Telematics in The Automotive

WHITE PAPER
IHS iSuppli
Embedded Telematics in the Automotive Industry
November 22, 2011

2011 iSuppli Corporation, a Company Which was Acquired by IHS Inc
www.isuppli.com +1 310 524 4007 | info@isuppli.com

Table of Contents

Executive Summary ............................................................................................................. 2
Telematics Industry Drivers ................................................................................................ 3
Electric Vehicle .................................................................................................................... 3
eCall Initiative and ERA-GLONASS ...................................................................................... 4
Government Initiatives in Brazil and China ........................................................................ 4
Insurance ............................................................................................................................. 5
The Cloud ............................................................................................................................ 5
The Impact of the Smartphone ........................................................................................... 5
Telematics Market Forecasts .............................................................................................. 6
Telematics Market Status ................................................................................................. 10
North America Telematics Market ................................................................................... 10
Western Europe Telematics Market ................................................................................. 12
Asia Pacific Telematics Market (Japan and Korea) ........................................................... 13
BRIC Region Telematics Market Status ............................................................................. 15
Wireless Trends and Carrier Involvement ........................................................................ 18
Embedded Cellular ............................................................................................................ 18
Mobile Device Telematics ................................................................................................. 19
Quality and Automotive Requirements ............................................................................ 20
Market Players .................................................................................................................. 22
Conclusion ......................................................................................................................... 22

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Executive Summary
Executive Summary
Telematics is the wireless connectivity established between passenger vehicles and infrastructure
whether it is machine-to-machine, machine-to-human or direct to the cloud. Telematics has reached
critical mass in many regions around the globe. In developed regions most major OEMs have committed
to a telematics solution of some form.
Telematics for safety and security is the most prevalent deployment of this technology, but telematics is
increasingly being used to serve a variety of other functions in the car, such as remote diagnostics or
Internet radio. The trend is so prevalent that most new vehicles being sold in developed countries
support multiple connectivity options including embedded cellular, Bluetooth, and soon Wi-Fi.
Embedded cellular connectivity (the primary topic of this paper) is the most established and most
reliable method to provide telematics connectivity to the car. Embedded cellular is the preferred
method to support safety critical applications where reliability and crashworthiness are essential.
Embedded cellular is also necessary for remote diagnostics where security and reliability are vital.
Another driving force for embedded cellular connectivity is the necessity to enable connectivity from
other devices (i.e. smartphone, tablet, etc.). In electric vehicles, users need to access their vehicle for
energy management and remote monitoring of the charging status. In addition, embedded cellular is
necessary to support remote start, remote door unlock, and/or remote diagnostics. Basically, any type
of remote access is only enabled through embedded cellular.
Although most telematics applications have low bandwidth requirements and hence are well served
with 2G and 2.5G technologies, emerging cloud based services require 3G service and a data plan.
Therefore, OEMs will begin to transition the deployment of 3G (and 4G) to support the requirements of
cloud-based content.
Until now, most access to cloud based services in the car required the use of a tethered smartphone but
this will transition to embedded 3G and 4G connectivity on the premise that data plan pricing becomes
more flexible.
While we don't think consumers are willing to rush out to purchase yet another data plan for their car,
we believe that data plan pricing will become more flexible to support consumers increasing use of
connected devices such as smartphones, tablets and e-readers.
In the United States roughly 26% of new vehicles are currently sold with a telematics solution that
includes an embedded cellular device. By the end of 2018 the percentage of new vehicles sold in the
U.S. with embedded telematics will grow to 80%. Similar ratios exit for developed European markets as
well. Globally, the percentage of new vehicle sold with embedded telematics will grow from 14% today
to 46% by the end of 2018.

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Telematics Industry Drivers

Two main driving forces wireless connectivity demand by drivers and passengers, as well as the auto
manufacturers need to wirelessly connect to digital car capabilitieswill drive the telematics industry in
the next decade. Telematics technologies will be required by the digital car and will be needed by the
driver and passenger for a variety of applications and services.

Telematics systems are valuable to two distinct user segments: automotive OEMs and driver/
passengers. OEM telematics focus on wireless connectivity to computer-based controllers called ECUs
(Electronic Control Units). Remote diagnostics is the main OEM telematics application today, but more
important functions will be used in the future. With an embedded module, OEMs will have greater
control over system failures and can alert drivers much earlier. Recalls can be done more quickly and
with more precision.

The evolution of the connected portfolio highlights the embedded telematics segment as a driver of
core auto-centric services. These services have grown from primarily safety applications to navigation
services, and now, to emerging infotainment services, including remote diagnostics and ECU software
management.

Customer telematics is for the driver and passengers, focused on meeting their communication and
content needs via hands-free user interface. The mobile device telematics segment that uses the
drivers mobile phone adds services that used to be only available via an embedded modulea
development that happened in Japan a few years ago and started in the United States with Ford SYNC.
Wi-Fi makes up another layer in the evolution and today these services are also mainly infotainment-
centric.

