How The International Market Can Impact Ford’s Valuation?

We estimate that  Ford Motors‘(NYSE:F) international business to contributes around 13% to our price estimate.  While Ford’s market share in the international markets is around 5%, lower than the 10% figure for North America (Cars), it has a strong focus on China and other international markets.  The company announced recently that it plans to spend $1.8 billion over the next five years in research and development efforts in China.  Ford is planning to launch NEV’s (New Energy Vehicles) in the country playing up to its commitment to green technologies.  This seems to have been timed well on the back of the recent Volkswagen emissions scandal.  Though international markets form a small part of Ford’s valuation, faster expansion in emerging markets may lead to a significant upside in its stock price.

10% Upside In Price Estimate If International Market Share Is Above 5.5%

Ford’s market share in China went up marginally from 4.6% in Q2 2014 to 4.7% in Q2 2015. The company expects strong growth in Asia Pacific in the second half of the year, with added capacity and new product launches.  The company launched its luxury brand Lincoln this year and its success will be visible in the future. As the China industry growth slows, Ford expects its new products in the region to be competitive in terms of pricing, leading to a higher market share.  The company has invested heavily in China and doubled its production capacity in the last three years.  While the slowdown in China might lead to excess capacity in future, Ford could explore options such as increasing fleet sales in China, given Uber’s increased focus on China. Although this business had lower margins, it would still provide Ford a stronghold in the region. The recent move to bring innovation to China in terms of smart, green cars can generate more demand for Ford. There can be a 10% upside in our price estimate; if the company’s international market share improves to 5.6%, as against our forecast of 4.7%.

Ford is progressing in other emerging regions too.  Market share in Brazil saw a jump from 9.1% in Q2 2014 to 10.9% in Q2 2015, although the weakening business environment in South America is creating a difficult pricing environment in the industry.  The company’s recent restructuring in Europe has also started showing results.(Read Fords Efforts in Europe Beginning to Bear Fruit) While we expect Ford’s market share in North America (cars) to remain stable, the international market share is expected to increase gradually.  An upside in the price estimate is notable if this increase is more than expected.

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