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Powertrain 2020

A PERSPECTIVE FOR CHINA


SHENYANG, October 31st, 2008
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 1

Di l i Disclaimer

> The conclusions and recommendations in this document are based on market knowledge of Roland Berger Strategy Consultants or drawn from information and data gathered through desk research and interviews > Interviews reflect the opinions of experts at individual companies and do not necessarily reflect the official opinion of the interviewee's organization > The statements made by Roland Berger Strategy Consultants are based on assumptions held to be accurate on the basis of the information available > Roland Berger Strategy Consultants assumes no liability for the correctness of the information and statements made within this document as well as for actions undertaken upon this document > The document is for personal use only and not to be disclosed to third parties
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 2

INDEX
A. Tougher Regulations Scarce Resources: The industry is forced to decrease emissions and fuel consumption B. Powertrain Challenges: OEMs need to work on a broad technology portfolio C. Electric Vehicles: Open issues likely to be mastered EVs could gain a significant market share D. Opportunities for the Chinese Automotive Industry

2008 Roland Berger Strategy Consultants GmbH

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

A. Tougher Regulations Scarce Resources: The automotive industry is forced to decrease emissions and fuel consumption

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

The automotive Th t ti industry i d t is i forced f dt to decrease d emissions i i and d fuel consumption


Legislative plans in major car growth regions
The EU will introduce tough CO2 emission targets that need to be met y OEM car fleets in the near future by China needs to slow down the growth of oil consumption and regulates fuel consumption

The US plan a significant reduction of fleet fuel consumption and requires a share of zero-emission vehicles (ZEV) in California

Japan will probably apply similar i il limits li it to t the th EU


Source: Roland Berger 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 5

The EU will Th ill introduce i t d t tough h CO2 emission i i targets t t that th t need d to t be met by OEM car fleets in the near future
EU CO2 EMISSION TARGETS (g/km)
200 190 180 170 160 150 140 130 120 110 100 90 80 70
185 161
2008 2012 2020

STATUS QUO > European commission requires to reduce CO2 emission to 130 g/km until 20121) (comparable to 5.2 l gasoline, li 4 4.8 8 l di diesel) l) > Target 2020: 95 g/km (4.0 l gasoline, 3.6 l diesel)
95

152 130

> Individual OEM targets based on vehicle weight, penalties if not reached between 15-90 EUR/g > CO2 tax for consumers planned, EUR 2-EUR 7 per g/year (over a certain limit)
2025

1995

1998

2001

2004

2007

2010

2013

2016

2019

1) Additional 10 g/km by improvements of tires, HVAC, use of biofuels, etc.

Source: ACEA; press, European Parliament, Roland Berger research

2022

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

Nearly N l all ll western t EU mandate d t CO2 taxation t ti and d several l cities iti implemented a congestion tax
COMMENTS
Bergen Oslo Edinburgh Durhan Manchester L d London Paris Milan Bologna Rome Stockholm

> Nearly all western EU countries adopted tax relief to promote the purchase of low pollution vehicles > Several cities in Italy, France, UK and Scandinavia also adopted city congestion tax > In most major German cities pollution free "green" green zones rather than real congestion charges are implemented1)

Country adopting CO2 tax reduction City adopting congestion tax 1) Obligatory environmental badge is available in three colors which describes the category to which the car is allocated together with the restrictions

Source: Roland Berger

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

In China, I Chi Automotive A t ti becomes b a key k driver d i for f total t t l crude d oil il consumption and is facing increasing demand pressure
Crude oil consumption in China [tons m]
80 70 60 50 40 30 20 10 0 7.5 11 1993 7.5 12 1995 40 1997 48 65 147 161 197 20.3 211 22.7 83 110 228 28.5 249 33.3
T t l crude Total d oil il consumption ti Automotive crude oil consumption Percentage of automotive oil consumption in total

475 380 44.0 36.8 167 128 256

500 450 400 350 300 250 200 150 100 50 0

320 34.4

347

57.0

1999

2001

2003

2005

2006

2010E

2020E

National energy security is threatened as automotive crude oil consumption is growing


Source: China energy yearbook; China statistic bureau; Roland Berger 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 9

Consequently, C tl f fuel l price i h has i increased d steadily t dil fuel f l accounts t for more than 50% of costs of driving a passenger car
FUEL PRICE IN CHINA [RMB/TON] SHARE OF FUEL COSTS ON TOTAL COSTS (PASSENGER CAR)
7805