However, mobile device telematics do fall short when it comes to safety related applications, lacking a
reliable connection and the link to the CAN-BUS connection for the collection of diagnostics data.
Electric Vehicle

Electric vehicles (EVs) are another driver for connectivity, in particular for embedded telematics
modules. Although it is possible to have an EV without an embedded TCU, for example the iMiEV in
Europe, it is not a wise choice for the OEM.

One of the main reasons OEMs need to include embedded TCUs in EVs is to lower range anxiety. An
embedded module allows the vehicle to locate the nearest charging station; find out if charging stations
are available; reserve in advance charging stations; and receive real-time traffic information that may
delay the drive and use up more battery power.

Another reason includes managing the charge of the vehicle. Vehicles with embedded TCUs allow users
to check the status of their vehicles charge remotely, as well as control when the vehicle charges. Users
or even utility companies can set it so the vehicle only charges in off-peak times when the rates are the
cheapest and the demand from the grid is the lowest. It also notifies owners if the charge stops or gets
unplugged for some reason.

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Yet another use for embedded TCUs in EVs is for remote HVAC control. While this sounds purely like a
comfort feature, remote HVAC has an important role in EVs. A lot of power, either in a combustion or
electric vehicle, is used when the user puts the air conditioning or heat on high when entering an either
hot or cold car. Remote HVAC lets the vehicle moderate its temperature to the correct comfort level at a
slower pace, thus utilizing less power.
eCall Initiative and ERA-GLONASS

The much discussed eCall initiative in Europe can also be viewed as a major driving force of connectivity.
Right now eCall remains a Directive, making it voluntary for countries to enter into; however if the
countries choose to adopt eCall they must follow the standardizations set forth by the EC.

The EC is going to propose that eCall be mandatory to the European Parliament; however it will still be a
few years before the requirement goes into effect. Latest estimates have eCall being deployed at the
earliest in 2015. It will begin with including it only on new models that are introduced, and then
gradually to all new vehicles sold. The industry is definitely at a point at which OEMs will need to include
TCUs in their development plans for future models. Once implemented, services that go beyond safety
and security can piggyback ride on the mandatory communication link.

Similar to the eCall mandate, Russian Prime Minister Vladimir Putin proposed in August 2010 equipping
all new vehicles produced in Russia with a GLONASS system by 2012. The GLONASS will enable the ERA-
GLONASS system, a Russian type of eCall that features Automatic Crash Notification (ACN) and SOS Calls
in case of an accident. ERA-GLONASS system is expected to be deployed throughout Russia by 2014.

According to the federal network operator NIS GLONASS, the mandate to equip all new vehicles with an
ERA-GLONASS receivers will start in January 1, 2013, with the system scheduled to go online in 2014.
Although no formal regulatory mandates have been adopted up to this point, it is important to bear in
mind the possible positive impact on the Russian telematics scene.
Government Initiatives in Brazil and China

Government regulation is an important driver in telematics development, as previously mentioned cases
like Europes eCall and Russias ERA-GLONASS system. In Brazil, the high level of vehicle theft and break-
ins has created a large vehicle tracking market and for the past few years Brazils National Department
of Transit Council, CONTRAN, has been working to develop a stolen vehicle tracking telematics decree.
The mandate, SIMRAV, requires that all new domestic and foreign vehicles sold in Brazil have to be
equipped with a GSM/GPRS anti-theft system device that allows remote tracking and immobilization in
the event of a theft.

Although the mandatory deployment schedule has been delayed a few times due to the concern with a
potential privacy violation by tracking vehicles without owners consent, OEMs in Brazil have begun to
invest time, energy, and resources into the development of Telematics solutions along with relevant
partners like wireless operators and Telematics services providers (TSPs).

Also, government initiatives are of particular importance in China where the government is taking an
active role in economic planning and development and the industry as a whole, with many supply chain
players wholly or partially state-owned, looking to the government for guidance and funding. There is a
great initiative from the government in China as it sees telematics as a new venue of GDP growth.

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The government is prioritizing the Internet of Things (IOT) project, with an emphasis on Connected
Cars development, as announced in October 2010. More than tens of billions of U.S. dollars will be
invested by the central government at the first stage. The market size of China's IOT industry was
expected to top about $30 billion in value in 2010.

