Why Ford Analysts See Reorganization As 'Dawn Of New Era,' Expect Other Automakers To Follow Suit

Ford Motor Company (NYSE: F) announced a reorganization plan Wednesday to separate its internal combustion engine and electric vehicle businesses.

The Ford Analysts: Credit Suisse analyst Dan Levy has an Outperform rating and $25 price target on Ford shares.

Morgan Stanley analyst Adam Jonas maintained an Underweight rating and $13 price target.

Citigroup analyst Itay Michaeli has a Neutral rating and $23 price target.

Ford Has Seen Dawn Of New Era, Credit Suisse Says: Despite the challenges that need to be addressed in the transition, it is a key positive, Credit Suisse analyst Levy said.

The reorganization will not only accelerate Ford's transition to an "EV world" but also increase transparency on the EV transition and better reward the company, the analyst said.

"Ford has seen the dawn of a new era, sharply improving its positioning in an EV world … which should lead to significant value creation ahead," he said. 

Related Link: Ford Analyst Downgrades Stock: 'Limited Scope For Positive Surprises'

Ford Better Positioned To Address Risks, Morgan Stanley Says: Ford is taking the first important step to optimize the competing missions of the EV/ICE business, Morgan Stanley analyst Jonas said. The analyst said he expects the other legacy automakers to plan a move similar to this.

Among the initiatives announced, the financial transparency and the reporting move for fiscal year 2023 are important, the analyst said.

The reorganization has the potential to provide Ford's ICE business — Ford Blue — with greater margin upside and cash flow, he said. The complex EV investment will now be released into a "startup" unit, he added.

Although the company has said there are no imminent plans for spinning off the units to shareholders or a financial separation, Jonas said he sees this as a possibility. 

The analyst sees Ford's target for 2 million units of EVs by 2026 to be an "aspirational/stretch" goal, given doubts over the company's ability to secure materials, battery, machinery/manufacturing/supply chain in sufficient quantity and quality.

"While there are high risks ahead, we believe Ford may be in better position to address such risks under this new structure," Jonas said.

Citi's 3 Key Takeaways: Ford's 2026 EV volume target of more than 2 million units and EBIT margin target of 10% underscore the flawed sentiment around peak earnings and EV margin dilution risk, Citi analyst Michaeli said.

Ford has joined its other legacy auto peers such as General Motors Corporation (NYSE: GM), Stellantis N.V. (NYSE: STLA) and Hyundai Motor Company (OTC: HYMTF) that have issued margin and revenue growth trajectories far higher than the prevailing industry narrative, the analyst noted.

Secondly, Ford's decision to change its reporting structure to better allow investors to value individual businesses should be appreciated, Michaeli said. GM should also consider a similar EV/ICE reporting structure, ideally below the truck and non-truck umbrella, he added.

Finally, Ford's 2022 guidance reiteration, while not surprising, is nonetheless encouraging, the analyst said.

F Price Action: Ford shares were down 2.76% at $17.60 at the close Thursday. 

Related Link: Ford Has Sights Set On Eventually Toppling Tesla As The No. 1 EV Maker

Photo courtesy of Ford.