Raphael Stevens

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Ford’s move says the EV business, while promising, isn’t ready for independence, and some on Wall Street agree.
Separate reporting within Ford may help shares overcome a market valuation discount, while the current strength of “cash cow” pickup truck sales remain the leader.
Car companies are riding high on a booming vehicle sales market, and that won’t be the case in the next recession, which is among the reasons some experts still expect a formal Ford EV IPO in the future.

Attendees look at the all-electric Ford F-150 Lightning pickup truck at the Washington Auto Show in Washington on Tuesday, January 25, 2022.
Bill Clark | CQ-Roll Call, Inc. | Getty Images

In the biggest deal it has done in a long time, Ford Motor Co. decided to split its electric-vehicle business from its traditional auto business last week – but notably, not spin off the EV business in pursuit of the white-hot stock valuations that have followed EV leader Tesla and, intermittently, fast followers like Rivian and Lucid Group, whose stock prices have suffered recently.
The company met Wall Street halfway in its restructuring plan, which is still significant, and analysts were roundly positive on the decision.

DataTrek co-founder Nick Colas, a former Wall Street autos banker who has been saying for a while that the auto companies will need to convince the street that these spinoffs shouldn’t be done sooner rather than later, called Ford’s move “an interesting reorganization.”
“Auto companies don’t often shuffle their reporting/org charts in such a dramatic manner and such moves are always risky in terms of productivity. Still, it does allow for clearer management accountability and that’s always good in the long run,” he said.
The message from Ford management is that the EV business, despite solid sales of the well-received Mustang Mach-E, isn’t ready for prime time. Ford chose the safer course of keeping its promising emerging business tied to the profitable mother ship for longer. That lets the EV unit, to be dubbed Ford Model e, and other tech efforts, invest up to $50 billion mostly out of the cash flow from the existing Ford, to be called Ford Blue. That cash flow was $40 billion over the last two years, meaning Model e won’t have to turn to bond or stock markets to fund expansion.
At the same time, Ford may be able to undo part of the significant discount its shares trade at compared to the EV pure plays. The compromise Ford chose was to keep its businesses aligned, but report their results separately beginning next year so Wall Street can begin to assess the EV business’ growth and value it independently.

Ford’s spin

Will it work? For now, the answer is likely yes.

“We like the move, and think it was driven by frustration,” CFRA Research analyst Garrett Nelson said. “Ford’s [price-to-earnings ratio] stock trades in the high single digits, a fraction of Tesla’s, [dropping this year] even though they became the number two seller of EVs and will grow much faster when the F-150 Lightning pickup ships in a few months.”
Ford executives emphasized both operational and financial advantages that keeping the companies joined may give. Farley dwelled on the combined company’s ability to finance its growth strategy without accessing capital markets, while aides explained in a press briefing the details of plans to share costs between the EV and gasoline-powered vehicle businesses, cut costs in the traditional unit, and get both sides of the business to work together to boost profitability faster than they likely could on their own.
“If we spin this out, we really risk that leverage,” Farley said. “It doesn’t make sense. The leverage is the key point, and we have the capital.” 

The centerpiece of the plan is to cut up to $3 billion in annual costs by 2026, with major targets including Ford’s advertising budget – estimated at $1.8 billion in 2020 by Statista for just U.S. spending – and $4 billion a year cost of warranties, which Ford Blue President Kumar Galhotra said will be addressed by improving the quality of Ford vehicles.
Nelson said the company is likely to look outside the U.S. for many of the cost cuts too, pointing to money-losing operations in Europe and parts of Asia.
Fresh growth is likely to be spurred by the arrival of new EVs, especially the F-150 Lightning, for which Ford has reported 250,000 pre-orders and is working to increase production in advance of shipping this year. Ford has hit that target while still only offering the electric version of its market-leading pickup truck in one body style, compared to different cabs with different levels of luxury in traditional gasoline-powered F-150s. 
The company said it expects to get a third of its auto sales from EVs by 2026 – about 2 million vehicles. It sold about 726,000 F-150s in the U.S. last year.
But there is still reason to suspect a true spinoff could occur sooner.

