In China Ford (NYSE:F) recently reported September sales growth of 6% year-over-year (yoy) in Ford branded passenger cars led by the Ford Mondeo. This September sales was 40% percent more than Ford’s August sales in China. Ford’s commercial vehicle sales at Jiangling Motors Corporation (JMC) increased by over 7 percent from August 2011 despite a contracting commercial vehicle market in China. ((Ford China Passenger Car Sales Jump 40 Percent from Previous Month)) This indicates a reversal of Ford’s fortunes in China after it suffered y-o-y declines in August and July. [1] While positive, Ford still significantly lags GM (NYSE:GM) in China which reported a 15.3% yoy growth rate in September and is on track to sell over 2 million vehicles this year. ((GM Sales in China Surpass 240,000 Units in September Second-Highest Monthly Sales Ever)) In the first nine-months of the year, Ford sales stood at around one-fifth of GM’s vehicle sales in China.
Our price estimate of $14 for Ford’s stock is more than 25% above the current market price.
Ford’s China growth plans focussed upon fuel-efficient vehicle line-up
China is the most important market for Ford in the Asia Pacific and African region, accounting for nearly 60% of Ford’s sales in the region. This makes China one of the most important growth markets for Ford, and the company is investing heavily to realize its potential in the country. Ford plans to launch 15 new vehicles in China by 2015, focusing on fuel-efficiency, safety and smart technology to help drive its sales and increase market share in the international markets.
To build upon its aggressive growth plans in China, Ford along with its passenger vehicle joint-venture partner Changan Automobile Group invested another $350 million for a transmission plant. The company’s total investment in China now stands at $3.5 billion.
This year Ford introduced its patented turbo-direct injection EcoBoost technology in the Chinese market. This technology provides up to 20 percent better fuel efficiency and a 15 percent reductions in emissions and thus provides significant, immediate and cost-effective improvement to petrol engines. We believe that cost savings offered by this technology will help Ford increase its market share by targeting price conscious Chinese customers.
Nonetheless, Ford will need a focused marketing strategy to over take GM, which at the moment is the largest player in China, occupying a market share greater than 10% and continuing to demonstrate impressive growth rates. GM is focused upon local production of vehicles in China that are built for local requirements for instance, through its new brand – Baojun, a brand of low-cost automobile that is to be sold in China by GM and its joint venture partners.
Chinese market could hit speed bumps
The growth of the Chinese auto industry has been slowing in recent months in comparison to last year when Beijing boosted demand with tax cuts and subsidies. It has also been impacted by rising inflation in China which is forcing the government to continue its monetary tightening policy which in turn is impacting auto sales.
We believe that the Chinese auto-market growth will remain bumpy until the government renews its stimulus program in light of the weakening economic environment after reigning in inflation.
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