According to the government, by 2020, the scale of connected cars is expected to reach about 200
million units. The project is intended to facilitate the Intelligent Transportation System and the
government will roll out relevant policies that would unite efforts from companies on the value chain,
such as automotive suppliers, chipset makers, software providers and wireless carriers, etc.
Insurance

The insurance business is another driver for embedded telematics solutions, particularly in the
aftermarket. Nearly every North American automobile insurance provider has some sort of aftermarket
program in place; however the take-up rate of these programs is still rather low. Convincing models that
are finding acceptance among users are teen driving programs where parents can monitor their
children's driving habits. In Europe, privacy concerns especially have been limiting the success of these
programs.
The Cloud

For purposes of our analysis the cloud refers to Open Internet content that is not protected by a walled
garden nor is tied to a specific device. Pandora is a classic example of tapping into the cloud from a
content standpoint, as is Google, Yahoo, Facebook, Twitter and many more. Ford's Traffic Directions and
Information is not cloud-based; it is a walled garden as devices other than SYNC cannot access it.
SYNCs other services, for example, go outside of the walled garden and tap into cloud based
applications such as Pandora, Stitcher, and OpenBeak.

Cloud-based content is another driver for connectivity in the car, as OEMs are always confronted with
the problem of delivering outdated content. Providing stagnant navigation data or outdated POI
databases is becoming more and more unacceptable. For auto makers and suppliers of infotainment,
the implications of cloud computing are very significant and this will lead to radical changes to how we
understand connectivity within the vehicle. Once connected to the cloud, everything else seems
irrelevant as on-board databases rapidly become obsolete.

Nowhere does this play out more than in navigation. Once connected to cloud-based solutions (such as
Google Maps, or Nokia's Ovi Maps) it is hard to stay relevant with onboard solutions. Three elements
within navigation: the roads, local POIs, and access to Location Based Services (LBS) content, all require
access to the cloud to stay current. The same can be said for traffic and localized incident data and other
time-sensitive content.
The Impact of the Smartphone

Never before has connectivity been as important as it has with the proliferation of smartphones. New
applications for smartphones are emerging everyday and consumers want to access many of these
services while driving. Examples are cloud-based navigation, Internet radio, social networks and LBS.

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Fueling this trend is a thriving ecosystem for new applications and services. The smartphone community
has seen thousands of new applications emerge, many of which are relevant in the car. The challenge to
the auto industry is how to keep drivers connected without creating too many distractions - one reason
why a well thought through Human Machine Interface (HMI) layer is becoming more and more
important to OEMs.

In fact, the HMI is important for all devices and has a major impact on how well products are liked and
how well these products succeed in the market place. In the auto industry the Infotainment HMI is even
more important because a bad HMI can add to driver distraction and can contribute to accidents,
property damage, injuries and loss of life.

Infotainment systems have expanded strongly in the last decade as more solutions and features have
been added, ranging from navigation and telematics systems to mobile music and other mobile devices
that interface to an infotainment system. These infotainment feature and capability expansions are also
adding to the HMI in terms of complexity and more items to manage and control.

Overall, IHS iSuppli believes that the smartphone will play an important role in infotainment-centric
applications that do not require 100% reliability at all times. When integrated smoothly, the smartphone
offers the driver a seamless transition between the home, car and work and all other aspect of life
where infotainment-centric applications come into play.

Connected services that rely on a mobile based connection may not work 100% of the time, but it does
offer connectivity at a lower price to the end consumer, particularly if an unlimited data plan is in
place.

Telematics Market Forecasts

According to IHS iSuppli worldwide automotive sales forecasts, which are included below for the regions
of interest, sales of passenger vehicles, including light trucks in the next decade will continue to grow
from over 57 million units in 2000 to over 99 million units in 2018. The strongest growth is coming in the
Asia-Pacific region, assisted predominantly by China, the biggest auto sales market in the world since
2009 as a nation. IHS iSuppli projects that by 2018, China will have 29% of the total worldwide auto sales
share, followed by North America and Western Europe, with 18% and 17% of the world share,
respectively.

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This auto sales data provides a solid base to estimate the market size of embedded telematics (including
OEM and Aftermarket) for the years spanning 2000 to 2010 and forecasts for the years spanning 2011 to
2018.
Depending on the market size of embedded telematics and estimated Average Unit Price (AUP) in
regions of West Europe, North Americas and Asia Pacific, the total telematics value in the OEM and
aftermarket segments in these regions can also be forecasted. The following charts intend to draw out
such a picture.
Overall, along with the worldwide auto sales growth, the embedded telematics market size and value in
both OEM and aftermarket segments will continue to rise across regions for the next decade. The AUPs
of these embedded telematics systems across regions are decreasing during the projected period, which
renders the telematics systems more affordable so that a wide-spread, massive scale of adoption is
possible.
The cheapest OEM embedded telematics system among these regions sold on average for $597/unit
(Asia-Pacific) in 2010, whereas by 2018, the cheapest OEM embedded system is estimated to be sold
averagely for $356/unit (WE region).

The aftermarket embedded systems, priced relatively low to begin with, do not vary drastically
regarding the AUP across regions, as compared to the OEM systems. The AUP in these regions will also
remain steady over time.
The Asia-Pacific region will have the cheapest aftermarket embedded system sold on the market
according to the system AUP. The AUP in Asia-Pacific region was $368 in 2010, and it is expected to drop
to $258 by 2018.