8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2004 2005 2006 2007
4049 3627 4642 4022

Gasoline

100%

100%

100%

100%

100%

6930

Diesel Other Costs


5401 4745 5509 5047

Fuel Costs

2004
2008

2005

2006

2007

2007

Source: FAW, Roland Berger

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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N New regulations l ti limit li it f fuel l consumption ti


Fuel consumption limits China (phase II from January 2008)
l/100 km 15 g CO2/100 km (gasoline) 375 333

RATIONALE/EXPECTED DEVELOPMENT
> Weight-dependent fuel consumption limits to reduce oil consumption: > 2004: 120 m tons oil oil, import >40% (6% of total import) > 2020: >600 m tons oil (~ USA 2006) > Adaptation of Western standards in mid-term mid term (China IV stage emission standard equals EURO IV, to be introduced in Bejing in early 2008, nationwide in 2010) > "The state will g guide and encourage g the development of clean and fuel efficient vehicles with small displacement, lead consumers to buy and use low energy consumption, low pollution, small displacement, new energy and new power vehicles"
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14 13 12 11 10 9 8 7
750 kg 865 kg 980 kg 1,090 kg 1,205 kg 1,320 kg 1,540 kg 1,660 kg 1,770 kg 1,880 kg 2,000 kg 2,110 kg 2,280 kg 2,510 kg 430 kg 1,4 2,110 kg

Vehicles with either - ATM or - 3 or more seats/row

309 285 262 238 214

Vehicles with manual transmission

190 167 143

Source: CATARC; SEPA; Roland Berger

The newly Th l i introduced t d d consumption ti tax t will ill heavily h il influence i fl sales and pricing of cars with large engine displacements
Consumption tax rate in China as of Sept. 1st, 2008
E i (cm Engine ( 3) 1,000 1,000-1,500 1 500-2 000 1,500-2,000 2,000-2,500 2,500-3,000 3,000-4,000 4,000
Source: Roland Berger

E Example l of f VW Model M d l Polo 1.4 Jetta Bora, Jetta, Bora Golf, Golf Sagitar Sagitar, Magotan Magotan, Phaeton, Touareg, Magotan 3.2 Phaeton 4.2/6.0, Touareg 4.2/6.0

Before B f 09/2008 3% 3% 5% 9% 12% 15% 20%

After Aft 09/2008 1% 3% 5% 9% 12% 25% 40%

Cost C t to t consumer (Aug. 2008 = 100)1) 98 100 100 100 100 113 125
12

1) Assuming that import cost is usually overseas ex-factory price plus shipping price excl. insurance rate, 5% inspection fee and dealership mark-up; tax increased passed through

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

NOx and NO d PM emission i i limits li it will ill increase i Relevant R l t today t d only l for Diesel engines, but in future also for gasoline
Diesel emissions standards for passenger cars
Particulate matter [g/km] 0 16 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0 02 0.02 0.00 2007 0.0 2007 2007 0.1 0.2 2004 2003 Japan 2001 USA (CARB) 2004 Euro 4 (2005) Euro 5 (2008) 0.3 0.4 0.5 0.6 0.7 0.8 0.9 NOx [g/km] 1998 Euro 2 (1996)

COMMENTS > NOx is relevant for both diesel and gasoline, PM y for relevant currently diesel engines only > European, American and Japanese emission stand d will dards ill converge in i the h near future > As a result, heavy investments will be needed in exhaust aftertreatment and new technologies to optimize the combustion process
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Euro 3 (2000) LSA (EPA)

Japan Euro 61) 2001 (2014)


1) Proposed Note: EPA = Environmental Protection Agency; CARB = California Air Resources Board

Source: EPA; CARB; EU Commission; JAMA; Roland Berger

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

In emerging I i markets, k t emission i i standards t d d will ill f further th ti tighten ht too, the "gap" to European standards will narrow down
Introduction of emission standards for passenger cars in selected growth markets
2000 2005 2010 2015

COMMENTS
> Standards are based on European regulations introduction with significant g time lag g > Stricter regulations in urban areas > Indian "Bharat stages" are also based on European regulations > Introduction starts in Delhi1) first, then spreads throughout the country > Introduction of European regulations is planned with a time lag of approx. 3-4 years

