Johnson Controls Charges Up Auto Battery Production With New Chinese Plant

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Johnson Controls

Johnson Controls (NYSE:JCI) has decided to invest $200 million in an automotive battery plant in Tianjin, China. [1] The state-of-the-art plant will manufacture lead-acid and advanced batteries for start-stop vehicles for automakers and the aftermarket in China. The plant will have an annual production capacity of 6 million batteries which will help the company achieve its target of 30 million in annual battery production by 2017 in China. Construction of the plant is expected to begin in June 2013 and production to start by late 2014.

Johnson Controls primarily competes with automotive battery manufacturers such as Exide Industries (NYSE:XIDE) and Magna International (NYSE:MGA). We currently have a Trefis price estimate of $38 for Johnson Control’s Stock, nearly 35% above its current market price.

See our full analysis of the Johnson Controls stock here

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China’s automobile market

The Tianjin plant will be the fourth automotive battery plant for the company in China after Shanghai, Changxing and Chongqing, and reflects the high demand currently as well as strong future prospects for automotive batteries in China. The country is already the world’s largest auto market, and we estimate the annual production of cars in China to reach approximately 36 million by 2017.

Importance of emerging markets to Johnson Controls

Nearly 70% of Johnson Controls’ lead-acid battery sales come from North America and another 25% comes from the EU. These regions are slow growth, mature markets for automotive batteries. And with automotive batteries constituting nearly 33% of Johnson Controls’ stock, by our estimates, a higher proportion of battery sales from these regions in the overall sales mix will translate into lower earnings growth. [2] The company delivered average earnings last quarter and its stock is down 12% over the last month and nearly 22% over the last year.

So, in order to see strong top-line growth, Johnson Controls needs to occupy a larger market share of automotive batteries in high growth markets of emerging economies such as China and India, and the announcement on the Tianjin plant is definitely a step in the right direction.

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Notes:
  1. Johnson Controls announces plans to build automotive battery manufacturing facility in Tianjin, China, www.johnsoncontrols.com, June 6th 2012 []
  2. Johnson Controls Model on Trefis, www.trefis.com []