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Ford Motors (F) is betting big on China. The automaker is launching and developing cars for the affluent as well as the more price sensitive Chinese customers. Ford is gearing up to launch its luxury brand Lincoln in the country from 2014 onward. This represents an investment in addition to the $5 billion the automaker has already spent in the country since 2006. It will not be easy for Ford though. The luxury brand would attract an import tax of 25% since the Lincoln cars were not manufactured in China initially. [1] Chinese vehicles sales growth has slowed down in 2012 but the country overtook the U.S. last year to become the largest auto market in the world. However, the luxury sales in China still trail those in the U.S. but are expected to surpass them by 2020.

At the same time, Ford is in developing a low cost model in its Hangzhou plant in Eastern China which is due to begin production from 2015 onward. Currently, the cheapest model that Ford offers is Ford Fiesta, priced at around $13,000, 30% more expensive than GM’s Sail. Thus, offering a low cost model is critical to Ford’s long term sustainability in the country. Ford only has 6 models in China currently (compared to GM’s 30) but is adding a seventh model, the Kuga compact SUV by the end of the year. In total, Ford plans to launch 15 new car models by 2015. [2] The automaker also plans to double the workforce as well as the number of dealerships in China by 2015

Increasing Presence

Ford has traditionally lagged behind other major autos such as General Motors (GM), Volkswagen and Toyota Motors (TM) in China primarily because it was too slow to enter the Chinese market. In 2011, Ford could boast a market share of only 2.5% in the country; trailing Volkswagen’s 18% and GM’s 10%. [3]

But Ford is going full throttle with investments in China and Asia/Pacific. Currently, eight plants are being built in the region to expand capacity with the most recent being the decision to invest $760 million in a manufacturing plant in Hangzhou to cash in on the growing opportunity in a nation whose auto market Ford expects to surge to 30 million vehicles by 2020 from 18.5 million in 2011.

We have a price estimate of $12 for Ford Motors, which is about 30% more than the current market price.

Notes:

  1. Ford readies Lincoln launch in China by 2014, August 28, 2012, reuters.com
  2. Ford invests $760 million for new China plant, more capacity, April19, 2012, reuters.com
  3. Ford breaks ground on China plant key to growth plans, August 27, 2012, reuters.com
Source: Can China Take Ford to $12?