Goal
Ford Motor Company (NYSE:F)’s plan is to generate 40% of its global sales from China compared to the 11% that it currently generates from the region. It aims to grow its market share to 6% by 2015 and to 7.5% by 2020.
The company expects sales in the Chinese auto market to reach 30 million to 32 million units by 2020. Let us assume that for some unforeseen reason this falls short and the market reaches only around 27 million units. Even then, with the 7.5% market share that Ford is targeting by that time, it is looking at annual sales of over 2.0 million vehicles in the country. This compares with 626,616 vehicles that it sold in 2012.
Ford Motor Company (NYSE:F) has had a solid start and has been able to generate strong demand for its vehicles. This is likely to continue given the new cars that the company is bringing to China and the billions of dollars in investment that it is pouring in.
Excellent sales trends
The Blue Oval saw sales surge by 48% and total deliveries climb to 332,467 between January and May. The overall 12.6% growth in the Chinese automotive market during the first five months of the year has not been any match for the growth witnessed by Ford vehicles in the country.
Ford Motor Company (NYSE:F) has grown by an incredible 3.8 times the overall industry, which makes it the fastest-growing international car company in China. It expects to outpace the industry growth by at least three times over the course of the year.
In comparison, General Motors Company (NYSE:GM) saw 11% year-over-year growth, slightly lagging the industry. But it continued to remain the biggest foreign auto company in terms of the number of vehicles, selling around 1.3 million vehicles in China during the first five months. Volkswagen AG (ADR) (PINK:VLKAY) was right at its heels with sales of 1.3 million vehicles and a growth rate of 18%.
Exciting new cars
Ford has promised to introduce as many as 15 new models in China by 2015 and the first one to arrive was the Focus compact model last year. Immediately it became a bestseller in the country and went on to become the most popular car in the whole world.
This year, Ford Motor Company (NYSE:F) has introduced the Kuga and Explorer SUVs, which fueled the 45% sales growth in May. In China, SUVs will be the focus area and the company intends to have a vehicle for each category.
And now the excitement is building over the upcoming launch of the Mondeo, which is the European name of Fusion sedan. We already know the kind of storm that it has raised in the US with Ford having to add capacity to keep up with the demand.
Ford Motor Company (NYSE:F) will launch its Lincoln luxury brand next year. It will be interesting to see if it can take on the European car makers like Volkswagen AG (ADR) (PINK:VLKAY), Daimler, and BMW, which rule the Chinese market with approximately a 70% combined market share. Of the three, Volkswagen has the largest share with 29.6%. The company grew its Audi sales by 16% in May.
Ford’s cross-town rival GM has not had too much success in this segment in the past. It has now announced ambitious plans and huge investments to triple its sales to 100,000 units by 2015 and gather 10% market share in the luxury-car segment with its Cadillac brand.
Meanwhile, Ford Motor Company (NYSE:F) will also make two completely new global vehicles in China, one of which will be a commercial vehicle and the other an SUV. This gels well with Ford’s plans of making China an export hub over the coming years.
Ford is not the only one to showcase new cars in China. Volkswagen AG (ADR) (PINK:VLKAY) will bring new sedans and compact SUVs and increase its annual production to 4 million units by 2018. Meanwhile, General Motors Company (NYSE:GM) will get into a complete product offensive and launch at least 10 new or revamped models every year through 2016. It is aiming to attain production capacity of 5 million units by that time.
Huge investments
Ford Motor Company (NYSE:F) will invest $4.9 billion through 2015 in doubling its production capacity to approximately 1.6 million vehicles and fulfilling its commitment toward the “15 by 15” plan. The company will also build a new engine production facility with its commercial joint venture partner, Jiangling Motors. It has just opened a $500- million plant for making 1-liter and 1.5-liter engines for passenger cars with its other partner, Changan.
Big dollars are tied to China by automakers from all over the world, companies that are preparing to meet the explosive demand that the country is likely to see from the rise of the middle class. By Ford’s estimates, we are talking about 1 billion people who would be able to afford cars by 2020.
General Motors Company (NYSE:GM) will invest $11 billion by 2016 and build four new plants, including a $1.3 billion Cadillac plant. Volkswagen AG (ADR) (PINK:VLKAY) is looking at putting in $12.8 billion by 2015 and building seven more plants to add to its existing tally of 12 in the country.
Last word
If Ford Motor Company (NYSE:F) can execute its plan in China, it can add billions of dollars to its bottom line. Its vehicles are already well accepted in China. With new models making their debut over the next few years, it is a calculated guess that demand for the Blue Oval nameplate will remain strong, which would be an added catalyst for the stock. This makes Ford a good option for long-term investors who are looking for some solid growth.
The article This Automaker Has Big Plans in China originally appeared on Fool.com and is written by Gaurav Basu.
Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors Company (NYSE:GM). The Motley Fool owns shares of Ford Motor Company (NYSE:F). Gaurav is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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