EV spinoff talk won’t go away

All of this may still lead up to, in fact better position Ford to, do the rest of the deal and completely spin off its Ford E unit by about 2024, said Wedbush analyst Dan Ives. The keys will be continuing to expand sales of the electric Mustang Mach-E, which sold more than 27,000 units in 2021, about half the number of gasoline-powered Mustangs, and following through on the early promise of the electric F-150 and the electric E-Transit commercial vehicle for small businesses, adding other models as the company grows.
“In 12 to 18 months, given the success of the F-150, investors will want to see them raise capital and double down,” Ives said. “When they start to report unit sales, so you can see demand in the EV business, we’ll be able to value it. It’s the first step to an eventual spinoff of the EV business,” Ives added.

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The underlying issues Ford management is facing go beyond the auto sector. In the energy business, where tradition carbon-intensive businesses are being threatened by renewable energy sources, incumbents are under attack from activists to consider spinoffs. Shell has faced an activist campaign, and its CEO countered that the investors fail to understand the importance of the current cash generation model to the renewable energy investments being made for the future. And the past year has shown it to be a peak moment in corporate restructuring of iconic companies, including GE and Johnson & Johnson.
Emilie Feldman, professor of management at The Wharton School, University of Pennsylvania, who specializes in corporate restructuring and divestitures, says Ford and other car companies who may follow its approach aren’t issuing what is likely to be the final say on corporate structure, culminating in a full separation.
“Today, there is still value in Ford’s traditional auto and EV businesses remaining integrated, whether because of cash flow or other operational interdependence. At some point in the future, though (perhaps once the EV technology develops further), the calculus will change.”
The history of the market is replete with examples of where the value of separation eventually came to exceed the value of integration and then divestitures happened.
“Situations have played out many times across industries and time periods, whether it is companies with old plus new tech businesses, companies with mature plus more nascent businesses, or companies with commodity plus end-product businesses,” Feldman said. “I suspect the same will eventually happen for companies like Ford and GM in autos and Shell and other energy companies that have green vs. brown energy businesses.”
Other automakers like General Motors and Volkswagen will be watching to see if they can make similar moves, Morgan Stanley analyst Adam Jonas said. But Jonas, who doesn’t recommend Ford stock, argued that relying on the cash flow of the existing business is expensively priced capital invested in a high-risk EV business.
And the comparisons between Ford and other automakers only goes so far, according to Colas.
The Ford family, looking over the board’s shoulder and focused on maintaining the Ford ‘blue’ icon through all eventualities — he noted it was the only of its peers to never go bankrupt — has a history of what he described as more “thoughtful decisions about the next leg. They want it to survive for the next 100 years,” he said.
“Ford has made a lot of good decisions recently, and this is one of them,” Ives said.

When a true Ford EV company makes more sense

When might a formal EV spinoff be in the cards? It may be less dictated by a predetermined timeline than the economic cycle and when a recession occurs.
Funding EVs right now relies on a hot vehicle market for trucks in the U.S., and Ford may continue to have those conditions for a few years to come, with the cash being generated from the traditional autos allowing Ford to meet all of its targets. But if a recession hits, “they can’t get anywhere close to it,” Colas said. “Autos have a cyclical profit profile and those cash flows go away, and you still have $5 billion a year in EV investments you need to make. Where will you get it when you are selling four million less vehicles?”
His view of the auto sector based on his time as a banker: car companies tend to do the right thing when their backs are against the wall financially, in a weak economy. “In every other part of the cycle, they are reluctant. They want to retain critical mass,” Colas said.
A Ford EV spinoff won’t necessarily get a Tesla valuation with the majority of profits over the next eight years still residing in traditional F150 sales. But the current environment sets Ford up even better to spin EVs off when it needs the capital, and provide a floor under the stock’s shares when the next recession hits. “You create optionality and you don’t have to do anything,” Colas said. “There will always be a market for a Ford EV IPO,” he added.
The cash flow analysis at Ford and its decision demonstrate a powerful force that Feldman says her research on corporate strategy has confirmed: the inertia that surrounds spinoffs and divestitures.
“The mentality is something like the following: ‘We know that eventually we’ll need to separate, but the cash flow is too useful for the time being/interdependence is too complicated to unwind right now/[insert other explanation here], so let’s hang on to the business.’ This logic is probably correct right now for Ford,” she said. “But this mentality does illustrate how and why some companies might hang on to certain businesses too long when divestitures might instead be warranted.” More