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The North American OEM embedded telematics market is the largest in the world and will remain the
leader during the forecast period. The automotive telematics industry in N.A. is more than a decade old.
GM sold the first embedded telematics systems in 1996, in the USA, and only a few thousand systems
were sold in the first year. However, sales of the OEM embedded telematics segments in N.A. reached
over 3.2 million units in 2010, and with the introduction of embedded telematics by Hyundai,
Volkswagen, Toyota/Lexus and the introduction of new Mercedes-Benz services, the OEM embedded
telematics sales is expected to significantly increase for MY2012/13. By 2018, the number is expected to
surpass 14 million units.

Another growth market is China, whose OEM embedded telematics systems will grow to over 7.4 million
in 2018. The mass deployment of OEM embedded telematics systems and the exponential auto sales
growth outcome in China since 2009 has helped the Asia-Pacific region secure second place with regards
to OEM embedded telematics, with 703K units sold in 2010 in the region, whereas the respective market
segment in W.Europe in the same year sold 508K units.

However, this position will be replaced by W. Europe, due to the expected eCall legislation taking effect
in the region in the next few years. The automotive embedded telematics industry in W. Europe took off
in 2000 with the introduction of systems like Volvo OnCall, BMW Assist and PSAs safety service,
Peugeot Connect and Citroen eTouch.The eCall mandate is projected to have a huge positive impact on
OEM embedded telematics sales in the region, which is expected to increase almost 31 times to 16
million units in 2018. In the same period, the respective sales of the Asia-Pacific region will be over 10
million units.

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As to the market value of OEM embedded telematics systems, N. America will increase from $2.1 billion
in 2010 to $6.7 billion in 2018. The Asia-Pacific region is likely to grow into a $4.3 billion business in
2018, from originally $419 million in 2010. Respectively, W. Europe will increase its business to $5.6
billion from $519 million.

Taking into account the aftermarket sales, the A.P. region has the biggest market size and will keep such
market status in the projected period. Its aftermarket embedded units sales grow from 647K in 2010 to
about 4 million units in 2018, whereas in W.E., the sales figures are 342K and less than 1.4 million,
respectively. In N.A., sales in the same market segment are 289K in 2010 and 3.2 million in 2018.

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In terms of total market value of aftermarket embedded telematics, the N.A. region is expected to take
the lead in the coming decade, with a total of $1.1 billion by 2018. In the same period, Asia-Pacific
countries are expected to rank second with a total of $1 billion earned, and the W. Europe market will
be as big as $491 million.

In sum, the total embedded telematics market size in N.A. will have a potential of 18 million units by
2018, which translates into a total of $7.7 billion. The market size in W.E. will surpass 17 million units in
2018, the second largest after N.A., with potential market revenue of $6 billion in total. The A.P. region
will come thereafter, with 14 million embedded telematics units sold in 2018 and a total market value of
$5.3 billion.
Telematics Market Status
North America Telematics Market

GMs decision to make OnStar a standard feature on all models by 2009 has put pressure on its
competitors to enter the telematics market. BMW and Mercedes-Benz were the only other OEMs to
provide embedded telematics. However, because they offer only luxury and premium vehicles, their

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impact has been limited. Mercedes-Benz first telematics services were called Tele Aid, which were
replaced by the mbrace service in November 2009, with the help of Hughes Telematics.

Toyota and Lexus also entered the market with the Safety Connect product as well as the Lexus-branded
Enform offering. Meanwhile, Nissan launched its CARWINGS Lite service with the introduction of the
new Leaf EV and Hyundai introduced its Blue Link service with the new 2012 Sonata and Veloster, with
the Azera to receive it in November at the LA Auto Show.

In the next two to three years, iSuppli expects all domestic and foreign OEMs will also introduce
embedded telematics and/or enhanced mobile device telematics systems with services similar to
monitored telematics systems.

With GM now selling just over 2 million autos (down from about 3 million in 2008) with embedded
telematics per year, GMs competitors have been forced to react. In response, Ford introduced SYNC in
late 2007 and has since added telematics offerings.

Mobile device telematics has been primarily used as a hands-free interface for mobile phone usage.
Fords SYNC system changed this pattern by adding an elegant hands-free interface for mobile music
devices. Ford has since added functions and services that were previously only done by embedded
telematics in the United States. Currently, Ford SYNC supports automatic crash notification (911 Assist),
remote diagnostics (Vehicle Health Report), a Traffic, Directions and Information service (TDI) and a Live
Operator Assist Service.

The addition of telematics services to simple hands-free mobile device systems will change the dynamics
of the telematics industry. Ford, more than likely Kia (UVO), GM (MyLink, IntelliLink and CUE) and other
OEMs can deploy mobile device telematics systems that can compete with and/or complement OnStar
type systems to some degree and can undercut costs.

Nearly 100% of auto models currently have Bluetooth-based mobile device systems, but only the Ford
brands have added telematics services. IHS iSuppli thinks that most mobile device telematics will follow
Fords example in the next two years.

