Ford Motor Co.
) reported 2010 full year net income of $6.6 billion, its highest
in more than 10 years. In 2010, Ford's International operations
(outside North America) contributed 46% to its total automotive
sales of $119.3 billion. We estimate that
Ford's international operations
contribute 35% to its stock value - about the same as its North
American operations (both
and trucks). We expect that International operations will
become increasingly valuable for Ford as it competes with other
auto manufacturers like BMW (GR:BMW), GM (
), Daimler (ETR:DAI), Audi (
), Honda (
), Toyota (
) and others.
We maintain a Ford stock price estimate of $20.59, which
implies a 45% premium to market price.
Here we take a closer look at the opportunities for Ford in
Russian Automotive Industry
In Russia, the total industry sales volume of vehicles was
about 2 million units in 2010 - an increase of 31% from 2009,
largely due to government stimulus. Before that, industry sales
volumes had fallen nearly 50% in 2009 as a result of the economic
Within Europe, Russia is becoming an increasingly important
market for Ford. In 2010, Ford's net sales revenue in Russia hit
$2.04 billion (5.6% of Ford's total European net sales revenues).
This marked a 30% increase from 2009 levels, even though net
sales revenues decreased by 5% overall for the entire European
region (including Russia and Turkey) during the same period.
Despite this encouraging growth, Ford's market share in Russia
actually declined by about 1% in 2010, to 4.6%.
New Automotive Industrial Regime to Aid Auto Market
Russia introduced a new automotive industrial regime in
February 2011 to lower import duties on automotive components for
the next eight years for qualified automotive manufacturers.
The qualification criteria in order to participate in this regime
- Assembly capacity of 350,000 vehicles annually within the
next three years.
- Substantial localization of component supply, including
engines, stampings and other components.
- Establishment of a research and development center.
Ford, together with its proposed Russian joint venture
partner, has already submitted an application to qualify for the
reduced import duties. Once accepted, this will enable Ford to
offer competitive pricing for its products and drive sales
Significant and Sustained Growth in Russia
We expect industry sales volumes in Russia to grow rapidly
over our forecast horizon. Ford's management noted that Russian
industry sales volumes could even exceed that of Germany,
Europe's largest market. Germany's industry sales volume was 3.2
million units in 2010, a decline of around 21% from its 2009
In 2008, nearly 4% of Ford's company-wide net sales revenues
came from its Russian operations. However this number dropped
below 2% in 2010. We believe that Russia's contribution to Ford's
total net sales could recover towards 2008 levels in the
Strength in Russia should help Ford grow its international
market share. To illustrate the company's stock value sensitivity
to this metric, we estimate that a 1% increase over our base case
estimates would imply a 4% upside to our $20.59 price estimate
for Ford stock. You can test this assumption, and others, by
dragging the trend line in the interactive chart above.
See our full analysis and $20.59 price estimate
for Ford stock