China Impact On European Automotive Industry

Impact of China on Central European Automotive Industry
Roland Berger Study
April , 2012
Contents
Page
A B C
CHINESE AUTOMOTIVE INDUSTRY: Chinese automotive market in global context C KEY FINDINGS AND IMPACTS ON EUROPEAN AUTO INDUSTRY: Key findings Seven detailed key trends and implications
3 6
8 21
1. China automotive market offers further growth opportunity for European companies p play p global p 2. Chinese companies start to p y important role in g markets and Europe
ROLAND BERGER STRATEGY CONSULTANTS: Automotive Competence Center introduction p
24
Source: Roland Berger
Roland_Berger_China_impact_on_European_automotive_industry_20120430.pptx
A.
CHINESE AUTOMOTIVE INDUSTRY: Chinese automotive market in global context
Robust GDP growth, urbanization, low vehicle ownership rate and highway expansion support China's long term vehicle demand
Real GDP growth
15% 10%
Vehicle ownership per 1,000 people, 2010

808
530 486 286 144 43 38
Actual
5% 0%
IMF forecast (Sep 2011)
2006
2008
2010
2012
2014
2016
US
Total urban population [m]

1,000 800 600 400 200 0 2000
2005 2010 2015 2020 453 558 636 713 787
Total length of paved highway [m km]

3.5 3.0 30 2.5 2.0 1.5 1.0 1.34 1.38 1.44 1.52 1.22 2.14 2.28
Europe Japan/ Russia Brazil China Korea
India
2.54 2 54
2.78
3.06
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Roland_Berger_China_impact_on_European_automotive_industry_20120430.pptx 4
Source: IMF Wolrd Economic Oulook Sep 2011; World Bank; China Ministry of Transport
With the growing population and growing wealth in China, the overall motorization rate will increase until 2025
Cars per 1,000 inhabitants 2010-2025 ['000 vehicles]
CAGR 20102025
Comments
0.1% 808 816 0.4% 1.2% 10.7% 1.2% 4.4% 1.3% 4.4% > Growth in triad markets limited between 0.1% and 1.2% p.a. till 2015 > Much stronger growth in BRIC markets, ranging from 1.2% to exceptional 10.7% p p.a. in China > CEE and Russia will converge close to European and Japanese standards by 2025
530 561
579 486 431
526
542
286 198 43 North America

2010 2025
144 172 38 Brazil BIC 72 CEE Russia
Europe Triad
JPN/KOR
China
India
CEE + Russia
Source: LMC; Roland Berger
B. B
KEY FINDINGS AND IMPACTS ON EUROPEAN AUTOMOTIVE INDUSTRY: Key findings Seven detailed key trends and implications
China offers further growth opportunity nevertheless Chinese companies start to play important role in global markets and Europe
Chinese automotive industry Major trends and implications on European companies
1 Market growth > High revenue growth opportunity for European OEMs and suppliers Further localization in China > Growth exploitation is possible with further development of local production and R&D capacities in China Competitiveness of local players C titi fl l l > Tougher market entry and pressure on market share and profitability of European players Governmental regulation > Uncertainity in Chinese regulation policies > Stronger emission regulation to favor higher technology standards of European producers and alternative powertrain d l i i
China automotive market offers further growth opportunity for European companies
Strategies of Chi t i f Chinese i B St global markets and companies in Europe

5 Expansion of Chinese companies > Tougher competitive environment and pricing pressure for European OEMs in their established markets Europe-specific products E ifi d t > Marginal but increasing competition and pricing pressure for European OEMs in low cost and value segment Increasing capital inflow > Direct access of Chinese companies to European market and know-how, closing technology advantage of European companies
A Chinese market development