The following table provides an overview of current and future market implementations in the North
American market.

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Western Europe Telematics Market

Embedded telematics systems have not taken off in Europe and remain the domain of a few auto
manufacturers. The European Unions directive on eCall that was discussed above will change the
market dynamics, but there is considerable uncertainty on when the mandate will take effect.

Aside from this significant game changer, there are already solutions in the market that offer different
levels of connectivity. Currently four OEMs representing seven brands have implemented embedded or
monitored telematics: BMW, PSA (Citroen, Peugeot), and Volvo.

Mobile device telematics systems are much more popular in Europe and have seen substantial
deployment. Initially the European OEMs primarily used cable and docking systems for hands-free
mobile phone systems. As Bluetooth mobile phones took off first in Europe, the OEMs quickly added
Bluetooth mobile device telematics systems. For MY 2011, in the big four European countries (France,
Germany, Italy, and the United Kingdom), 81.8% of all the models available offered Bluetooth.

The addition of telematics services to these simple hands-free mobile device systems will also change
the dynamics of the European telematics industry. Ford will introduce its SYNC system in late 2012 but
whether or not SYNC will include mobile device based telematics features is unclear, especially since
Ford North America has announced that it will add an embedded module to its product portfolio, at the
very least for its EV products.

Meanwhile, services that fall outside the safety and security scope have also taken off in Europe. OEMs
that offer connectivity for infotainment reasons include Audi, Mazda, Mercedes-Benz, Renault, Toyota

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and Volkswagen. The services rely on the users smartphone via various Bluetooth profiles (Mercedes-
Benz/Toyota), a cable based connections (BMW/Mini Connected) or an embedded SIM that is either
provided by the user (Audi only) or as part of the overall infotainment systems (Mazda/Renault/
Volkswagen).

The following table provides an overview of current market implementations in the European market.

Asia Pacific Telematics Market (Japan and Korea)

The automotive telematics industry in Japan is more than a decade old. Toyota sold the first telematics
systems in Japan in 1997. Telematics systems are navigation-centric in Japan, and most services are
focused on traffic information and other navigation-related services. Safety and security telematics is a
distant second to navigation services.

The first version of G-Book was introduced in October 2002. G-Book systems use a slower CDMA 2000
1x at 144 Kbps and are being phased out. G-Book Alpha was introduced as the successor to G-Book
telematics in 2005. G-Book Alpha is still available on some models in the current Toyota brand line-up
and on all Lexus models in Japan, but rebranded as G-Link. G-Link has been available on Lexus vehicles
since August of 2005 with an additional Lexus Owner's Desk operator service available exclusively for
Lexus owners.

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Toyota introduced its G-Book mX telematics service in May 2007. With the launch of G-Book mX, Toyota
also simplified its five user plans for G-Book mX and Alpha to two: a free version and a Pro version.
Toyota's G-Book Alpha Pro and G-Book mx Pro have an embedded communication module permanently
installed in the vehicle. The pro versions of G-Book Alpha and mX use an embedded CDMA2000 1x EV-
DO modem, which allows for automated collision notification and stolen-vehicle tracking.

Honda launched its first monitored telematics service in Japan in 1998, which was upgraded to Internavi
Premium Club in 2002. In September 2003, in order to differentiate Honda Internavi from its
competitors, Honda launched an innovative probe-car traffic-data-collection system called Floating
Car traffic information. The system used the telematics link to collect real-time traffic data from each
Internavi navigation system.

In February 2010, Honda launched free Internavi Premium Club telematics service on its new hybrid CR-
Z called LinkUpFree, which uses a data communication module from Willcom and Honda connected to
the vehicle via a USB port. The system used Willcom's PHS data communication service and features
'One to One Direct Messages' based on criteria such as vehicle mileage, season, and location, etc. on top
of the existing Internavi Premium Club telematics service and sends such information to the car
navigation system. The system is automatically connected to Internavi Information Center while driving
and transmits real-time probe data on a regular basis, which increases the volume of Honda's traditional
probe collection.

In 2011, Honda announced to expand its LinkUpFree telematics service on all upcoming Honda vehicles,
starting on the Fit Shuttle model launched in March. Honda also upgraded a DCM from the PHS network
to the 3G network with a USB DCM.

Nissan has also offered telematics systems in Japan since 1998. Nissan offers factory-installed Carwings
or its Operator Service monitored telematics as a factory option.

In 2011, Nissan launched a new telematics program to support the Leaf. The Leaf features a Carwings
navigation system developed specifically for electronic vehicles. The navigation system uses a Telematics
Communication Unit (TCU) to connect to the service center. The navigation system displays the battery
status and provides the latest EV charging station information. In addition, it offers remote control
functions such as initiating charging and setting air conditioning via iPhones or Android OS handsets. The
owners are notified of the charging status and can contact the EV customer Center via the handsets.

