With the strong sales of the Changan Ford Mondeo and the rising popularity of the Carnival, Changan Ford is expected to achieve a profit of nearly 2 billion yuan this year. This will bring significant returns to Changan Automobile, which owns 50% of the shares in Changan Ford. The official launch of the Nanjing plant is anticipated to deliver long-term benefits to the company. After the formal signing of the agreement for the Nanjing plant, Changan Automobile (000625) will stop signing new contracts. On July 23, just one day after the agreement was signed, the stock price of Changan Automobile surged by as much as 2%. Even Jiangling Motors (000550), which has no direct connection to Changan Ford, jumped 6.62% due to positive market sentiment, ranking fourth in the Shenzhen market that day.
Analysts believe that with the hot sales of the Mondeo and the success of the Carnival, Changan Ford is on track to generate around 2 billion yuan in profits this year. This would greatly benefit Changan Automobile, which holds a 50% stake in the joint venture. The establishment of the Nanjing plant is seen as a strategic move that will provide long-term growth opportunities.
Although the Nanjing plant currently only represents a portion of the equity, it is a major milestone for both Changan and Ford. In the current ownership structure of Changan Ford, Ford Motor Company holds 50% through its subsidiary, Ford Motor (China) Co., Ltd., while Changan Automobile Group holds the remaining 50%. From 2001 to 2003, Changan Group transferred its 50% stake to its listed subsidiary, Changan Automobile, through two separate transfers.
Historically, Ford had planned to partner with SAIC for a Shanghai-based project, but it eventually fell into the hands of General Motors. After several failed attempts to collaborate with Guangzhou Peugeot and Dongfeng, Ford turned to Changan Automobile. The two companies invested $98 million in a technical reform project in Chongqing, leading to the creation of Changan Ford, which is now experiencing a surge in growth.
However, limited investment and production capacity have been constraints for Changan Ford. Both parties are now accelerating their efforts, including Bill Ford’s recent announcement of over $1 billion in investments in China. The Nanjing plant marks a significant step in Ford's strategy for China, according to Dr. Dongsheng Dong from Xiangcai Securities.
According to preliminary plans, the Nanjing plant will require an initial investment of over 600 million U.S. dollars and will feature more than 20 vehicle production bases. Mazda and Ford will jointly participate in the construction. Mazda 3 and Ford Focus models are expected to be produced at both the Chongqing and Nanjing plants. At the signing ceremony, Mazda’s president, Ikebukuro Ikema, confirmed the automaker’s involvement.
Ford’s COO, Jim Padilla, mentioned that the Nanjing plant could produce various models across Ford’s eight brands, with a focus on those with strong market potential. Given the shared platforms between Ford, Volvo, and Mazda, models like the Mazda 3, Volvo S40, and Ford Focus are already based on the same platform, positioning Changan Ford to expand its mid-size car lineup.
Changan Ford is projected to make 2 billion yuan this year, with Zou Wenchao, head of the China Department at Changan Ford, emphasizing that the Nanjing plant is entirely owned by Changan Ford. He also noted that Ford’s recent moves in China have been conducted under the Changan Ford brand.
Currently, the Chongqing plant has a capacity of 50,000 units, but expansion is underway, with the second phase of the paint shop and assembly shop in progress. By the end of the year, production capacity is expected to increase to over 150,000 units next year.
With the strong performance of the Carnival and Mondeo, Changan Ford has quickly become a major player in the domestic auto market. The Carnival is selling over 1,500 units per month, while the Mondeo, launched three months ago, has seen monthly growth of over 100 units. In June, the Mondeo sold more than 5,000 units, surpassing Shanghai Volkswagen.
The rapid growth of Changan Ford has led to improved profitability. While the company was close to breaking even last year, it is now expected to achieve substantial profits this year. According to the annual sales plan, Changan Ford aims to sell 65,000 vehicles, with 40,000 units of the Mondeo and 25,000 units of the Carnival. Based on current sales trends, the target is easily achievable.
Zou Wenchao mentioned that despite the higher pricing of the Mondeo, the company is willing to sacrifice some short-term profits to build the Ford brand’s reputation in the Chinese market. Analysts estimate that mid- to high-end cars typically have a profit margin of around 20%, suggesting that Changan Ford’s profit this year could exceed 2 billion yuan.
As Changan Automobile holds 50% of the shares, it stands to gain significantly from the increased profitability of Changan Ford. This could help the company recover from the current downturn in both the stock and auto markets, potentially re-emerging as a market leader. With the Nanjing plant set to open in early 2006, the future of Changan Ford looks bright, and analysts believe that both Changan and Ford will continue to grow together.
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