A Closer Look At Ford’s China Developments

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China is a growth engine for Ford Motor Company (NYSE: F). In Q2 2017, the region was a bright spot for the company where it reported its best ever June sales and witnessed increasing popularity for its Lincoln brand. To tap into the growing popularity of electric vehicles in China as the country tries to tackle increasing pollution, Ford Motors recently partnered with Zotye Auto in China to explore a joint venture which would produce all electric vehicles sold under an indigenous brand in China. Anhui Zotye Automobile Co. Ltd. is a major manufacturer of zero emission all-electric vehicles in China and this partnership gives Ford an opportunity to penetrate deeper into the fast growing clean energy vehicles market of China. As regulators mandate a minimum “quota” of green vehicles to be manufactured by each automaker in the region, this partnership can give Ford the necessary backing to fulfil this requirement.  The company also strengthened its leadership in the region by naming Jason Luo as its Chairman and CEO for Ford China. Luo joins the company from Key Safety Systems a fast growing company in the automotive safety market of China. Jason has a track record of business growth and transformation in China and his experience should allow Ford to capture a decent market share in the fast growing Chinese market.

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Meeting China’s New Energy Vehicle Requirements

Ford believes that China is the fastest growing market in the world for new energy vehicles (NEV) and by 2025 the market for NEVs in China will grow to 6 million units per year of which 4 million vehicles will be all electric.  Most of this growth is driven by government regulations which are favoring non-polluting new energy and electric vehicles in the region. The Chinese government is likely to introduce a proposal to have a mandatory quota for NEVs in the portfolio of cars offered by automakers in China. This has ensured that most automakers in the region are focusing heavily on this segment. Volvo is likely to introduce its first 100% electric car in China by 2019 and General Motors is planning to launch at least 10 new energy vehicles in China by 2020. Volkswagen has entered into a joint venture with Chinese group JAC to produce electric vehicles in the region and expects to sell nearly 400,000 electric cars in the region by 2020. Ford’s partnership with Zotye Auto ensures that it remains competitive in China and fulfills the mandatory quota requirements as and when they are  formalized.

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Building A Competitive Edge In China

The Chinese electric car is dominated by local players making it difficult for foreign automakers to grab a decent market share. However, Ford seems to be extremely focused on the region given it is a high growth market for the company.  Recently the company decided to build its Focus compact car in China (as opposed to Mexico).   With a new CEO in place, a local partnership in place to capture the NEV market, and boosting its production capabilities in the region, Ford is gathering the necessary ammunition to build a competitive edge in the region. However, given the strong competition among several foreign players and local players in the region, it would be challenging to drive growth in this region.  The first quarter of 2017 was very disappointing for the company in terms of sales in China though the region proved to be a bright spot in Q2 2017. Whether Ford’s initiatives in the region will drive long term growth, remains to be seen, however we believe the company is taking the right steps to become a strong player in the region.

 

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