In Korea, currently the only embedded solution left on the market is the Mozen system from Hyundai,
which is offered on some Kia models as well. Mozen was developed in partnership with IBM, LG
Telecom, and Hyundai-Kia Motors since 1997 and was launched in 2003. With the newer Mozen head
units, the basic Safety (automatic collision notification (ACN), SOS emergency rescue service, stolen
vehicle alert and tracking) and Car Care services (remote diagnostics, remote door lock/ unlock, parking
place reminder) are free for the first 2 years.

Renault Samsung Motors was the pioneer of mobile device based telematics in the past, although there
is currently a hiatus in such services due to the lack of compatible phones. However, the OEM
announced in April 2011 that it signed an agreement with SKTelecom, where its vehicles in 2012 will
feature off-board SK services such as T map navi and music streaming from Melon. Whether safety
and security like SOS calls will be offered again via the wireless carrier is unclear at this point.

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The following table provides an overview of current market implementations in the Japanese and
Korean market.

BRIC Region Telematics Market Status

Only a few additional countries offer OEM monitored telematics services, but IHS iSuppli expects the list
to expand in the next five years, particularly in the BRIC region where auto sales are rapidly rising driven
by the drastic economic growth as compared to the western world yet the telematics development is
still at the infancy stage, if there is any. The following table summarizes the current telematics status
and future trend of these four countries, Brazil, Russia, India and China.

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China

China is already the most important new country for monitored telematics due to the disproportionate
sales volumes that are expected in the years to come. Since 2009, China has surpassed the USA to
become the biggest auto market in the world. It sold about 17 million passenger vehicles and light trucks
in 2010. IHS iSuppli estimates that by 2018, China will have 29% of the total worldwide auto sales share,
followed by North America and Western Europe with 18% and 17% of the share, respectively.

Domestic automotive OEMs are taking the lead regarding telematics deployment in China. Many of
them have launched services or plan to launch services on the market soon. Foreign companies appear
more cautious of jumping into telematics without knowing if it is the right time. However, almost all of
them emphasized their future focus on China, although oftentimes without mentioning solid timeline or
partnership details.

For example, Mercedes-Benz has shared its experience of promoting Smart Drive telematics services in
other markets with the Chinese industrial audience at a few conferences. PSA also endorsed Genivi to
fulfill its customers' telematics needs and suggested Chinese telematics players take advantage of this
new open alliance. PSA is very likely to launch telematics services in China some time in 2013.

It is no surprise that foreign OEMs are more cautious, as they are more concerned about quality than
Chinese car makers who traditionally make low quality lower-end cars. Furthermore, even though the
foreign companies have mastered the know-how, many sectors of the telematics business in China are
safely guarded by different government policies. It takes time for these companies to get the licenses
ready or match up with right local partners.

Nonetheless, it is foreign OEMs who grabbed the first spotlight of the telematics scene. In March 2009,
Lexus introduced the first G-Book-equipped vehicle to the Chinese market, while Toyota followed in
May of the same year. Similarly, OnStar and its Chinese partners launched telematics systems in
December 2009.

Entering 2010, China turned into a fierce battleground for telematics services and systems. SAIC
introduced an Android-based inKaNet infotainment headunit that connected via an embedded 3G SIM
card. The inKaNet system does not come with traditional safety and security services, although SAIC
Motor plans to enable remote diagnostics, roadside assistance, and similar features to this system in the
future.

Similarly, Chinese OEM Hawtais Meego-based embedded TIVI system focuses mostly on infotainment
features although it also comes with call center services. In late November 2010, Nissan Carwings
officially hit the Chinese market.

Year 2011 witnessed a telematics deployment show-off by Chinese OEMs Geely, Changan Auto, FAW,
Dongfeng-Yulon, and BYD. Their prototypes or concepts debuted in the past two years all came to life
after the 2011 Shanghai auto show. In particular, BYD in late October 2011 beat Nissan and GM in
launching an EV for China with the BYD e6, the first EV for mass consumers in China. The e6 comes with
a 3G-connected embedded telematics . Like OnStar, BYD telematics system also allows users to remotely
control and monitor their cars via their smartphones.

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So far, all of the available telematics systems on the Chinese market are embedded and most of them
offer a full list of traditional telematics services, including call center, navigation, real-time traffic, and
safety and security services. Even if the traditional safety and security telematics services are not the
focus of telematics, like in the SAIC inKaNet case, technically such services can be easily incorporated as
the system employs embedded technology.

Moreover, as OnStar pointed out, Chinese call centers play a more pivotal role in customer service
compared to other countries, with Chinese consumers typically preferring the human connection. That
is also in line with Toyotas statement regarding Chinese G-Book subscribers. Toyotas study showed
that among all G-Book services, Chinese use the operator service for navigation and destination
downloads the most. The preference for direct personal assistance while driving, therefore, explains
very well why almost all current Chinese OEM embedded telematics systems feature call center services,
as well as a common design that enables direct calling to call center by simply pressing one button on
the headunit screen or steering wheel control.

