China has caught automobile fever, as rising disposable income among Chinese consumers has led to a boom in car sales. China overtook the United States in 2009 to become the world’s largest auto market, with 13.6 million vehicles sold during the year. Monthly demand for cars in China has doubled since January 2010. Shiny new purchases from GM, Toyota, Volkswagen, and Chinese automakers such as Geely and BYD are replacing the ubiquitous bicycle on China’s main thoroughfares.
Even though China is outpacing other nations in terms of vehicle sales, there is still tremendous room for growth. According to estimates from JP Morgan, the per capita ownership of cars in China is roughly 1/20th that of Europe, or 1/40th that of the United States. J.D. Power and Associates forecasts that sales of passenger vehicles in China will increase from 8.7 million vehicles in 2009 to 13.5 million vehicles by 2015, an increase of more than 55%. With numbers like these, it seems safe to say that the outlook for China’s auto industry is quite positive.
As car sales have grown in China, sales of electrical micro-motors have increased as well. Micro-motors control a wide variety of features in a car, from windshield wipers to power door locks and power windows. According to the China Electrical Equipment Industry Association, total sales of electrical micro-motors in 2008 increased 28% year-over-year to $9.6 billion. Global demand is poised to grow at an average rate of 12% annually for the next five years, attributed primarily to growing Chinese demand for consumer goods such as automobiles and household appliances.
China Electric Motor, Inc. (NasdaqGM: CELM) has established a strong presence in the Chinese electric micro-motor market with its “Sunna” brand of motors. CELM’s products are used in automobiles, home appliances, and digital equipment. The Company caters to the needs of small and medium enterprise (SME) customers, which are not met by larger competitors who focus on higher-priced motors and long-term contracts. Sunna brand motors have a reputation as low-noise, low-vibration, energy-efficient, and highly reliable micro-motors.
CELM has enjoyed rapid growth over the past five years due to expanding sales volume and increased focus on the fast-growing Chinese original equipment manufacturer (OEM) market, which produces higher margins than distributor-led sales. Revenues increased at a compound annual growth rate of 77% between 2004 and 2009. Net profit grew at a CAGR of 81% over the same period.
The Company’s manufacturing plant operated at 106% of capacity in 2009, and the Company is currently constructing new production equipment with a capacity of 24 million motors per year to meet high customer demand. In July, CELM leased a new factory in Zhejiang, the second largest micro-motor manufacturing hub in China. The Zhejiang factory will give CELM approximately 21.6 million units of new capacity for AC motors and approximately 43.2 million units of new capacity for coreless motors. The Company recently reported earnings for the quarter ended June 30, 2010, highlighted by a 13.3% year-over-year increase in revenues and a 93.2% YoY increase in net income. With China’s vast appetite for cars and other consumer goods driving the electric micro-motor market, CELM has a green light for continued growth.
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