There are many reasons to be bullish on Ford (NYSE:F), too many to cram into one article. So, I'll narrow the list down to the one big reason I'm bullish on Ford: Its position in the world's largest automotive market, China. Here's why I think that the company is well positioned to overcome its late start in the country that will be so important to Ford realizing its growth potential.

What's the big deal?
China and the United States are the two largest automotive markets, but look at the difference between their respective growth forecasts through the remainder of this decade:

Graph by author. Data from Automotive News DataCenter, WardsAuto, LMC Automotive. *2020 estimated.

Most analysts predict that vehicle sales in China will surpass 30 million units annually by the end of the decade, and some even believe it will happen as soon as 2018. That means China could be responsible for nearly a third of global new vehicle sales by 2018 -- a staggering piece of the pie.

China's economy continues to grow and that means a surging population of wealthier consumers. That not only bodes well for its automotive market as a whole, it also means a quickly expanding market for luxury vehicles. Some analysts expect the luxury vehicle market in China to surpass the U.S. market in sales around 2016; according to Forbes, its luxury market penetration is less than 10%, compared to 40% in the U.S. -- leaving plenty of room for growth.

So how would this growth translate to Ford as an investment?

Ford executives admitted that the company should have entered China's automotive market half a decade earlier. Because of its late start, it's even more vital for Ford to make up for lost time; in 2012, the company invested $5 billion to build facilities and increase production. Consider that Ford's Asia-Pacific region, which is composed mostly of China, today accounts for roughly 8% of company revenue. By the end of the decade, the region is expected to represent 40%. That's a big deal, especially for investors worried that Ford is too dependent on North America.

With the stage set on the importance of China's gigantic auto market, here's why I like Ford's position.

The sweet spot
China's growing economy and automotive market will incrementally create first-time car buyers, but it also means that there will be more second-time buyers. The trend for second-time buyers is to trade up to bigger and more expensive vehicles -- a trend that should equate to rising transaction prices and margins. 

Here's the kicker, though: As Chinese consumers' tastes continue to trend toward bigger and more expensive vehicles, government opinion is trending toward much more stringent pollution and fuel economy regulations. That means automakers will have to hit a sweet spot that includes size, fuel economy, and value. That's easier said than done.

Fortunately, those are the exact points Ford's "One Ford" plan has emphasized, which enabled the Blue Oval to construct one of the greatest business turnarounds in recent history. Ford vehicles such as the Fiesta, Focus, Fusion, and Escape helped it steal market share in the U.S. last year -- gaining more than any other major automaker -- and should do the trick in China as well.

Graph by author. Data from The Wall Street Journal

"One Ford" will work in China
Ford's smaller Focus was the best-selling nameplate in China in 2013, and industry analysts look for it  to repeat that success this year. Sales of smaller vehicles will remain robust, but as consumer tastes change to larger vehicles look for Ford's Mondeo (Fusion) to have much of the success it does in America due to its more aggressive design in a typically bland segment.


Lincoln's 2015 MKC. Source: Ford

Also, Ford's Escape, known as the Kuga in China, has sold extremely well in the U.S. and will be well positioned to take advantage of the SUV/crossover segment that is expected to triple in sales in China from 2011 to 2020. 

Furthermore, as Chinese consumers trend toward higher-priced vehicles it will set the stage beautifully for the Ford luxury lineup, which is being refreshed and prepared for a debut in China later this year. One of the first Lincoln vehicles to sell in China will be the MKC, a luxury crossover.

The company's "One Ford" strategy is already showing signs of success in China.

Ford is on pace to double its production capacity, market share, and sales in China, compared to 2012 levels, by the end of next year. Just last month, Ford topped 100,000 sales in China -- a monthly record. Last month's sales performance capped off an excellent first quarter during wdhich sales in China surge 45% over last year's first quarter. The following chart shows just how quickly monthly sales have accelerated:

Graph by author. Data from Ford China monthly sales releases.

Foolish takeaway
If Ford wants to grow its top-line revenue faster than its competitors, and bring more potential to its bottom-line profit, capturing more than its fair share of China's massive growth will be key. Ford is well positioned to accomplish just that in the world's largest automotive market, and to boost revenue growth and earnings potential. That's one big reason to be bullish on Ford's stock over the long term.

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Daniel Miller owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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