CHINA
Euro 1 Euro 2 Euro 3 Euro 4 Euro 5 Euro 6

INDIA
Euro 1 Euro 2 Euro 3 Euro 4

RUSSIA
Euro 2 Euro 3
Introduction Expected introduction

Euro 4

Euro 5

Regional distribution after introduction capital city, industrial regions, entire country

1) And selected major cities/industrial areas

Source: Dieselnet; Roland Berger

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Megacities M iti will ill play l a major j role l i in f future t regulations l ti 45 cities iti attended second C40 Large Cities Climate Summit in May 2007
COLORADO SmartTrips website: Reduces drive drive-alone alone trips and increases biking, walking and public transit in specific p city y area NEW YORK CITY (PlaNYC) Extensive environmental approach including e.g. waiving of NYCs sales tax on cleanest, most efficient vehicles and introduction of congestion charges COPENHAGEN City of Cyclists over 36% of the city's population cycling to work every day SEOUL Car-free days have reduced CO2 emissions by 10% annually BEIJING Vehicles with high emissions are only allowed to take certain roads within the city (emission level marked through labels) C40 Large Cities Summit objectives: > Drive down carbon emissions > Accelerate action on climate change > Next meeting planned in Seoul, 2009
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 15

MEXICO CITY Replaced 3 3,000 000 taxis with more fuel efficient models CURITIBA (Brazil) Roadway "arteries" in which traffic is more fuel-efficient and bordered by plantings that both combat carbon emissions and increase biodiversity
Source: C40 Large Cities Climate Summit; Roland Berger

In the I th Shanghai Sh h i area, six i demonstration d t ti parks k have h been b planl ned with over 1,000 electric vehicles in pilot operation by 2010
SHANGHAI ELECTRIC VEHICLE DEMO AREA
Long-term Temporary
Total Jiading J ad g International te at o a Auto uto C City ty Total 100 Bus 60 Car Mini EV 40 Pudong Demo Area Total Downtown Demo Area Total 100 Bus 50 Car Mini EV 50 Inside Outside Total 320 180 100 Bus 50 Car Mini EV 50 100 Chongming Eco Island Bus 30 Car Mini EV 70

COMMENTS
> Shanghai EXPO will 100% adopt zero emission vehicles not only inside the EXPO park but also in the surrounding areas > A temporary EXPO electric vehicle demonstration park will be established with 160 cars and 340 buses in operation by 2010 > 5 long-term demo parks have also been planned in order to meet the requirement of programs like the establishment of Chongming Eco Island and Jiading International Auto City > Over 1 1,000 000 electric vehicles will be showcased in Shanghai Started in 2008 Multistaged pilot with increasing number of vehicles

EXPO Demo Area Bus 160 180 Car 40 Mini EV 120 -

Jinshan Hybrid Demo Area Total 100 Bus Car 100 Mini EV -

Note: Buses and cars refer to hybrid or fuel cell vehicles, while mini EV refers to pure battery-driven vehicles

Source: SCEC; Roland Berger

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B. Powertrain Challenges: OEMs need to work on a broad technology portfolio

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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Global Gl b l OEMs OEM will ill focus f on b both th optimizing ti i i the th i internal t l combustion engine and on long-range electrical propulsion
Technology focus and priorities

CO OMBUSTION N ENGINE

Integrated g hybrid + boost, short E-Drive + stop stop-start start recuperation "Conventional" ICE EV with Fuel Cell range extender
18

+ plug-in E-Drive with ICE range extender

Pure EV

ELECTRICAL PROPULSION
Source: Volkswagen, Roland Berger 081013_PT2020_Challenges_Opportunities_Shenyang.pptx

With technologies t h l i available il bl in i next t generation ti engines, i signii i ficant reductions of CO2 and fuel consumptions are possible
CO2/fuel reduction potential of selected technologies
LEVER TECHNOLOGY
Variable valve timing/lift Direct injection j Reduced engine friction1) Downsizing Cylinder y deactivation Optimized cooling circuit2) Start-stop Weight reduction Electrically assisted steering Calibration of all powertrain systems Dual-clutch transmission Optimized gearbox ratios
Additional CO2 savings potential

SAVING POTENTIAL [%]


0 1 2 3 4 5 6 7 8 9 10 11 12

Thermodynamic efficiency Mechanical friction

Stratified charge g ( (lean burn/compl. strategies) g )

With regenerative braking 30% BiW (~9% vehicle weight)

Range possible CO2 savings

1) e.g., new cylinder construction, use of roller rocking lever, reduction of moving mass 2) Incl. electric water pump

