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Ford's Joint Venture with China - What It Means

September 7, 2017

Ford's Joint Venture with China - What It Means

If you’ve been following the latest car news, then you know Ford is making its move into alternative fuel vehicles.  With Ford’s status as one of the world’s top carmakers, how could this not make automotive news?

Perhaps the most surprising headlines include Ford’s recent joint venture agreement with a Chinese auto company.   So, where exactly will this business venture lead?  Read along with us as we discuss this deal in more detail.

 

So, what exactly happened here? 

Before we discuss what any of this means, let’s start by taking a look at the agreement.

Ford signed a memorandum of understanding with Chinese automaker Anhui Zotye Automobile Co., a pretty important company in China’s EV market.  This year alone, this automaker sold 16,000 vehicles through the end of July.  As far as growth goes, they have experienced close to a 50% year-over-year growth rate—a pretty promising number. 

If everything goes as planned, the agreement will work as a 50-50 deal for both companies. 

Are you curious about Ford’s reasoning for signing such an agreement?  The answer is pretty simple.  The American manufacturer wants to venture into the world of EVs.  So what better way to do so than by joining forces with one of China’s best in the electric vehicle market?

 

Why a joint venture?

Remember that this is a joint venture deal.  This means that Ford’s logo has a good chance of not appearing on the front of these cars.  So, why would Ford want to eliminate this form of automotive marketing?

Again the answer is pretty simple—tariffs. An American company operating in China can receive taxes as high as 25% of total earnings.  And as we all know, that’s a hefty chunk of profits. 

But there is an easy way to work around this tax.  Joint ventures eliminate most of the financial taxes included in tariffs.  So, by working alongside Anhui Zotye, Ford eliminates a large chunk of the fees incurred from working overseas.

 

What is Ford Trying to Accomplish?

Here is the question on the top of most of our heads. Ford ultimately wants to expand its influence in the world of electric vehicles.

Two years ago, Ford invested 4.5 billion USD in further developing EVs.  Some of these included numerous hybrids.  Stateside, this also meant the future plans of a hybrid F-150 truck and Mustang sports car.

As far as China is concerned, Ford wants to ensure 70% of its vehicles sold in China are electric.  In the west, this number sounds a bit excessive.  On the other hand, EVs have made a huge impact in China in recent years. Remember that this is a country struggling with smog, thus EVs work as a great means towards cleaner air. 

For Ford, China marks an excellent place to begin an expansion into the EV market. The company already signed two previous joint ventures with Changan Ford and Jiangling Motors Corporation.  So, current plans with Anhui Zotye simply act as a further means to create additional developments into the world of electric vehicles.  

By this point, we can only wonder about what this will mean for those of us living in the west.  Just how far can Ford innovate the EV?  We’re certainly looking forward to the hybrid Mustangs and F-150s, so perhaps this deal with China will allow Ford to learn a few tricks to successfully convert iconic American vehicles into alternative fuel machines.  Who knows, common vehicles like the Focus and Fiesta might even make the conversion in the near future.

For now, this is mere speculation.  But Ford’s plans for improving the EV market definitely seem promising.  From here, we’ll just need to watch what happens with the current joint ventures to see the true potential of Ford’s move into the world of alternative fuel.