Ford Motor Company (F +3.46%) is dividing its financial resources and hoping to pick winners in both gas and electric vehicle categories, while General Motors (GM +4.11%) is putting everything on electric. At first glance, GM's bet looks better, but Ford isn't as far off the pace as it first might appear.
Ford's two-division strategy
Earlier this year, Ford divided its operation into two separate and arguably unequal divisions: Model e, responsible for electric vehicles, and Ford Blue, charged with producing legacy internal combustion engine (ICE) vehicles. On June 2, the company announced a $2.3 billion investment in Ohio, Michigan and Missouri manufacturing plants to support production of electric vehicles, including its breakthrough F-150 Lightning truck, the E-Transit electric van, and a new EV commercial vehicle. In keeping with the two-division restructuring, Ford will also invest $1.4 billion in legacy combustion-engine-powered products, including a new Mustang coupe and Ranger pickup.
Ford is investing in improvements and new jobs in Ohio, pictured, and elsewhere. Source: Ford Motor Company.
Ford's split investment looks a bit misleading if you don't consider other factors. It may seem that the automaker is putting a lot of money into old technology, until you remember that it previously invested an additional $11.4 billion in EV production and batteries, tipping Ford's balance far to the electric vehicle side. And since Ford had over $41 billion in cash and marketable securities in its piggy bank as of March, that outlay doesn't seem excessive.
Still, industry observers remain divided on the benefits of Ford's two-division strategy. Some prognosticators think it's merely a way to eventually draw down ICE production by gradually shrinking the Blue division while growing the Model e division. Once most passenger vehicles are electrified, the company could either shut down the Blue division or try to remain competitive in the heavy-duty diesel- and gas-powered segment, while focusing on an electric passenger-vehicle market that will become ever more competitive going forward.
Hanging on to both divisions could be a mistake. Ford sold its heavy-duty semi business to Freightliner, and it doesn't have a clear leadership position in the heavy-duty pickup segment. And while Ford seems committed to continue selling ICE versions of its 3/4- and 1-ton pickups, GM has announced plans to build electric versions of these workhorses. Ford may eventually decide to end production of combustion-engine vehicles, but in the meantime, the company risks wasting resources on fossil-fueled products with a limited future.
NYSE: F
Key Data Points
GM nixes fossil fuels
GM has less cash on hand than Ford, at about $26 billion, but it's investing even more heavily in electric vehicles than its crosstown rival. GM has pledged to put $35 billion into its electrification efforts by mid-decade, with $7 billion already spent on Michigan EV production facilities. The automaker has said it will be producing only zero-emission vehicles by 2035. Given an industry lead time of about six years for all-new vehicles, that's just two production cycles. Some GM divisions will get to all-electric even sooner. Buick, while showing a new electric concept vehicle dubbed Wildcat EV on June 1, said it would be producing only EVs by 2030.
In January, GM chief Mary Barra said the automaker will have the battery cell capacity and vehicle-assembly capacity to be the EV leader by 2025. In other words, GM plans to overtake Tesla in just three years. That's bold – and more importantly, it seems within GM's reach.
EV investment looks like the best path forward for any automaker. To meet coming fuel efficiency standards, car companies must sell a majority of electrics, vehicles that have very little in common with traditional ICE automobiles. Making two distinctly different types of vehicles is costly; when you're using few parts in common, and running different kinds of research and testing, you lose a lot of the cost-cutting advantages of producing cars on a big scale. To stay cost-effective, automakers must go full-throttle electric.
Going forward, industry observers should compare Ford and GM's EV battery costs, and note how many products each can build on a single EV platform. To succeed in this emerging market, automakers will need to stay as efficient as possible.
