford (F) is positioning itself to take share of the rising EV market, realizing where the puck is heading to. And according to a recent Bloomberg report, the company is even considering splitting the BEV operations from its main ICE business.
The article suggested Ford will not create a spinoff for BEVs but will separately report and operate its BEV division. Wells Fargo’s Colin Langan likes the idea.
“A separation is compelling as the performance metrics for BEV & ICE operations should be different,” the analyst said. “More importantly, it will allow investors to perform a sum of the parts valuation (SOTPs) on ICE & BEV assets.”
It also appears CEO Jim Farley is supportive of the idea. Farley said on the Q4 earnings call that there is a big difference between the ICE & BEV businesses, with different opportunities at play, a sentiment Langan agrees with.
While the jury is still out regarding the timeline for the demise of the internal combustion engine (ICE), it is generally agreed its days are numbered.
At the other end of the scale, it is still early days for battery electric vehicles (BEVs) with heavy investment still required. Profitability is still out of reach, and “significantly” higher scale is needed.
Langan estimates that in 2022, Ford's BEV business will accrue losses of at least ~$1.5 billion, a figure likely to rise to over $2 billion by 2025. “Consequently,” says Langan, “Different performance metrics are needed.”
To fund the growing BEV segment, the ICE business should be focused on “driving” cash flow. “The BEV business needs to focus on growth to get needed scale and focus on getting vehicles to be incrementally profitable,” opined the analyst, “Not necessarily covering the high upfront R&D costs.”
As such, to reflect the “potential split & better SOTPs visibility,” Langan increased his price target from $24 to $26, suggesting shares will appreciate by 53% over the next year. Langan’s Overweight (i.e., Buy) rating stays as is. (To watch Langan’s track record, click here)
And what about the rest of the Street’s take? The results are a mixed bag; the stock currently has a Moderate Buy consensus rating, based on 8 Buys, 7 Holds and 2 Sells. There are decent gains projected here; the stock should yield returns of 38%, should the $23.44 average target be met in the months ahead. (See Ford stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.