Currently less than 1% of fresh produce is grown through hydroponics systems versus open-field agriculture, but this segment is forecast by Mordor Intelligence to grow by nearly 11% yearly to about $600 million by 2025 and Walmart has invested $400 million in Plenty Unlimited.
Vertical farming start-up Fifth Season is backed by billionaire Nicholas Pritzker’s Tao Capital and planning to disrupt the $60 billion U.S. produce market through food partners include Sabra, Kroger, Shoprite and Giant Eagle.
“The tech multiplier doesn’t lift all boats but it is spreading in the heartland,” says Congressman Ro Khanna of Silicon Valley.

Currently less than 1% of fresh produce is grown through hydroponics systems versus open-field agriculture, but this segment is forecast by Mordor Intelligence to grow by nearly 11,% or about $600 million, by 2025.
Fifth Season

Next to the last steel mill in the poor industrial town of Braddock along the Monongahela River just nine miles from Pittsburgh’s U.S. Steel Tower, a vertical farming business backed by billionaire Nicholas Pritzker’s Tao Capital is sprouting as an agritech innovator.The start-up, founded in 2016 as RoBotany by MBA student Austin Webb and incubated at Carnegie Mellon University, is aiming to disrupt the $60 billion U.S. produce market. Now named the more consumer-friendly sounding Fifth Season, the emerging business is leveraging advanced technology, $75 million in venture capital, increased distribution, a planned new Columbus, Ohio, facility, and an expanded management team to score in the fast-growth vertical farming market. CEO Webb confidently projects Fifth Season could be a $15 million business in Pittsburgh within five years and $500 million through geographic expansion plans, and estimates sales will hit a double-digit revenue rate this year and a 600% revenue increase.   “Our smart manufacturing facility improves the yield, taste and texture of the vegetables, and does that with 95% less water, 95% less land, and uses no pesticides or chemicals,” said Webb, who is 33. Fifth Season’s automated proprietary system grows fresh produce year-round indoors in vertical trays, relying on artificial intelligence, robotics and data to control light, water and nutrients, and harvest leafy greens.

Hydroponics is growing quickly as food source

Currently less than 1% of fresh produce is grown through hydroponics systems versus open-field agriculture, but this segment is forecast by Mordor Intelligence to grow by nearly 11% yearly to about $600 million by 2025. “There’s tremendous runway as the price comes down and more reliable operations remove the risk,” said Brian Holland, managing director of Cowen & Co. in New York.  “It’s a race to scale with potentially multiple winners who can prove the economic model for automatic, robotic growing,” he added. “Fifth Season is more advanced, if not the most advanced, in the market in marrying technology and robotics to grow vegetables indoors at a lower cost.”

Fifth Season is competing in a capital intensive, highly fragmented market with more than 2,000, mostly smaller farms and a handful of larger scale players. Among the largest is San Francisco-based Plenty Unlimited, which recently inked $400 million in strategic funding from Walmart and plans to sell its fresh produce from its Compton facility at the retailer’s California stores. Another major rival is AeroFarms in Newark, New Jersey, which scrapped a SPAC deal to go public in October 2021 and is continuing to build out capacity at a Danville, Virginia farm. “Market leadership is just a function of time and a function of capital,” said Webb.
Racing to build out its business and keep pace with competitors, Fifth Season plans to construct its second indoor growing farm in 2023, and is negotiating for a land parcel in Columbus, Ohio, near the John Glenn Airport. Through a partnership with hummus maker Sabra in December 2021, the company also has introduced a new product line of co-branded, grab ‘n go salad kits, priced at $6 to $8. Distribution of its products are being expanded this March at more Giant Eagle outlets as well as Kroger and ShopRite across 10 states and 1,000 locations, with a goal of reaching 3,000 grocery stores in 2023. In its initial year of commercial operation in 2000, some 500,000 pounds of its produce were supplied to nearby restaurants and campus dining locations from its 60,000-square foot growing space on a half-acre of land.