Source: Interviews; Press research; Roland Berger
Chinese companies start to play important role in global markets and Europe
B.1 B 1 China automotive market offers further growth opportunity for European companies
China's industry is expected to grow at about 8% p.a. to reach 33 m units by 2018 and its luxury vehicle market will cross 2 m units
Light vehicle1) sales of major markets
Industry volume [m units]
Comments
China
2010 to 2018 CAGR = 8.6%
35 30 25 20
15 10 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
1) Light vehicle industry exclude medium and heavy duty vehicles
W Europe p USA India Brazil Japan Russia
China passenger cars market has been growing rapidly and will continue this trend for the coming 5 years: > Chi passenger cars China market has exceeded 18 m units in 2010, with a high compound annual growth rate of ~22% from 2005 to 2011 > China passenger cars market will continue the fast growing trend and is estimated to reach about 33 m units by 2018
China has become a key volume contributor for most global OEM groups Five Chinese OEM groups had emerged to the top 20
2010 Global and China light vehicle sales of top 20 OEM groups [m units]
12% 28%
China sales as % of global

17% 12% 21% 7% 1% 11% 19% 12% 11% 11% 20% 13% 3%
7.5
0.9
7.1
2.0
6.7
1.1
6.5
0.8
5.6
1.2
4.8
0.4
3.7 37
0.0
3.5
0.4
3.4
0.7
2.4
0.3
1.4 14
0.1
1.4 14
0.2
1.3 13
1.3
1.3
0.2
1.1
1.1
0.9
0.1
0.8
0.4
0.8
0.0
0.7
0.7
0.6
0.6
Toyota y
VW
GM1)
Ren-Nis Hyundaiy Kia
Ford
FiatChrysler
PSA
Honda
Suzuki
Daimler
BMW
SAIC1)
Mazda Changan Mitsub. g
Geely- Tata-JLR Chery Dongfeng y y g g Volvo
China
Rest of World
European companies
1) Wuling brand classified within SAIC and not GM

The roughly EUR 115 bn in additional components value is created in China till 2025 mainly in the powertrain and exterior domains
Additional component revenue pools by region ( 2025-2010) [EUR bn]
Triad BRIC
High revenue subsegments b in China 17.9 17 9 50.8 50 8
> High voltage batteries > Transmission systems > Engine hardware > Braking systems > Axles > Body in white > Closures > Windows p > Carpet/Acoustics > Airbags > HVAC > Audio > Connectivity
Powertrain
34.8 34 8
25.6 25 6
-1 1 1.1
Chassis
0.8
4.4
-2.8
4.5
13.9
Exterior Interior Infotainment
5.6 3.4 0.5
8.1 4.8 1.4
-4.8 -5.3 -1.1
12.5 4.4 1.4
32.5 12.3 3.9
Bubble size represents the revenue pool delta 2025-2010

exceeds EUR 10 bn
Shrinking markets
Local OEMs are increasingly establishing JVs with triad commercial vehicles OEMs to increase their product value and technology
Strategic development of the competitor landscape in China Commercial vehicles
Selected partnerships Current technological development > Improvement in the performance capability of the engine portfolio > In estment in R&D to comply with emissions Investment compl ith standards (e.g. EURO IV) > Design-specific changes to the driver's cab > Adj ti t E Adjusting to European comfort, safety and f t f t d quality standards
Massive investments by Chinese OEMs (esp. in Value segment) to increase their competitiveness both at home and abroad
Foreign OEMs may enter into a maximum of 2 JVs in China
Source: Press research
Negotiations ongoing
European companies
European OEMs are extending their production capacity in China with numerous plants opening in the near future
OEMs establishments/capacity extensions in China over 2010-2012 period
(2012, (2012 200) (2010, 150) (2013, 30)
NORTHEAST Changchun Shenyang
(2010, 200 LCV) (2011, 100) (2012, 200) (2011, 200 minivans)
Shanghai EAST
(2012, 200) ( (2012, 150) , ) (2013, 200 mini-vans) (2012, (2012 300)
SOUTHWEST Chengdu Ch d Guangzhou Huadu NORTH
Beijing Dalian Hebei CENTRAL Wuhan Zhuzhou Changsha Ch h
(2012, 150) (2011, 250) (?,300)
(2011, 100) (2011, 240)

