Ford Motor (F, Financial) is the second largest U.S. automaker deriving majority of its revenue from the home market. But of late the American carmaker has increased its focus on emerging markets as it offers tremendous growth potential. The U.S., being a developed market, is very close to saturation but emerging economies demand for vehicles is far from saturation. China’s increasingly become a favorite destination spot for auto majors. Here’s why Ford, a late entrant in the China auto market, feels that there’s immense potential in this economy from which the automaker could gain massively.
Why so Attractive?
The car ownership rate in China or India is much lower than the U.S. Rising affluence, increase in per capita income, higher discretionary income, rapid urbanization, improving employment rates, and many such factors have a favorable impact on the demand for cars. China in particular is a strong market for automakers in the future. Even now auto players including Volkswagen (VLKAY, Financial), General Motors (GM, Financial), and Ford are experiencing enormous demand and success in the nation.
Ford saw massive year over year sales jump in China which led the company report solid bottom line. The company posted double-digit sales growth on the back of robust demand. Ford’s Focus and Mondeo models experienced incredible sales in the budding economy pulling up sales volumes to level never seen before. Ford’s February sales in the country shot up by a staggering 67% to 73,040 vehicles. The two models are fantastic when it comes to fuel efficiency, and safety issues. This has precisely made them see unbelievable acceptance in the Mainland.
China’s is the most populous country in the world and the increasing disposable income creates a whole lot of opportunities for the Westerners who are known for offering stylish yet comfortable cars. The overall position of Ford appears pleasant. However there are some analysts who believe that the automaker’s bottom line is at stake and that there are chances that it would falter in the current year.
Concerns are Baseless
The reason being that the carmaker has a number of models lined up for a launch during the year. These involve good amount of promotional and other accompanying costs on the part of the company which could have an impact on the bottom line. In addition to this, Ford’s building capacity in China and has huge investment plans. This could again stress the bottom line.
However my point is that both the expenses stated above are developmental activities. They might not immediately bear fruits, but would prove extremely profitable in the coming years. Be it augmenting capacity in China, or investing in the upcoming models – they are sources of generating future revenue.
My Take
I believe in long term investment and consider that Ford’s a stock that looks quite promising. There’s no company that can guarantee numbers as all are exposed to some sort of internal or external risks. Considering all that, Ford is quite well balanced and decently positioned, and portrays all that could sparkle an investor’s portfolio.
