Why Ford Is Building A New Luxury SUV In China In 2019

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Ford Motor Company (NYSE: F) is considering building a new Lincoln brand SUV in China beginning in 2019. Luxury SUVs are the most important driver of operating profit growth for auto companies over the past 5-6 years. The correlation table below shows this:

correlation table

Ford has invested around $2.5 billion in its Lincoln brand and launched it in China in 2015. By the end of two years, sales of the brand had reached over 32,500 sales, nearly one-third of the brand’s U.S. sales, where it has operated for decades.

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lincoln 17

Lincoln is very popular in China and SUVs and minivans combined are expected to outsell sedans for the first time ever in 2017 according to China Passenger Car Association. Moreover, producing the vehicle in China will allow Ford to avoid the 25% custom tax on imports that makes the brand’s Navigator SUV almost twice as expensive as it is in the U.S. A redesigned version of the Navigator will also be launched in the U.S. in 2017.

Additionally, the average sales target for a locally produced vehicle in China is around 30,000-50,000 units. This should allow the company to achieve its stated target of growing Lincoln sales to 300,000 units each year by 2020. The company is only around 48% of the way to achieving its target and needs overall brand sales to grow by around 18% each year for the next four years in order to get there, roughly equal to its 2016 growth rate.

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For our valuation and model, please refer to our complete analysis for Ford Motor

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