Source: TNO; IEEP; Roland Berger

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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Various V i l layouts t of f hybrid h b id powertrains t i are in i use Layouts L t with ith E-Motors close to the axle allow pure electrical driving
Examples of powertrain layouts used (front-wheel)
Starter and generator Belt starter/ generator Crankshaft starter/ generator Parallel hybrid Power split hybrid Secondary electric axle
1) 4) 2) 2)

Serial hybrid

EV

1) 2)

3)

FOCUS ELECTRIC DRIVING POSSIBLE/PLUG-IN


ICE
1) Generator

Gearbox

Clutch

E-motor 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 20

2) Starter 3) Belt starter/generator 4) ISG

Source: Roland Berger analysis

Technical T h i l solutions l ti are d defined fi d b by f functionality ti lit and dl layouts t complexity requires clear strategy to allow economies of scale
Functionality > Start-stop > Start-stop > Recuperation > Boost > > > > > > > > > > > > > Start-stop Recuperation Boost E-Drive (short)1) Plug-in g Start-stop Recuperation Boost E-Drive (medium)1) Plug-in R Range extender t d Recuperation E-Drive (long)3) Layout Starter and generator BMW start stop Smart mdh Citren G3 start-stop Mercedes S400 BlueHybrid Porsche Cayenne hybrid Mercedes S-Class plug-in Mercedes ML450 BlueHybrid Toyota Prius Toyota y Prius (next generation) Lexus RX 400H Audi Helio Project (A1) Belt starter/ generator Crankshaft starter/ generator Parallel hybrid Power split hybrid Secondary e-axle Serial hybrid E-Drive

GM Volt

> Pure E-Drive > Recuperation Other denotations MICRO MILD MILD/ STRONG FULL HYBRID ELECT. SEC. AXLE EV WITH RANGE EXT.

Tesla Roadster4) EV

1) Up to 3 hours 2) Up to 50 hours 3) More than 50 hours 4) Recuperation

Source: Roland Berger analysis

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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Mild and d full f ll hybrids h b id will ill see a broader b d application li ti especially i ll with larger vehicles, combined with downsized engines
CO2 emission1) [g/km] per vehicle by weight

130 95

EU Objective 2012 EU Objective 2020 kg


Small cars Compact Medium Large cars SUV Off-Road 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 22

Source: IAV; Roland Berger

1) CO2 emissions according to NEDC

Hybrid H b id vehicles hi l with ith high hi h electric l t i range will ill h have a significant i ifi t advantages in certification
REDUCED FUEL CONSUMPTION OF HYBRIDS CERTIFICATION POSSIBILITIES

-5-10%

Convent tionel Hybrid

-1012%

Emissions in NEDC due to E-Motor drive

Emissions in NEDC due to ICE drive

Add: Delta in battery charge

Certified emissions/ fuel consumption

-15-26% 15 26%

Drive NEDC w/ battery charged w/ battery discharged


Plug-in-Hyb brid
Weighted 25 km/(25 km+E-RW) Weighted E-RW/(25 km+E-RW)

Fuel consumption of ICE

Start Stop

Optimized Fuel operating point consumption and energy Hybrid regenerating

Emissions in NEDC due to ICE drive

Emissions in NEDC due to E-Motor drive

Emissions in NEDC due to ICE drive

Certified emissions/ fuel consumption

E-RW: Electric range

Source: European commission for economy (rule 101)

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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C. Electric Vehicles: C Open issues likely to be mastered EVs can gain a significant market share

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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Open issues O i can probably b bl b be mastered t d EVs EV will ill most t lik likely l gain a significant market share
OPEN ISSUES Battery power/energy/safety/cost E M t supply/cost E-Motor l / t Infrastructure availability Business case for > Customer > OEM > Utility Vehicle offerings
Source: Roland Berger

MARKET SHARE EV IN % OF NEW CAR SALES


The future drives Electric-Scenario, WESTERN EUROPE, 2020
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

ICE

PHEV EV 2010 2015 2020

22%

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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Until U til 2020 2020, Li Li-Ion I batteries b tt i will ill provide id a significant i ifi t d driving i i range with lower costs
Overview of the EVs driving range evolution (" The future drives Electric scenario)
EV RANGE EVOLUTION FROM TODAY TO 2020 (km)
400 300
200 kg