Legend (SOP, Capacity in 000)
Shenzhen SOUTH
(2012, 200)
European companies
More and more R&D centers and regional headquarters of European suppliers have moved to Asia Smaller companies follow
Example: R&D centers and Asia-Pacific HQs of top international suppliers in China
Main reasons
> Catch up with the fast growing vehicle market
International Suppliers R&D Center 2001 2008 Asia-Pacific HQ 2001 2008
> Better supply local market and customers, as the needs of the customers are becoming much more diversified
> Leverage the low-cost local resources, such as local talents/ engineers
Yes = Set up in China

No Not set up in China =

Highly competitive small vehicles segment will grow fastest across the globe China to follow suit from 2025 onward
Light vehicles sales by segment, 2010-2025 [m units; %]
Global development
CAGR [%] 69 10% 114 9% 3.4 2.7 1.2 12
19%
CEE
CAGR [%] 2.0 20
19%
Example China
CAGR [%] 15 6% 35 7% 5.7 6.8
8.1 8.4
54%
51%
3.0 30
44%
33%
3.8 38
58%
56%
5.4 54
4.1 36% 40% 37%
12.0 12 0 48% 36% 37%
5.9
2010
Large (E/F/above)
2025
Mid-size (C/D) Small (A/B)
2010
2017
2010
2025
15
In the next five years, 60% of global capacity build up will occur in China and slightly more than half of which by Chinese OEMs
China's automotive capacity situation 2010-2015 [%]
Share of total global capacity in 2010 (Total = 102 m unit) Share f l b l dditi Sh of global additional l capacity 2010 to 2015 (Total = 25.7 m unit) China China 19.8% 60.9% Share f China's dditi Sh of Chi ' additional l capacity 2010 to 2015 (Total = 15.6 m unit) Local 53.7%
80.2% Rest of world

39.1% Rest of world
46.3% JV
16
China's government-linked local industry is highly fragmented and high growth in past two years delayed the need for consolidation
Chinese OEM share per vehicle segment, H12011 [%]
Others (10 ) Oth (10+) Haima Brilliance 4% 4% Jianghuai 5% Changan*
7% 9% 9%
15%
BYD
12% 12% 11% 11%
FAW Chery* FAW* Dongfeng
Others (10+)
3%
9%
41%
Passenger Vehicles
Mini trucks & vans
13%
SAIC-Wuling
Greatwall
Geely*
34%
SAIC SAIC* BAIC

27%
Changan* Others (15+)

20% 23%
Others (15+)
21%
Dongfeng
Light trucks & vans
SAIC* 3% 4% Kama 4% Greatwall 6% JMC

11% 12%
12%
Med &Baotou Beiben heavy CVs JAC

Changan*
SAIC* 3%
4%
3% 16%
Shaanqi
9% 9%
12%
FAW
Brilliance
Dongfeng
BAIC
CNHTC
17
1) Market shares are aggregate of multiple brands under these OEM group
Source: China monthly sales data from CATARC; Roland Berger Roland_Berger_China_impact_on_European_automotive_industry_20120430.pptx
Key auto policies under the 12th 5-Year Plan are yet to be finalized but initial directions point to increasing support for local players
Key regulations and draft targets under the 12th 5-Year Plan
12th 5 Year Plan auto policies & p regulations to be finalized > Auto sector development policy ( e sed) (Revised) > Rules governing the branding, marketing and sales of automobiles (Revised) > Energy savings vehicles and new energy vehicle development plan (2011-2020) > Ph Phase III passenger vehicle f l hi l fuel economy limits > Electric vehicle technology development program for 12th 5-Year Plan
Source: National 12th 5 year plan; Public information; Roland Berger
Volume target Energy Efficiency / New Energy Vehicle Industry Consolidation
> 2015 production targets 25 m units >R d Reduce fuell consumption b 20% f f i by from 2008 > 1 m units of mid and strong hybrids PV on the road > 10 OEM groups to account for >90% of market share (from 14 today) > 2-3 OEM groups with >3 m annual volume, 4-5 OEM groups with 1 to 3 m annual volume > Local brands share of PV at 40%, share of "sedans" at 30% > Local brand export to account for 10-20% of total vehicle sales volume
Local brands
ICE powertrain will continue to dominate in China nevertheless EVs will create almost 10% of the carpark in 2025
Heterogeneous fleet emission targets
CO2 fleet emission targets
EU
[g/km]1)
China -29%
Powertrain hybridization/electrification scenario in major regions 20252)