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A new Rust Belt boom

Fifth Season’s growth spurt signals a new high-tech era for the former steel-making capital. Dozens of regional tech start-ups are emerging in Pittsburgh and throughout the former Rust Belt as blue-collar factory worker transitions to technical jobs and older, industrial towns are rebooted.
“The tech multiplier doesn’t lift all boats but it is spreading in the heartland,” said Congressman Ro Khanna of Silicon Valley, author of “Dignity In A Digital Age.”
“The factory workers and technicians know how to make things and have an extraordinary work ethnic and sense of community. They are defying past conventions,” he said.

Gearing up, Fifth Season expanded its leadership team in January, while employee count is expected to increase to 100 next year from 80 now.  Finance and tech veteran Brian Griffiths came on board as CFO from semiconductor company Skorpios Technologies with experience at Credit Suisse and Guggenheim Partners. Varun Khanna was hired as vice president of food products from leadership posts at Chobani and Sabra. Glenn Wells joined as senior vice present of sales and previously worked at Quaker Oats, Welch’s and Dole.   
Another prong in its growth strategy is a planned $70 million expenditure on a new Columbus vertical farm that is three times larger than the $27 million Braddock plant, including real estate development for land, a building and equipment. The company’s highly automated farms only require 35 to 50 production workers. The Pittsburgh plant makes four million salad meals annually, while the larger central Ohio location is expected to produce 15 million. Fifth Season is working with economic development groups One Columbus and Jobs Ohio on the new location.

The Carnegie Mellon connection

The foundation for Fifth Season’s game-changing business comes from the intellectual power at Carnegie Mellon University and Pittsburgh’s tech entrepreneurial cluster in computer science, robotics and engineering. Webb developed a prototype in his last year of the MBA program and launched the business upon graduation with co-founder Austin Lawrence, an environmental scientist and mechanical engineer he met on campus.  
A third co-founder, Webb’s brother Brac, is CTO. He designed the production software. The system was stress-tested for two years in a converted steel mill on the south side of Pittsburgh before the Braddock farm started operations in 2020.    
Webb was mentored by Dave Mawhinney, executive director of CMU’s Schwartz Center for Entrepreneurship, who helped him connect with investors and role models such as serial entrepreneur Luis von Ahn, the Pittsburgh-based founder of Nasdaq-listed edtech company Duolingo.  He also introduced MBA student, Grant Vandenbussche, a former General Mills global strategy coordinator, who joined the team in 2018 as a business development manager and is now chief category officer. “Fifth Season is a testament to CMU’s ability to attract very talented young people and grow entrepreneurs through its MBA program,” said Mawhinney. “It’s all about the network.”

Fifth Season CEO Austin Webb
Fifth Season

Even before graduating in 2017, Webb lined up capital from angel investors, most of them connected to CMU. The network effect also played out as Mawhinney introduced Webb to the Columbus-based VC firm Drive Capital, which seeded the start-up with $1 million in 2017 and led a $35 million round in 2019 as it came out of stealth mode, changed its name from RoBotany, and Drive partner Chris Olsen joined as a board member.
“Chris has pushed us to be thoughtful about the market and to think bigger nationally, not just locally or regionally, and to build a long-lasting company and a new product line,” said Vandenbussche.
The $75 million it has raised to date from investors includes not only Pritzker’s Tao Capital Partners in San Francisco but eight different investor groups that joined in during 2021.
“Pittsburgh is coming together as an ecosystem. One of the reasons it’s doubling down is because of its strengths in AI, machine learning and legacy with biosciences,” said Kit Mueller, who heads community networking group RustBuilt and recently became vice president of crypto asset company Stronghold Digital Mining in Pittsburgh.No longer dependent on steel, iron, and its rivers as competitive advantages, the city is transitioning from gritty industries and robotics start-ups are crowding into the so-called Silicon Strip of former warehouses. This mid-sized city of 303,000, less than half its peak population of 677,000 in 1950, has emerged as a technology testbed for self-driving technology from Ford-invested Argo AI and Amazon-backed Aurora, and Uber’s technology unit acquired by Aurora. It’s also an anchor for R&D labs at Facebook, Apple, Google, Zoom, and Intel.  
A lingering issue facing Midwestern start-ups is a shortage of venture capital. California, New York and Boston logged about two-thirds of $329.9 billion in start-up investments in 2021. This imbalance is beginning to shift toward specialized inland hubs as strongholds take shape such as Pittsburgh with robotics as well as Cleveland with biotech and Indianapolis with SaaS.
Improved lifestyle amenities, increased opportunities and the lower costs of living are draws for millennial tech talent to inland hubs. The co-founders of Fifth Season, and many others, came to Pittsburgh to pursue entrepreneurship and have stayed. 
“The only ones who don’t like Pittsburgh are those who never came here and those who left but never came back,” said Lynsie Campbell, a serial founder who bounced around New York, Los Angeles, and San Francisco but returned home as a Pittsburgh-based partner with The Fund Midwest, and is a leader in city’s venture capital and start-up sphere.