MAIN ASSUMPTIONS > Consumption1): 12.5 kWh/100 km > Vehicle GVW2): 1,100 kg > Battery capacity by 2010: 20 kWh > Battery weight: 200 kg kept constant over the years > Battery and vehicle improvements over time considered (battery DoD, DoD vehicle air drag coefficient)
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 26

200 100 0
Ni-MH today Li-Ion 2010 Li-Ion 2015 Li-Ion 2020 60 12 250 100 20 400 125 25 300 180 36 200

Energy density (Wh/kg) Battery capacity (kWh) Battery costs (EUR/kWh)

1) Without auxiliary system consumption (e.g. HVAC); average city cycle speed of 25 km/h 2) Driver included

Source: Interviews with key battery suppliers, Roland Berger analysis

Main M i battery b tt suppliers li have h different diff t technological t h l i l approaches h to achieve development targets
Overview of major Li-Ion material compositions and selected suppliers
Li-metal polymer

KEY DEVELOPMENT TARGETS > > > > > Energy density Life cycle Safety Costs Fast charging capability

ELECTRO OLYTE

Li-Ion polymer (gel)

Li-Ion Li Ion Cobalt Manganoxid Iron phosphate Manganese spinel

CATHODE
Source: CARB, interviews with Key Battery Suppliers, Roland Berger 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 27

Different Diff t Hybrid, H b id PHEV and d EV powertrain t i performance f needs d favor different E-Motor layouts
Sinus field machines and potential automotive applications
Permanent energized synchro synchronous machine Internally permanent energized machine Magnetic reluctance machine Synchron reluctance machine Asynchronous machine

PRO

> Power to weight ratio > Efficiency at low speed and at high load

> Design and cost > Efficiency > Power to weight ratio > Complex control > Maturity

> Very simple design > Very low cost

> Design and cost > Efficiency throughout entire speed and load spectrum > Simple control > Power to weight ratio

CON
Potential application
Copper coil

> > > >

Complex control Low efficiency at max. speed High cost Complex safeguarding

> Very low power density

> Hybrid drive > For long distance applications only with transmission possible
Solenoids

> In discussion

> None

> Long distance drive for electric vehicles

Source: Roland Berger expert interviews

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Supplier S li basis b i for f E-Motors EM t f for pure electric l t i driving d i i is i limited li it d Inhouse production can be an interesting alternative
Sources for E-Drive motors
High

INHOUSE INDUSTRIALIZATION of existing expert concepts Partnering with AUTOMOTIVE E/E SUPPLIER

> Licensing dedicated automotive concepts of small E-Motor experts > Inhouse industrialization with opportunity to benefit from scale effects and low-costs > e.g. Bosch, Continental > Limited product offers for E-Drive applications > E-Motor competencies and resources currently needed for Hybrid projects

Fit of f existing concepts for E-Drive applications

Low Low

> Large E-motor experience form train and machine tool applications Leverage NON AUTOMOTIVE > Dedicated D di t d automotive t ti products d t need d to t be b E-Motor SUPPLIER base developed > Chinese supply base large and could be competitive Good

Base for B f industrialization

Source: Roland Berger

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A charging h i infrastructure i f t t is i a prerequisite i it for f customer t acceptance Various utilities work on it in different countries
Key EV charging infrastructure components
AT HOME AT PUBLIC SPACES AT WORK

Charging g g station at home

Charging g g stations at p public spaces

Charging g g stations at work and other non-public places

"Sense of infinity" for EV infrastructure needed from the very beginning!


Source: Roland Berger 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 30

Utilities are evaluating where to position along the E-Mobility value chain several utilities in Europe have OEM-partnerships
E-MOBILITY VALUE CHAIN
Generation Grid Retail1) Recharge grid > Offer of recharge infrastructure in public places > Premium P i for f access to infrastructure > Call/billing for E Mobility E-Mobility Add-on services > Special tariffs > Vehicle to grid > Battery services/ l i leasing > Product bundles including car offers

Utility core business power generation & supply > Additional electricity demand by customers charging electric vehicles, e.g. at home > Additional turnover in generation, grid fees and retail without any change in business model

PASSIVE APPROACH Focusing on core business and hoping for fair market shares in generation, grid & retail Defined return at low risk ?