EU EV 12% 14% 11% Full hybrid/PHEV 11% Range extender 132 Mild hybrid China EV ICE Range extender 9% 8% Full hybrid/PHEV 10% 6% 67% Mild hybrid
2) Assumption: ICE includes micro hybrid functionality
Comments
> Only the EU has announced a longterm CO2 emission target for 2020 also applicable to CEE member states > China has an ambitious CO2 emission target for the period to 2015 Few vehicles in carparc > ICE powertrain will continue to dominate in China nevertheless EVs will create almost 10% of the carpark in 2025 to favor advanced technologies of European OEMs
ICE
-19% -27%
160 130 95
187
52%
Actual 2006
Target 2015
Target 2020
Actual 2006
Target 2015
1) No cycle conversion considered; gasoline assumed for non-EU countries

Source: EA WEO 2008; Roland Berger
19
China's vehicle park development is severely challenging already strained infrastructure Beijing and Shanghai have acted
China restrictions on vehicle registrations Case study
Case Beijing: Restrictions on vehicle plates Case Shanghai: Plate auctions [RMB ths]
60 50 40 30 20 10 0 2007 2008
Average price [Rmb ths] Bidder{plate ratio
8 6 4 2 0
2009
2010
2011
Ratio of bidders to available plates
Average successful bidding price accounted for RMB 59 ths RMB in March 2012 (EUR ~7 ths)
> Beijing's new vehicle registration for 2011 curbed at 240,000 units versus approximately 800,000 units in 2010
> Shanghai has introduced vehicle registrations restrictions in 2011, there is currently bidder/registration ratio of 3 driving up the bidding prices
Source: Macquarie; Press research; Roland Berger
20
B.2 B 2 Chinese companies start to play important role in global markets and Europe
21
In addition to exporting, Chery and Greatwall have established assembly operations in developing markets
Overseas assembly footprint of Chinese OEMs (examples, outside China)
Russia Ukraine Bulgaria Egypt Iran
Mexico
Vietnam Thailand
Brazil Venezuela
Greatwall Chery FAW
Source: Company's announcements; Roland Berger
Nigeria
Malaysia
Indonesia
Uruguay Argentina A ti
S. Africa
22
Major Chinese OEMs announced expansion to Europe However reaching only 200 ths units sold in 2018 (<1% market share)
Sales Chinese OEMs Europe, 2008-20181)
CAGR: 19% 171 33
CAGR 20112018
Expansion announcements of Chinese OEMs

Geely G l
> Market entry until 4Q 2012 with Italy and United Kingdom in the first phase > The EC7 (Skoda Octavia size) to be the first model priced from EUR 11 700 and offering 5-year warranty 11,700 5 year > Assembly facilities located in Russia and Ukraine and announced in Egypt
30% BYD
CAGR: 4% 44 2 42 2008 50 5 45 2011 2018

2) Including Russia
138
17% Chery
> Full EV BYD e6 should be available in Europe in 4Q 2012 as its first model > As a Chinese leader in xEVs, BYD has already two production plants for batteries in Europe (Hungary and Romania)
Western Europe Eastern Europe2) 1) Excluding Geely Group (Volvo owner)