Arrows pointing outwards

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Recent upticks in traffic deaths have sparked worry among safety advocates, government officials and even the industry itself.
The toll — 1.36 fatalities per 100 million vehicle miles traveled — has been called “a national crisis” by U.S. Secretary of Transportation Pete Buttigieg.

That said, riding in cars is currently far safer than it was in 1980 when traffic deaths hit an all-time peak of 3.36 deaths per 100 million miles traveled.
The history of auto safety is one of pivotal inventions and fierce political battles over what automakers should have to build into their cars and what people should be compelled to do while on the road.
In past years — before those inventions and regulatory feuds — vehicle safety was mostly an afterthought, while today the three-point seatbelt, child safety seats and airbags are ubiquitous.
Automakers such as Honda and General Motors aspire to sell cars that either eliminate traffic deaths or crashes altogether, with inventors shifting their attention toward new technologies like driver assistance systems.
Indeed, some new driver assistance tools, including automatic emergency braking and pedestrian-detection systems, excite safety advocates.

But such modern systems also raise a new set of safety questions. And the recent uptick in traffic deaths shows that despite all the progress, riding in cars is still not without its risks.
Watch the video to learn more.

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Glendale, home to Walt Disney Imagineering and the famous Brand Boulevard, could be the last city in California to build a fossil-fueled power plant.
The move has angered residents and environmentalists who are urging the city to invest in clean energy to slow the climate crisis.
The debate over the plant highlights a broader issue over how California must figure out how to eliminate planet-warming fossil fuels while continuing to power communities.

People gathered in Glendale in February to protest the city’s approval to build a fossil-fueled power plant.
Courtesy of Morgan Goodwin

Glendale, a Los Angeles suburb that’s home to Walt Disney Imagineering and the famous Brand Boulevard, could be the last city in California to build a fossil-fueled power plant. The move has angered residents and environmentalists who have urged the city to invest in clean energy to slow the climate crisis.
Glendale has proposed to spend $260 million on five new natural gas-powered generators that will produce about 93 megawatts at the Grayson Power Plant, enough to power a midsize city. The decision comes after the state passed legislation requiring 100% clean energy by 2045.

The ongoing debate over the plant highlights a broader issue over how California must figure out how to eliminate planet-warming fossil fuels while continuing to power communities, an effort utility providers say will require continued investment in natural gas. The electricity sector accounts for about 16% of California’s greenhouse gas emissions, according to the California Air Resources Board.
Environmentalists have pointed out that the power plant is less than a mile from several schools, childcare centers and other community centers and will increase greenhouse gas emissions in a city already suffering from poor air quality. They argue that the plant would lock in more pollution for years to come and that investment to fund the new generators is a waste as the state transitions to cleaner energy sources.
But Glendale Water & Power, the local state-run utility, has argued that its proposed thermal generation would only run at 14% capacity — significantly less polluting than the gas engines in place now — and provide vital back-up power for the city. The new generators, it said, will provide power in the event that transmission lines are shut down to mitigate wildfire risk, as well as supply air conditioning during unbearable heat waves.

The ‘bridge fuel’ argument for natural gas

This week, the city council voted for an amendment to pause any purchase of gas-fired units until the end of the year, a move environmental groups said was just a temporary delay but praised as a step in the right direction.
Mark Young, the general manager of Glendale Water & Power, said the delay was disappointing and failed to consider the importance of providing reliable thermal generation for the city when residents need back up power.

“My job is to make sure that everyone has enough electricity when they need it. It feels like I’m the big bad wolf who loves thermal generation,” Young said. “I don’t – I love reliable generation.”
“Our portfolio keeps gas generators on only when we need them in the event of a problem,” Young said. “We’re trying to balance the needs of the environment and needs of the residents for reliable favorable energy.”

