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Ford (F) to Vend Brazil Factory to CAOA, Bet Big on EVs

Zacks Equity Research

As part of Ford’s F global restructuring program, it has reportedly agreed to divest its oldest plant in São Bernardo do Campo, Brazil to Brazilian automaker CAOA. Also, the Zacks Rank #3 (Hold) company is set make a big electric push in Europe by launching several new models of electric vehicles (EVs) in the next few years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper.

Ford to Exit Brazilian Truck Business

Notably, this February, Ford decided to shutter the Brazilian plant in a bid to exit from the heavy truck segment in the region. Instead, it intends to bolster the business portfolio comprising SUVs and pickup trucks in Brazil.

After careful review of business in the South American nation, the U.S. auto giant concluded that heavy investment would be required to make the Brazilian factory profitable. Ford aims at streamlining portfolio, optimizing strengths, slashing costs and improving efficiency in South America. Hence, as part of the restructuring program, the company announced the decision of halting operations at the São Bernardo do Campo assembly plant early this year. This move would cost thousands of jobs and affect sales of the Cargo line-up, F-4000 andF-350, and the Fiesta compact. The factory closure decision and job cuts came as a huge blow to Brazilian president Jair Bolsonaro, as the country is already battling an unemployment rate of around 12%.

Reportedly, Ford had been in talks with CAOA regarding the sale of the Brazilian factory since late February. Its recent deal to jettison the unprofitable business seems prudent in light of the present circumstances.

The Brazilian automotive assembly and distributor company was founded about four decades ago, and became the official importer of Renault and Hyundai brands in the nation in 1992 and 1999, respectively. The company intends to make Ford’s factory in São Bernardo do Campo productive and profitable.

Ford’s EV Lineup Update in Europe

Of late, EVs are gaining traction as automakers are discarding gasoline engines for electric motors. A host of factors such as pollution issues, government sops, cost advantages, technical superiority and stricter fuel emissions standards have turned the fortunes in favor of EVs.

In view of the changing dynamics, Ford is actively working to introduce new models of electric vehicles that seem to be the future of the auto industry. The company, which is making a big electric push in Europe, recently unveiled its most comprehensive line-up of EVs. This will boost Ford’s top line and drive prospects in the coming years.The auto biggie will be launching 17 EVs in Europe by 2024, including eight this year.

The new launches will include electrified variants of Kuga, Explorer and Puma SUVs, along with Mondeo hybrid wagon. Notably, the new Kuga Plug-In Hybrid will be Ford’s most electrified vehicle ever. The automaker also plans to launch a new Mustang-inspired electric sports utility vehicle next year. The company aims at achieving bulk of European sales from electric vehicles by 2022-end.

To facilitate charging of the EVs, Ford is set to collaborate with leading energy suppliers in Europe to offer home charging wall box installation services for plug-in hybrid customers. The company will set up an app, enabling users and operators locate, navigate to and pay for charging.

Ford’s Electric Wave in Europe Part of Restructuring Program

The launch of EVs is part of Ford’s broader restructuring initiative in Europe. The firm’s European business had not been profitable for years and the company was forced to restructure operations, especially after its rival General Motors GM sold Vauxhall and Opel brands on losing billions in European markets. Another auto giant Fiat Chrysler FCAU is also restructuring business in Europe and expects the efforts to yield profitable results by 2020.

The $11-billion restructuring program over the next three-five years is expected to increase its market share in not-so-profitable markets like Europe, while lowering costs through collaborations and job cuts. The automaker intends to boost profits in European markets by sharpening focus on EVs, and commercial and passenger vehicles.

In the next five years, Ford aims at doubling its commercial vehicles’ profitability and bolstering the company’s footing in the pickup segment through alliances. Markedly, the company partnered with German carmaker Volkswagen VWAGY to create high-tech, and efficient models of commercial vans and pickups. Ford also targets to triple passenger vehicle imports to Europe by 2024. Recently, Ford and Volkswagen also teamed up to jointly develop electric and self-driving vehicles.The U.S. auto giant expects to build more than 600,000 electric vehicles in Europe in the next six years.

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