Because of the network coverage issue as well as market differentiation of customer demands, so far
most of the telematics activities are focused on the east coast regions and tier-one cities, including
Beijing, Shanghai, Guanghzhou, Shenzhen, Chengdu, Chongqing, Nanjing, Shenyang, Wuhan, Ningbo,
Qingdao, Hangzhou, and most of the capital cities of each province.

Brazil

Volvo Cars is the first OEM in Brazil to offer embedded Telematics services that address all the demands
for the implementation of the mandatory tracking and immobilization device by the government. Volvo
OnCall, with WirelessCar as the service provider, was officially launched since December 2010 in Brazil
and the services are free for the first two years.

So far, WirelessCar is the only certified service provider in Brazil to offer embedded end-to-end services
that includes a call center and GPRS telecommunication link and services. Possible services over and
above the required tracking and immobilization include safety and security, remote services, remote
diagnostics and mobile applications.

While in its early stage, Brazilian consumers have also experienced Telematics services through devices
via the aftermarket. According to the Brazilian National Department of Transit, a large number of
companies that previously were only selling hardware are now certified to provide vehicle tracking and
monitoring services in compliance with the SIMRAV resolution, a mandate for anti-theft system device
installed in-vehicle for stolen vehicle tracking in Brazil.

Furthermore, the consolidation of the Telematics market is completely changing the scenario in Brazil,
where both OEMs and TSPs are moving in the right direction to offer additional ways to prevent vehicle
theft through smartphones and embedded telematics systems.

Russia

In August, 2008, WirelessCar introduced Volvo OnCall telematics to the Russian markets. The service
portfolio includes eCall, SOS, bCall, remote door lock/unlock as well as stolen vehicle notification and
tracking provided by AutoLocator in Russia. With the help of mobile operator VimpelCom, WirelessCar is
the first to offer an OEM telematics solution in Russia. Volvo OnCall is available in Moscow, St.

18

Petersburg, and surrounding regions as part of a premium package, including 2 years of free service and
the RTI navigation system. Volvo is expecting a take rate of 25%, basing it on the overall growth of the
market and the increasing need for safety and security services in Russia.

As discussed earlier, Russia is working on a mandate to equip all new vehicles with an ERA-GLONASS
system that features Automatic Crash Notification and SOS Call. According to the federal network
operator, NIS GLONASS, the mandate to equip all new vehicles with an ERA-GLONASS receivers will start
in January 1, 2013, with the system scheduled to go on-line in 2014. However, no formal regulatory
mandates have been adopted.

If the proposed mandate is employed, the in-vehicle telematics attach rate is expected to increase to
100%. However, IHS iSuppli believes even if the mandate is passed, it is unlikely that Russia will strictly
enforce the 2013 deployment date. A delay of a year or so is very possible.

India

Overall, telematics for passenger vehicles in India is still an untapped market, although it presents huge
growth opportunities due to increasing vehicle sales. India in the meantime is getting its infrastructure
ready for the mass deployment of OEM-embedded telematics. For example, in December 2010, India
and Russia signed an agreement to share high precision signals from Russians Global Navigation
Satellite System (GLONASS) for both civilian and military purposes.

Russia and India agreed on a joint venture to provide navigation services in India, including joint
production of navigation products for civilian users. According to the statement, the agreement grants
India access to Russia's GLONASS navigation signals for peaceful purposes, and calls for joint
development and technology protection under long-term cooperation through development of
infrastructure, provision of navigation services in India, a joint development of telematics terminals and
Personal Navigation Devices (PNDs) on GLONASS/GPS/IRNSS (Indian Regional Navigational Satellite
System) based in India for civilian users, as well as production of GLONASS/GPS/IRNSS chipsets for sales
and after-sales support and service. If successful, the partnership could have implications for the US and
Chinese markets.
Wireless Trends and Carrier Involvement
Embedded Cellular

Embedded cellular connections will remain the wireless choice for auto centric applications due to their
higher reliability for safety-related functions. Embedded cellular technology will follow the mainstream
wireless cellular trends. Hence embedded wireless will not move to next generation technologies until
they are well established with mature pricing, large geographic coverage, and high reliability. Regional
difference will remain a problem, but LTE will merge the two main technologiesCDMA and
GSM/WCDMAand this will help, but the main impact will come after 2015.

The best way to understand the trend is to look at IHS iSupplis estimate of wireless subscriber trends by
wireless technologies as seen in the next table. The 2G subscribers will account for over 50% of the total
through 2015 on a worldwide basis, while LTE will just pass 10% in 2015.

19

Worldwide Cellular Subscribers by Technology

The next table shows the likely trend for embedded wireless technologies in auto systems. There are
regional differences as shown in the table. CDMA2000 has done well in embedded telematics because
the leading supplier, GM, has used CDMA for its OnStar systems. Toyota has also used CDMA in Japan.

