3 Auto Companies to Include in Your Portfolio
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The automobile industry is expected to grow by 2.29% this year across the globe. Auto companies, in order to accelerate their revenue, are coming up with innovative technologies and launching new vehicles. I have analyzed three such companies from this industry that are leaders in this sector, each of which has adopted different strategies in different markets to capture large market share.
Launching of new vehicles and restructuring will increase revenue
Increasing demand for Ford’s (NYSE: F) Focus and Kuga vehicles in China were the main revenue drivers for the company resulting in 37% year-over-year growth in the quarter ended April, 2013. The company’s brand image of trendy, stylish and small cars attracted young Chinese buyers.
China’s automobile market is expected to grow 4.5% annually. To monetize this growing market opportunity, the company has planned to launch its new generation mini sport utility vehicles, EcoSport and Explorer, this year. Ford is further planning to launch 15 new vehicles by 2015. Ford will double its production capacity to 1.2 million vehicles in the coming years in China. The company expects to generate 40% of its total revenue from China in the coming years.
Being optimistic about Europe’s auto industry revival, Ford has opted for restructuring by winding up a British Van factory and an associated plant in Belgium. These cutbacks will generate savings of $550 million annually by 2015. The amount generated will be invested in new technology, and development of new vehicles, followed by marketing and sales promotion in Europe.
Ford has a monopoly of producing ‘Sync’ touch screen technology in Europe. This technology will remove many traditional buttons and knobs in a car. With 'Sync,' Ford is planning to launch a compact SUV by this year’s end. It has come up with this concept to attract the age group of 18 years - 44 years that will help it to sustain its market share of 7% - 8%. Ford is also planning to launch 15 new vehicles by 2015 in Europe. It expects that sales would accelerate from 48% in April 2013 to 60% by 2015 after the launch of this system in its cars.
Innovation in new vehicles will raise future prospects for growth
Toyota's (NYSE: TM) market share in the Gulf region increased from 31% at the end of 2012 to 39.6% in March, 2013. The major reasons behind this were a 23% increase in sales of the new sport utility vehicle and sedan products the company launched in January 2013. This increased demand was a result of product styling, fuel efficiency, and new innovative designs leaving a positive impact on the customers. Looking at this growth, Toyota is planning to launch a 2014 Corolla by autumn of 2013. It is expected that 300,000 vehicles will be sold by 2013 year end as the Middle East market is expected to grow 7%- 8% year-over-year.
On the other hand, Toyota expects increase in hybrid car sales from 1.2 million in 2012 to 1.25 million by 2013, globally. Hybrid cars are fuel efficient cars equipped with electric motors and rechargeable batteries. It is now planning to launch 18 new hybrid models by 2015, with latest technology worldwide.
The U.S. government has set a goal to have one million electric vehicles by 2015, as they are eco-friendly and will reduce dependence on oil imports. In order to meet this target, it has decided to give $2.4 billion in grants to electric-car manufacturers and battery makers to develop next generation cars, followed by $1.2 billion for vehicle-charging stations all over the country.
The U.S. car market is estimated to grow by 16 million in 2013. The company has a wide opportunity to capture large market share and boost its revenue, especially in the U.S., as it reported more customers getting attracted to new hybrid vehicle like the Toyota Avalon sedan and the compact Lexus CT200h.
Increasing growth rate will generate revenue
Honda Motor (NYSE: HMC) reported first quarter sales growth of 30.80% in May 2013, quarter over quarter, in North America. It is expected that sales of locally produced automobiles will rise more than 95% in the coming years. Rising cost of gasoline and the customers’ interest in compact cars has compelled the company to increase its production capacity.
Honda’s two-wheeler segment reported sales growth in India from 2.21 million units in May 2012 to 2.29 million units in the first quarter ended in May 2013. Looking at the market potential, Honda recently launched Activa-i and preceded the launch of two bikes to March 2013.
Honda aims to increase its sales by 43% by the end of 2013 from 31% growth in 2012 with new introductions, rapid expansion and increasing the mileage of its vehicles. To increase its sales, the company plans to launch four new vehicles every year in India. Honda is further planning to expand by adding 500 outlets in the country and increasing its annual production capacity up to 4.6 million units by March 2014. It is expected that the company will sell 3.9 million units by 2014.
Ford, with the launch of new models and due to its turnaround strategy in Europe, will accelerate high revenue generation. Toyota’s innovation and advanced technology makes it distinct from others, thus creating large opportunities to grow. Increasing demand and the accelerating production capacity of Honda will boost its revenue in the coming years. Therefore I recommend a buy for all three stocks.
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Madhu Dube has no position in any stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!