Ford Creates Separate EV, Gas-Engine Divisions in Major Overhaul

The company also raised its projection of electric-vehicle production and profitability. It expects electrics to account for one-third of global sales by 2026—or about two million EVs total—and half of global sales by 2030, compared with a previous target of 40%. Ford also lifted its forecast for operating-profit margin to 10% by 2026, from a prior goal of 8%.

The plan represents one of the company’s boldest steps yet under Chief Executive Jim Farley to speed development of new battery-powered models. It also comes as investors are driving up the valuations of Tesla Inc. and other auto startups that aren’t encumbered by a legacy business and are focused solely on selling electric vehicles.

Mr. Farley, who took the top job in 2020, has repeatedly said the business of developing and selling electric vehicles is vastly different from its conventional gas-engine operations, requiring new technical expertise and a distinct sales strategy.

“Our legacy organization has been holding us back. We had to change,” he said during a press conference Wednesday.

Ford needs to keep churning out gas- and diesel-engine vehicles—which today deliver all of its bottom line—to boost profitability as it sharpens its focus on the battery-powered vehicles that it expects will drive growth over the next decade, Mr. Farley said. He said the new structure will help Ford reduce complexity and cut $3 billion in annual costs from the gas-engine side of the business, by focusing more closely on reducing quality problems and simplifying its model lineup.

Ford said the part of the business that will focus on electric vehicles and digital innovations will be named Ford Model e, a play on the historic Model T, which helped bring relatively affordable cars to middle-class Americans in the first part of the 20th century. The other side, Ford Blue, will work to improve profitability of its internal-combustion-engine vehicles.

Mr. Farley will serve as president of the Ford Model e unit, while continuing as CEO. The Ford Blue business will be led by Kumar Galhotra, now the company’s president of the Americas and international markets.

The reorganization plans follow speculation among investors and media over whether Ford could spin off its electric-vehicle operations as a way to unlock value.

On Wednesday, Mr. Farley said his team looked at a spinoff but decided the company is able to fund the EV transition without tapping the capital markets. He also said Ford needs both a division focused on future technology, such as batteries and software, along with the engineering and manufacturing expertise of Ford’s legacy business.

“The new startups would love to have the industrial know-how of our company,” he said. “Why spin out Model e and risk that?”

Ford finance chief John Lawler later added that there are no current plans for a spinoff or to create another way for investors to bet on the EV portion of Ford’s business, such as a tracking stock.

“Once we start reporting the segments, you’ll be able to see the value creation amongst each of the divisions,” he said. “We should get credit for that.”

In the past few years, many of the world’s largest auto makers have spelled out strategies to shift capital spending toward electric vehicles and digital services that they envision generating revenue after the initial sale. Ford, General Motors Co. , Volkswagen AG are pouring billions of dollars into battery plants and new electric-vehicle factories as they race to bring to market more EVs, which today account for just around 4% of U.S. vehicle sales.

Ford’s creation of separate divisions goes further than most other car companies. Rival GM, for example, in 2019 divided leadership of its electric-vehicle and internal-combustion businesses and has created new posts for digital innovation and EV charging infrastructure, but has stopped short of distinct divisions with their own profit-and-loss statements.

Executives at GM and other auto makers have said they are open to options, but that there is too much overlap between the electric-vehicle and internal-combustion parts of the business to cleave off one or the other.

On Tuesday, Jeep maker Stellantis NV told investors it expects electrics to account for half of its U.S. sales and all of its European sales by the end of the decade.

Barclays analyst Brian Johnson said Ford’s moves should give investors better insight into the performance of the electric-vehicle operations and should accelerate Ford’s plans in that direction. But, because it seems unlikely to result in a spinoff in the near term, “we view the announcement as neutral,” he said.

Last year, Ford’s lineup included just one electric vehicle: the Mustang Mach-E sport-utility vehicle. Ford sold about 27,000 of the SUVs last year, or 1.4% of U.S. sales. In comparison, Tesla sold about 352,500 vehicles in the U.S. last year, research firm Motor Intelligence estimates. Tesla doesn’t break out deliveries by region.

Ford is adding to its EV offerings in coming weeks, including the introduction of an electric version of its Transit cargo van. This spring it is scheduled to begin selling the F-150 Lightning, the electric version of the nation’s top-selling pickup truck. Ford has said it would spend $30 billion on electric vehicles through 2025.

As the valuations of Tesla and other electric-only auto makers have grown in the past few years, investors have questioned whether traditional car companies might spin off their electric-car assets to boost their valuations.

Bank of America analyst John Murphy said Ford’s overhaul should help Ford attract talent to help it move further into EVs and digital services. He said it also could lower Ford’s capital costs by potentially allowing it to tap the market for green bonds, which are issued to finance environmentally friendly projects.