ACTIVE APPROACH Approach new market with new business model to tap potential Upside potential at some risk

To be evaluated
1) Without add-on services

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Life cycle Lif l costs t of f EVs EV could ld become b l lower than th of f cars with ith an ICE1) Especially if taxes are taken into account
ICE/EV life cycle cost comparison in 2010/2020
LIFE CYCLE COST IN GERMANY [EUR]
-20% +6%
38,604 17,660 3 344 3,344 17,600 40,887 5,663 5,624 12,000
0

KEY ASSUMPTIONS
> > > > NPV perspective over 12 years Discount rate of 6% Mil Mileage of f 180 180,000 000 k km Vehicle purchase price remains constant (ICE and EV similarly expensive, without battery) y price with 6% CAGR > Gasoline and electricity > Subsidies and CO2 taxes not taken into account
2010 Battery costs [EUR]
Consumption

47,705 38,226 26,761 10,142 4,484 3 344 3,344 17,600 17,600


0

2020 6 000 6,000 5.5 14.5 2.90 0.41

6,000
17,600
VAT Battery V hi l Vehicle

12 000 12,000 6.5 14.5 1.60 0.23

ICE consumption [l/100 km] EV electricity consumption [kWh/100 km] Gasoline price [EUR/l] Electricity price [EUR/kWh]

ICE 2010

EV 2010

ICE 2020

EV 2020
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 32

1) internal combustion engine

Source: Center for Global Energy Studies, Roland Berger analysis

Over 20 EV/PHEV models O d l f from leading l di OEM OEMs and d newcomers are expected to enter the market until 2012
Overview of EV/PHEV global offering 2008 to 2012
2008 2009 2010 2011 2012

Think City

Subaru R1e

Mitsubishi iMiEV

Nissan Cube

'Tata Nano

Smart EV

Mercedes A-class EV?

Toyota IQ, EV?

VW UP, EV?

A0, A AND B SEGMENT C D C, SEGMENT AND SUV G SEGMENT

Nice Cars Zero

Tata Indica

XS 500

F6DM

F3e; F3DM

e6

Tesla Whitestar?

ZAP X

Prius Plug-in GM Volt Opel E-Flex

GM Saturn Vue?

Tesla Roadster

Fisker Automotive

Source: Press, Roland Berger

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By 2020 all B ll established t bli h d OEMs OEM and d a lot l t of f new players l will ill have h entered the EV market in the EU
EU: Overview of estimated electric vehicle market penetration
2008-2010
FIRSTMOVER WAVE Limited volume of "a new type of EVs"
New Prius Plug-in Mitsubishi MiEV Opel Nissan E-Flex "Citycar"

2011-2015
Positive market response and volume ramp-up ramp up

2016-2020
Second-generation EVs at competitive costs t and d improved i d performance "Second" movers benefit strongly from the first wave

"SECOND"MOVER WAVE

Miles XS 500

Tesla Whitestar

All major players enter the EV market


MB EV Renault VW NSF BMW EV V EV-Vers. Citycar Cit "Cit "Citycar" "

BROAD MARKET PENEPENE TRATION

Chinese and all other players enter the market with comp. EVs
BYD Miles 2. Gen Ford? 34

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

PRELIMINARY

Preliminary P li i estimates ti t show h a significant i ifi t share h of f sold ld PHEV PHEVs and EVs in a likely scenario
Share of powertrain type [% of sold cars] Western Europe
3.2

Japan

2.7 5.1

0.8

0.9

19 1 19.1

4.2 2020 2015 2020

2015

US
3.3 0.8 1.2

China

1.1 2.1
Downsized mobility PHEV

7.4 2015
PHEV EV

2.2 2020
EV The Future Drives Electric

2015
Source: Roland Berger

2020
35

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D. Opportunities for the Chinese Automotive Industry

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Major M j hi historical t i l advantages d t of fi incumbent b t OEMs OEM are of f little littl value l since electric vehicles have specific business characteristics
Advantage incumbent OEMs vs. "new players"
R&D Incumbent OEM advantage Production Marketing Sales After Sales

New skills needed


> Electrochemistry/ battery technology > E-motor design > Energy management > ... > Complete vehicle design capabilities > ...

Starts as "niche"
> Flexible low-scale manufacturing > Low-cost footprint > ...

Fit to brand?
> Current brand positioning/image > Heritage, customer expectations > Pricing/cannibalization > ... > Marketing budget

Focus metropolises
> Network size/ location > "Flagship" stores, partnerships > ...

Changing services
> Staff qualification > ...


Source: Roland Berger

> Quality and supply chain management capabilities > ...

> Financial services

> Network infrastructure > ...


