Ford Looks to Chinese Joint Venture to Catch Up in Electric Car Market

In an announcement Tuesday morning from Shanghai, Ford Motor Co. (NYSE: F) said it had signed a memorandum of understanding with Chinese automaker Anhui Zotye Automobile to discuss the establishment of a 50-50 joint venture to develop, produce, market and service a new line of all-electric passenger vehicles (EVs) for the Chinese market.

Focusing on the market for electric vehicles in China leverages the country’s position as the world’s largest market for EVs due to government incentives aimed at curbing China’s massive air quality issues. Ford said it expects the market for EVs in China to rise to 4 million by 2025 out of a total of 6 million units that will have some degree of electrification.

Anhui Zotye has sold more than 16,000 EVs in the first seven months of 2017, an increase of 56% year over year. It is the Chinese market leader in the small all-electric vehicle segment.

Ford executive Peter Fleet said:

The potential to launch a new line of all-electric vehicles in the world’s largest auto market is an exciting next step for Ford in China. Electric vehicles will be a big part of the future in China and Ford wants to lead in delivering great solutions to customers.

Looking to China for its first EVs could be a smart move for the company that is stuck playing catch up with long-time rival General Motors Co. (NYSE: GM) with its Chevy Bolt EV and even much smaller Tesla Inc. (NASDAQ: TSLA), which just introduced its first Model 3 sedans at a price point that is close to the average cost of a new car in the United States.

Ford sold 282,000 vehicles in China in the second quarter this year and its overall market share rose slightly to 4.6%. Its existing Chinese joint ventures provided $195 million in net income, but profit margins fell year over year from 16.1% to 10.7%.

North American sales in the second quarter totaled 807,000 units, and the company claimed 14.4% of the market. But operating margins dipped 2.3%, even though the company’s average transaction price rose by $3,100 on its popular F-Series pickups. There’s a limit to how high Ford can price those trucks and still get customers to buy them, and right now, the F-Series is carrying the company in the bed of the trucks.

A report published in July by Bloomberg New Energy Finance projected that sales of EVs will remain low until about 2025 before reaching an inflection point by 2030 as EVs “become economical on an unsubsidized total cost of ownership basis across mass-market vehicle classes.” By 2040 the analysts forecast U.S. EV sales will account for 58% of all new car sales, and China EV sales will account for 51% of new cars sold in the Middle Kingdom.

New car sales in China are much higher than in the U.S.: the seasonally adjusted annual rate of sales for the U.S. in July was about 16.7 million units; in China the rate was 24 million.

If Ford wants a chance to catch up in the EV market, China is a good place to start.