Source: LMC; Press research; Roland Berger
> Having a joint-venture with Israel Corporation, Chery wants to enter European market with the all new brand Qoros > Chery headhunted chief designer of Mini as well as VP of Volkswagen AG to manage market entry to the EU after 2013 with the first Chinese five-star EuroNCAP car > Company plans to open assembly plant in Italy
C.
ROLAND BERGER STRATEGY CONSULTANTS: Automotive Competence Center introduction
24
The Roland Berger Automotive Competence Center: A strong and global team
Roland Berger Automotive: More than 300 consultants worldwide
Western Europe 17 Partners 150 Consultants USA 4 Partners 25 Consultants Eastern Europe 2 Partners 20 Consultants Russia 2 Partners 20 Consultants China/Hong Kong 3 Partners 40 Consultants
Korea 3 Partners 20 Consultants
Japan 4 Partners 30 Consultants
South America 2 Partners 10 Consultants
MENA 1 Partner 10 Consultants
Singapore 1 Partner 5 Consultants
> Global team of more than 300 dedicated automotive consultants > Over 300 clients in the automotive industry > More than 1,200 successful projects since 2000 > Proven leading-edge tools and methodologies > Thought leadership in the worldwide automotive community, producing highly regarded studies and top quality research
25
Our costumer base equals the "Who is Who" of the global automotive industry
Selected clients
C OEM Car OEMs CV OEM OEMs S Suppliers li S i P id Service Providers
d B il do Brazil
26
It's h It' character t that creates impact!


China Impact On European Automotive Industry

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Impact of China on Central European Automotive Industry

Roland Berger Study

Source: Roland Berger

CHINESE AUTOMOTIVE INDUSTRY: Chinese automotive market in global context

Vehicle ownership per 1,000 people, 2010

IMF forecast (Sep 2011)

Total urban population [m]

Total length of paved highway [m km]

Europe Japan/ Russia Brazil China Korea

579 486 431

286 198 43 North America

144 172 38 Brazil BIC 72 CEE Russia

Source: LMC; Roland Berger

Strategies of Chi t i f Chinese i B St global markets and companies in Europe

A Chinese market development

W Europe p USA India Brazil Japan Russia

China sales as % of global

Ren-Nis Hyundaiy Kia

Mazda Changan Mitsub. g

Geely- Tata-JLR Chery Dongfeng y y g g Volvo

1) Wuling brand classified within SAIC and not GM

Source: LMC; Roland Berger

Exterior Interior Infotainment

5.6 3.4 0.5

8.1 4.8 1.4

-4.8 -5.3 -1.1

12.5 4.4 1.4

32.5 12.3 3.9

Bubble size represents the revenue pool delta 2025-2010

Beijing Dalian Hebei CENTRAL Wuhan Zhuzhou Changsha Ch h

(2012, 150) (2011, 250) (?,300)

(2011, 100) (2011, 240)

Yes = Set up in China

No Not set up in China =

4.1 36% 40% 37%

12.0 12 0 48% 36% 37%

80.2% Rest of world

39.1% Rest of world

FAW Chery* FAW* Dongfeng

Mini trucks & vans

SAIC SAIC* BAIC

Changan* Others (15+)

Light trucks & vans

SAIC* 3% 4% Kama 4% Greatwall 6% JMC

Med &Baotou Beiben heavy CVs JAC

Volume target Energy Efficiency / New Energy Vehicle Industry Consolidation

Powertrain hybridization/electrification scenario in major regions 20252)

1) No cycle conversion considered; gasoline assumed for non-EU countries

Ratio of bidders to available plates

Source: Macquarie; Press research; Roland Berger

Expansion announcements of Chinese OEMs

CAGR: 4% 44 2 42 2008 50 5 45 2011 2018

Western Europe Eastern Europe2) 1) Excluding Geely Group (Volvo owner)

ROLAND BERGER STRATEGY CONSULTANTS: Automotive Competence Center introduction

Korea 3 Partners 20 Consultants

Japan 4 Partners 30 Consultants

South America 2 Partners 10 Consultants

MENA 1 Partner 10 Consultants

Singapore 1 Partner 5 Consultants

Source: Roland Berger

Source: Roland Berger

It's h It' character t that creates impact!