Ford Motor Company (F 0.15%) bulls are crossing their fingers that the automaker's Lincoln luxury brand hits the road in China as quickly as its mainstream brand did. Consider that after a late entry to the market, Ford tallied just over 277,000 units during the first half of 2012. Around that time, Ford pushed all-in with a $5 billion commitment to build assembly plants, open dealerships, and add more cars to its vehicle portfolio.
The result? During the first half of 2016, Detroit's second-largest automaker posted more than 577,000 units sold in China -- and that figure reported retail sales, not wholesales (which are typically higher in number), as the 2012 figure was.
While investors will have to wait and see if Lincoln can accelerate its sales anywhere near that rate, the first half of 2016 is certainly encouraging.
By the numbers
Looking specifically at the second quarter, Lincoln delivered 6,966 vehicles in China, which was more than double its sales during the second quarter of 2015, a 160.5% increase. For the first half of 2016, Lincoln's sales in China reached nearly 12,500 units, almost triple the sales figure for the prior year, a 190.6% increase, and already topping 2015's full-year sales total of 11,630.
"Lincoln will continue to attract China's new generation of luxury customers as we consistently deliver the customized services of the Lincoln Way even as we expand our dealership network," said Amy Marentic, president of Lincoln China, in a press release. "In addition, with two new sedans launching this year, we are confident that we have the elegant, dynamic and progressive Lincoln vehicle to fit the desires of our customers."
At the end of the second quarter, Lincoln had 45 dealerships in China operating to help match supply to the rising demand for Lincoln vehicles, an increase of eight dealerships from the end of the first quarter. Lincoln is on track to have 60 dealerships in 50 cities by the end of 2016 and will also introduce the newly upgraded MKZ midsize sedan later this summer. Coming later this year will be the all-new Lincoln Continental, which Ford hopes will really crack open the Chinese market for its luxury brand.
To build, or not to build?
The next question facing Ford is when it will make financial sense to begin producing Lincoln vehicles in China since the country imposes a 25% tariff on imported vehicles. Producing vehicles within China will help keep costs lower and either boost profitability or enable the luxury brand to lower its costs and become more competitive for market share.
According to Bloomberg, Ford is considering a major manufacturing presence in the southwestern Chinese city of Chongqing. If Lincoln continues to post quarterly sales growth as it has thus far into 2016, and talks with Ford's Chinese partner, Changan Automobile Group progresses well, production of Lincolns in China could start as early as 2018.
There's certainly a possibility Lincoln's sales continue to thrive in China because unlike the U.S., where Lincoln's brand image has faded since its peak, Chinese consumers look upon the brand favorably. "It's different in the U.S. than in China," Kumar Galhotra, head of Lincoln, said of the brand's standing in a January interview with Bloomberg. "In China, our heritage plays very strong. Our favorable opinion in China is actually ahead of Lexus and on the factor of prestige, we're actually ahead of Audi."
That's all good news for investors hoping that Lincoln will help boost Ford's operating margins, average transaction prices, and of course, its bottom-line profits. That might happen sooner rather than later as Ford's CEO, Mark Fields, noted China could replace the U.S. as Lincoln's largest market by the end of this decade.