The Grayson Power Plant is located on the border of Glendale and Burbank.
Courtesy of Morgan Goodwin

As part of a broader assignment from the city to invest in clean energy, Glendale Water & Power is working to implement 75 megawatts of battery energy storage at the power plant. The utility is also working on a virtual power plant that would produce 28 megawatts of solar energy by installing solar panels and batteries at homes and apartments throughout the city.
Young said that the utility’s clean energy options are maxed out, due mostly to the fact that it doesn’t have enough transmission capacity on power lines to bring in energy sources from outside the L.A. Basin.
“We’re being extremely progressive in our vision and we’re not getting credit for it,” Young said. “Natural gas is supposed to be a bridge to get to 100% clean energy.”
But environmental groups don’t buy it.
Byron Chan, an associate attorney for the environmental law firm Earthjustice, said that more than 400 residents mobilized and protested the utility’s proposal to burn fossil fuel in 2018. Since then, the utility still hasn’t fully addressed the concerns of the community, he said.
“Given what we know about emissions from natural gas, it’s incredulous that in 2022 we’re making investments in fossil fuel when there are clean energy options that are decreasing in price and becoming more and more readily available,” Chan said.
Environmental groups have also argued that the proposed gas engines won’t be able to run after the 2045 deadline and will therefore become stranded assets. However, Glendale Water & Power has argued the utility will eventually be able to run the units on green hydrogen, which is made from the electrolysis of water powered by solar or wind and is still in its infant stage.
Morgan Goodwin, a Glendale resident and the senior director of Sierra Club’s Los Angeles chapter, said the main fight over the power plant is whether or not fossil fuel production plays a role in the solution to climate change.
“The answer is clearly no,” Goodwin said. “But the messaging we get from the fossil fuel industry is still touting bridge fuel benefits. If our elected leaders are willing to say ‘No fossil fuels means no fossil fuels,’ then that’s the example of what we want to see nationally.”
“We’re asking Glendale Water & Power and other utilities to make some deep changes to how they operate,” Goodwin said. “This is their opportunity to demonstrate leadership and courage.”

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Incoming Splunk CEO Gary Steele said Friday he hopes to be a “stabilizing force” for the company and its customers.
Steele’s appointment was announced Wednesday, along with the company’s fourth quarter and full-year results.
“I’m stepping in at a great time,” Steele told CNBC. “It’s just great positioning, and I think we’ve got a very optimistic path forward.”

The incoming CEO of Splunk, Gary Steele, told CNBC’s Jim Cramer on Friday he hopes to be a “stabilizing force” for the company and its customers.
Steele, whose appointment was announced two days ago, is set to take over the data-analytics software maker and join its board April 11. Splunk had been without a permanent CEO since mid-November, when Doug Merritt abruptly stepped down.

Splunk has been working to transition its identity and operations, focusing on cloud subscriptions and away from more traditional on-premise software sales.
“I think that I can be a stabilizing force — a stabilizing force for the company, a stabilizing force for our customers, and deliver this next chapter for the company,” Steele said in an interview on “Mad Money.”
Splunk on Wednesday also reported fourth quarter and full-year fiscal 2022 results. Revenue in the fourth quarter was $901.1 million, much better than the $774.5 million analysts expected, according to FactSet. Its full-year sales guidance of between $3.25 billion and $3.3 billion also was above Wall Street’s estimates.
“I’m stepping in at a great time,” Steele said. “It’s just great positioning, and I think we’ve got a very optimistic path forward.”
Steele was previously chairman and CEO of Proofpoint, a formerly public cybersecurity company that in August was acquired by the private equity firm Thoma Bravo. While at Proofpoint, Steele oversaw more than 70 straight quarters of growth.

“I had a phenomenal run there, just a tremendous experience for me, and I hope to bring a lot of that experience and a lot of those relationships with me,” Steele said.
Graham Smith, who’d been chair of Splunk’s board, has been serving as interim chief. He’ll return to his role on the board.
Splunk shares rose nearly 6% Friday, closing at $129.06 to bring its year-to-date gains to 11.5%. However, the company’s stock has yet to return to where it traded before Merritt’s departure on Nov. 15. It closed at $167.82 in the prior session, on Nov. 12, before falling 18% as investors processed the surprise CEO shakeup.
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