Moves such as a separate listing or internal reorganization may be painful for current employees and fraught with risk for stakeholders -- but they are going to be increasingly necessary, analysts say.
The conventional wisdom is that a gradual transition to electrification was needed to protect jobs. But that thinking may be outmoded, analysts say, as EV market share grows quickly, calls to decarbonize the environment become more urgent and new entrants without legacy costs threaten established automakers.
"From 2021 on, the pace at which OEMs withdraw capital from ICE and shrink legacy may matter more to valuation multiples than investing in EVs, which is now a cost of doing business," Philippe Houchois of Jefferies said in a recent report.
Houchois says automakers are now in "Phase 2" of the transition to EVs. In the first phase, automakers increased capital spending to start the transition; now, they "are starting to pull capital from ICE and older technologies" to compensate for higher spending on EVs and autonomous vehicles.
Both Houchois and Proff speak of avoiding the "zero-sum" trap, in which margins on internal combustion cars fall faster than EV margins improve.
"Equity markets are more likely to reward legacy OEMs that proactively shrink stranded legacy assets," Houchois said.
Houchois says "Phase 3" will involve shrinking or spinning off existing assets, for example, exiting segments or brands or combining internal-combustion assets off the main balance sheet, such as the Mercedes-Geely engine agreement.
It's too early to say how recent moves will play out. While Polestar's reverse-merger SPAC offering has not yet been finalized, there are encouraging signs.
Hertz last month signed an agreement with the brand to buy 65,000 electric cars over the next five years, and Polestar CEO Thomas Ingenlath has said he expects the company's valuation to be well above $20 billion -- a figure that would put it on par with Volvo Cars itself, despite selling only 29,000 vehicles in 2021 compared with Volvo's 700,000.
Renault has not yet said in which direction it will go, but investors are already cheering its intention to undergo a radical makeover.
"Splitting ICE and BEV could be the long-overdue strategic reset that puts Renault back on investors' maps," Houchois wrote this month.