37

> ...

> ...

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

New players N l f from emerging i markets k t can leverage l their th i low-cost structures
COST STRUCTURE AVERAGE CAR IN WESTERN EUROPE (OEM + Tiers)
Material

EMERGING MARKET PLAYERS By leveraging factor 10 lower personnel costs, costs costs can be driven down to less than 50%

Others Depreciation & amortization Administration & marketing Logistics R&D

10% 7% 4%
3% 3% 3%

70%
Total personnel costs
Source: Roland Berger study "The Next Wave: Emerging Market Innovation Threats and Opportunities" 081013_PT2020_Challenges_Opportunities_Shenyang.pptx 38

Famous Chinese F Chi companies i have h already l d successfully f ll leveraged l d their cost advantages to conquer established markets
Successful strategies of famous Chinese companies
HIGH-TECH AT LOW-COST Dawning Information Industry: Supercomputers, Servers
1990: Spin-Off from University First Sales to Government 1993: Fi own supercomputer b First built il f from components available in market ( clustering standard chips) 2001: 2,000 supercomputers sold, Low-end server I220 launched 2007: "Dawning 4000" ranked #7 globally

VARIETY AT LOW-COST BYD: Rechargeable batteries (Li-ion)


1995: Japanese companies global market share >90% - market entry through NiCad with own low-cost equipment and highly flexible, manual labor 1998: Contracts with Phillips and VTech (cordless phone market leader) 2000: Entering Li-ion, local equipment and high vertical integration. Motorola allocates 30% of purchasing 2008: BYD global #1 in Li-ion batteries

SPECIALITY AT LOW-COST Shinco: Portable DVD players and navigation systems


1994: Video Compact Discs seen as niche market, low investments of established players, Shinco entering with own special technology with error correction capabilities 1997: 1997 11 m. VCD players sold in China, reducing costs by 80% Establishing US-R&D center 1999: DVD player with error correction 28% in China, 120$ cheaper 2007: Shinco global #1 in portable DVD players, expanding in portable GPS navigation systems
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Source: Zheng/Williamson: "Dragons at your door"; Roland Berger

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

Market M k t segments t considered id d as " "non-core" " by b established t bli h d OEM OEMs might be the "loose bricks in the walls" to enter these markets
Specialty at low-cost "LOW-END" segments: Ultra-Low-Cost Cars "PERIPHERAL" markets: Denmark, Israel, Norway,
SUCCESS IN EUROPEAN CORE MARKETS

"NICHE" segments: t Electric vehicles High-Tech at low-cost


Source: Roland Berger

Variety at low-cost
081013_PT2020_Challenges_Opportunities_Shenyang.pptx 40

Chinese OEM Chi OEMs should h ld move f forward d aggressively i l and d define d fi an hybrid and electric vehicle strategy also targeted for export
Understand opportunities both in China and in developed developed countries (e.g. (e g
UK, France, Portugal, Scandinavia, Israel, ): market development, taxes/subsidies,

Develop p p product and technology gy strategy gy, define focus of own

competences and consider partnerships/acquisitions to get technology access especially in hybrid/electric drivetrains

Define and realize export strategy


Source: Roland Berger

starting from low-end and niche-segments and peripheral markets


081013_PT2020_Challenges_Opportunities_Shenyang.pptx 41

Chinese supply Chi l base b needs d to t address dd key k success f factors t t to thrive in the changing powertrain landscape
Understand functions and interfaces of relevant components in the context
of complete powertrain Deliver best components

Cost innovation to benefit from g growth opportunities pp Leverage better cost structure

Define own strategy to achieve economies of scale


Source: Roland Berger

Consider partnerships/acquisitions to get technology access especially


081013_PT2020_Challenges_Opportunities_Shenyang.pptx 42

Pl Please contact t t us for f further f th information i f ti

Dr. Wolfgang Bernhart PARTNER Stuttgart Office

Jun Shen PARTNER Shanghai Office

Loeffelstrasse 46 70597 Stuttgart, Germany Bus.: +49 (711) 3275-7421 Mobile: +49 (160) 7447421 E-mail: Wolfgang_Bernhart@de.rolandberger.com

1515 Nanjing West Road Shanghai 200040, China Bus.: +86 (21) 52986677-874 Mobile: +86 (1350) 1762216 E-mail: Jun_Shen@cn.rolandberger.com

081013_PT2020_Challenges_Opportunities_Shenyang.pptx

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