Ford Motor Co. ( F ) broke ground for two new plants in China as part of its major expansion plan to boost sales in the world's largest auto market. The company announced plans to invest $600 million and $760 million in its two new assembly plants, located in the southwestern city of Chongqing and in Hangzhou, respectively.
The $600 million plant will be the second assembly plant in Chongqing after the one opened in February this year that began producing the Ford Focus. It will also be the company's third assembly plant in China, including the one in Nanjing, China, both operated by Changan Ford Mazda Automobile (CFMA) joint venture.
The new Chongqing plant will have the annual production capacity of 250,000 vehicles after it is completed in 2014. It will manufacture Ford's 2.0-liter EcoBoost turbocharged engines. With the opening of the plant, Chongqing will become the largest manufacturing base for Ford outside Michigan.
The Hangzhou plant will be opened by CFMA, bringing Ford's total investment in China to nearly $4.9 billion since 2006. The plant, which is expected to roll out its first vehicle in 2015, will double production capacity in China to 1.2 million passenger cars annually.
Ford has embarked upon an aggressive expansion plan in China that includes plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. Currently, the company sells seven models in the country.
In order to develop the new models, Ford will build new plants, raising its capital spending to about $6 billion annually by mid-decade from $4.3 billion in 2011. In order to keep pace with the expansion, Ford also plans to double its workforce by hiring 1,200 employees by 2015.
Ford anticipates global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020 compared with 48% presently. One third of the small car sales are expected to come from Asia.
Recently, Ford announced that it has received regulatory approval from China's National Development and Reform Commission to split their CFMA joint venture into two. However, the plan is yet to be approved by the Ministry of Commerce.
Ford owns a 35% stake in Changan Ford Mazda, with Changan holding 50% and Mazda the remaining 15%. After the split, the two joint ventures, Changan Ford Automobile and Changan Mazda Automobile will own and operate Chongqing and Nanjing operations, respectively. Changan Ford Automobile will be controlled by Ford and Changan and Changan Mazda Automobile by Mazda and Changan.
Ford has been gearing to catch-up with its rivals in the world largest auto market. Last year, Ford occupied 2.5% market share in China, lagging Volkswagen AG ( VLKAY ) of 18% and General Motors ( GM ) of 10%, according to U.K.-based automotive think tank LMC Automotive.
Ford, a Zacks #3 Rank (Hold) stock, posted a 39% fall in profits of $1.20 billion or 30 cents per share in the second quarter of the year from $1.98 billion or 49 cents in the corresponding quarter of 2011 due to lower operating results in all the regions except North America. However, the company's profits were higher than the Zacks Consensus Estimate of 28 cents per share.
Revenues in the quarter dipped 6% to $33.3 billion, due to the same factors mentioned above. However, it exceeded the Zacks Consensus Estimate of $32.0 billion. In the first half of the year, Ford's U.S. total market share was 15.4% in the U.S. and 8.1% in Europe.
For 2012, Ford anticipates market share in the U.S. and Europe to be lower than 16.5% and 8.3%, respectively in 2011. It also expects the overall pre-tax operating profit to be lower than 2011 compared with the prior guidance of tallying. Operating margin in the Automotive segment is anticipated to be equal or lower rather then the prior guidance of improve over 5.4% in 2011.