Just how big?
Let’s look at the remaining potential of China’s automotive market using cars to people ratio. In Europe there is one car for every two people while in China the ratio is one car for every 20 people. Looking at the three major markets – Europe, U.S., and China – sales in 2012 reached just over 12 million, 14.5 million, and 19.3 million, respectively. From here on out China’s growth is substantially larger as the car to people ratio narrows. In 2020 sales are estimated to be around 15 million, 20 million, and 31 million, again respectively. So over the next seven years China is essentially creating a market the size of Europe. That’s a welcome notion for investors since the real Europe market is currently imploding.
Ford’s plan
This isn’t new information to automakers who are all racing to get their piece of China’s growing pie. Ford Motor Company (NYSE:F) is spending upwards of $5 billion in the region to meet its goal of doubling its market share from 3% to 6% by mid-decade. Last year Ford set a sales record in China topping 625,000 units sold – up 21% from 2011. Let’s assume Ford simply meets its 6% goal, and to be cautious we’ll say it even takes five years longer than expected. That would bring its 2020 sales in China to 1.86 million units – more than triple today’s levels. Ford plans to execute this with a slew of new models that have garnered much interest from Chinese consumers.
“Record 2012 sales highlight the positive response our customers have for our full portfolio of high-quality, safe, fuel-efficient and smart vehicles,” said John Lawler, chairman and CEO of Ford Motor Company (NYSE:F) China. “Their enthusiasm for Ford cars validates our aggressive plan to introduce 15 new vehicles, double production capacity, and double our China dealership network—all by 2015.” Here’s something I found very interesting.
China doesn’t want Chinese
Ford remains well behind rival General Motors Company (NYSE:GM) and Volkswagen market share in China. Of the 10 top-selling vehicles, four models are Volkswagen’s, three are General Motors Company (NYSE:GM)’s and only one is a Ford Motor Company (NYSE:F) – albeit the Focus is China’s most popular model. Ford has a chance to gain market share a little faster because Chinese consumers remain unimpressed with domestic brands and are avoiding a “Made in China” label. A study by Sanford Bernstein showed Chinese automakers market share declined to 26% in 2012.
Bottom line
Right now the fact of the matter is that Ford Motor Company (NYSE:F)’s bottom-line profits are completely driven by profits in the U.S. and losses in Europe. By 2020 Ford will have made great progress in China, potentially adding up to $2 billion in net income per year. At the same point in time, Europe – where Ford lost $1.7 billion last year – will have hopefully returned to some form of profitability for the company. If the previous statements hold true and the U.S. continues to release its pent-up demand for new vehicles, Ford’s stock in 2020 could be sitting at record heights.
The article Don’t Wait to Buy Ford Stock originally appeared on Fool.com and is written by Daniel Miller.
Motley Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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