Growth in China Is Key for These Auto Manufacturers

In 2013, General Motors (NYSE: GM  ) saw its Chinese market share decline while its rival Ford Motor (NYSE: F  )  saw its Chinese joint venture unit volume rise 50% year-over-year in 2013. General Motors may be feeling the pressure from Ford's market gains as General Motors' president of Chinese operations called 2013 "a little bit of an off-year."

Can General Motors regain its lost share in 2014 and beyond?

General Motors sets its goals
General Motors plans to sell 3.5 million units this year after sales of 3.16 million units in 2013. General Motors' top three car models account for 60% of its total unit volume, with the Buick Excelle accounting for 19% of volume, the Chevrolet Sail accounting for 18% of volume, and the Chevrolet Cruze accounting for 15% of volume. General Motors' Chinese product breadth has room to expand over the coming years, which gives investors who have a longer-term-investment thesis hope that the company can compete in the country by offering many cars at different price levels.

General Motor's exposure to China's growing SUV market is only beginning. In 2013, the company had a 4.2% market share in the SUV market, less than half of its overall market share in passenger vehicles which totaled 9.8% that year. This fact gives investors even further conviction that General Motors has room to improve its SUV market share with new model launches beyond 2015. The company plans to open four assembly plants in China by the end of 2015 to better position itself in the SUV market, where its market share will grow from 15% today to 20% in 2015, according to the Automotive Foresight Shanghai Co.

Ford is one step behind General Motors
The Chinese automotive market is certainly big enough for more than one player and Ford wants a larger piece of the pie.

Ford announced that it expects to sell more than 1 million vehicles in China in 2014. Ford was a latecomer to the Chinese market and the company understands its mistake and admits to it.

"Should we have done this five years ago? Sure. But we can't change that. We can only change the future," Joe Hinrichs, Ford's Asia chief, said in an interview with The Wall Street Journal. "We are coming out of the financial crisis a much stronger company and we are now ready to dedicate our resources and attention to Asia-Pacific."

Ford, like General Motors, will also open factories across China in what the company calls its largest industrial expansion in at least 50 years. When Ford's new factories are fully operational in 2015, the company will be capable of building 1.2 million passenger cars each year.

Ford also faces an uphill battle as many consumers have turned away from its vehicles because of their limited backseat space, which doesn't appeal to affluent Chinese consumers who often employ drivers.

Ford is aware of this fact and the company has publicly commented that its new vehicles will ease consumer fears of limited backseat space. "The Chinese like a little bit more room in the back seat, they like a little bit more chrome on the front," said David Schoch, president of Ford's Asian-Pacific region. "So we are taking into consideration the Chinese wants."

Ford is scheduled to release 15 new models by 2015 which includes a healthy mix of larger vehicles for the affluent consumer and smaller compact cars for the price-sensitive consumer.  

Why not go for local?
Kandi Technologies (NASDAQ: KNDI  ) is a company that many have not heard about, but the company continues to see increased press attention which has forced investors to take a second look at it.

Kandi Technologies is an automotive manufacturing company based in Jinhua that manufactures and sells electric vehicles.  In 2012, the company signed a strategic cooperation agreement with the city of Hangzhou to supply 20,000 electric vehicles as part of a city-wide pilot program in which electric vehicles will be rented to the public for around $3.30 an hour.

Kandi Technologies recently announced that its vehicle leasing program is profitable and the company plans to expand to major cities such as Beijing and Shanghai.

Kandi Technologies should also benefit from the Chinese government's initiatives to promote electric vehicles. China's Finance Ministry said that it will extend its subsidies on electric cars past 2015 as part of a government plan with a goal of half a million "new-energy" vehicles on the road by 2015 and 5 million by 2020.

Kandi Technologies said in June 2013 that its all-electric sedan, which received approval from Chinese regulators, will fall under the government's incentive program in which the government will provide as much as 60,000 yuan (about $9,800) to buyers.

Final Foolish thoughts
Ford has stated that the company is not in it for the short term as it is "setting a foundation for the future." Ford estimates that the number of Chinese consumers in the market for new vehicles in 2020 will be about 70% larger than it was in 2010.

General Motors is the second-largest foreign car manufacturer in China; car sales in the country outpaced the company's U.S. sales by 200,000 in the first half of 2013. This is great for General Motors, considering that China is the world's biggest auto market.

Kandi Technologies holds an advantage of being a Chinese producer and it has intimate knowledge of the Chinese market. Furthermore, while Kandi Technologies' market cap is minuscule (around $575 million) in comparison with the Detroit-based auto-makers, the company has shown it has the ability to expand within the country.

Finally, a study by McKinsey concluded that Chinese sales are expected to contribute 35% of global market growth between 2011 and 2020. The Chinese market is large enough to reassure investors that these companies can all find success there.{%sfr%{


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  • Report this Comment On March 12, 2014, at 12:08 AM, gold2002 wrote:

    Kandi's leasing program (LLP) is separate from their CarShare program. The 20,000 order was for the LLP program. CarShare is a rental offering (funded by ZZY) that Kandi supplies car parts for assembly to a Kandi-Geely JV who, in turn, sells them on to the CarShare program. Kandi porfits from the sale of parts to the JV, the sale of cars to the CarShare program and earns a percentage of revenue for operation to the CarShare garages. Beyond LLP and CarShare, Kandi has a profitable and growing ATV legacy business. Future licensing revenue from Kandi's QBEX (Quick Battery Exchange) technology patents—with QBEX being the preferred standard for state owned providers—has not yet been discussed. For now, suggest you check the statement in your article. While positive towards Kandi, there appears to be more reason for optimism than you suggest or incorrectly substantiate. Thank you.

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