Embedded Telematics Trends

In summary, embedded telematics are likely to continue using 3G and 3.5G technologies until 2015 in
the developed countries and even longer in other areas. LTE will be the dominant 4G technology for the
mobile phone industry and for the auto industry. WiMax has missed its opportunity to become a
mainstream technology, but will become a niche technology in most regions.
Mobile Device Telematics

Mobile device telematics leverage the drivers mobile phone to get a communication link to the car. In
the past, the need for a hands-free interface (HFI) for using a mobile phone was the focus of mobile
device telematics systems. The next step was to add telematics services and use the mobile phone as
the communication link, which was pioneered in Japan for navigation and traffic services. Ford SYNC
became the defining system because its success made Ford a technology innovator instead of a
telematics technology laggard. The trends are summarized in the next table.

20

Mobile Device Telematics Trends

A third trend is emerging rapidlythe use of a Smartphone as the communication link and then using
the hundreds of Smartphone apps that can be useful in the car. Additionally the Smartphone has
become a multi-media communication link that has added texting, email and other communication
activities while in the car. These activities can be very distracting, but since many drivers will do so
anyway, there is a strong need for technology-based solutions that integrate these Smartphone apps
with the head-unit HMI with much lower driver distraction. The mobile phone wireless technologies will
follow the trends shown above in the embedded cellular section.
Quality and Automotive Requirements

Automotive electronics have to undergo stringent tests and have some of the toughest quality
requirements for both manufacturing processes and product specifications.

These specific requirements are necessary to ensure devices withstand in rough environmental
conditions for the entire lifecycle of the vehicle, which still remains in the range of 7 - 10 years.
The more complex production and testing process required in automotive, together with advancing
design and technology requirements, results in additional production costs for manufacturers of
automotive grade devices.

Various levels of screening tests are put in place not just during qualification, but often during
production, in order to ensure adequate PPM levels at the dock. As an immediate consequence,
automotive grade components employ longer production times and higher scrappage rates.

Furthermore, automotive industry suppliers have to maintain defined products available on the market
for longer periods of time, in accordance with planned vehicle production. This time frame, being
generally longer than semiconductor technology cycles, will also impact the overall cost position of the
products.

21

All of the reasons mentioned above, allow suppliers of automotive grade devices to offer their products
at a premium price, as it takes higher production costs and lower production volumes into account.
Higher ASPs are justified, when compared with more commoditized parts for consumer or IT segments.
Specifically for the electronics module market, which is one level higher than semiconductor in the
supply chain, automotive requirements are usually dictated by Tier 1 suppliers together with automotive
OEMs.

Despite the fact that often no standard specifications are available, there are a few de-facto standards
that are commonly accepted. One of these includes the automotive grade operating temperature range
of -40 to 85C (also known as industrial or extended temperature range). Temperature requirements are
a key factor since thermal stability is one of the most complex issues, requiring control while at the same
time ensuring full specification behavior of the part, in terms of performance.

Other requirements for automotive M2M modules are generally associated to robustness and extended
performance. Additional examples of automotive requirements are represented by humidity up to 95%
non-condensing and operating vibration in the range of 5.0g RMS 24-1000Hz (3 Axis). Lastly, shock is
necessary to be at 40g/11ms (per axis) for heavy duty vehicle appliances (according to the SAEJ1455).

Among the other qualification procedures, some manufacturers also include accelerated life stress test
and temperature shock tests up to 1000 cycles in order to be sure of maintaining their products within
the expected PPM (part-per-million) levels.

In order of magnitude, IC components for automotive applications target 0 defects, and several IC
manufacturers provide components ensuring 0 or 1 PPM. Moving up in the supply chain to the module
level, these PPM targets are more difficult to achieve and suppliers provide parts within the range of 5
PPM. At the ECU level, the PPM rate is expected to be in the range of 300.

On top of component screening to attain the expected PPM needed for automotive use, several more
steps have to be taken to ensure that the appropriate manufacturing process flow is in place. This is
where the ISO/TS16949 or the APQP (Advanced Product Quality Planning) and PPAP (Production Part
Approval Process) standards are applied. These target a well-controlled and structured manufacturing
production flow and are able to reduce to the minimum the number of errors, while ensuring customers
have suppliers with a clear understanding of system requirements and time schedule.

As an example, in the implementation of such procedures, each supplier provides customers with check
lists and process tracking information; traditional DFMEA (Design Failure Mode Effect Analysis) and PCN
(Product Change Notification) are part of such deliverables that suppliers need to offer their customers
as a reporting tool and process traceability.

Specifically, for high frequency applications like wireless modules, manufacturers have to navigate
through governmental regulation with approvals and certifications according to tight standards and
directives. Entities like the Federal Communication Commission will need to provide approval of such
electronic equipment, as will other governmental entities like ETSI in the EU.

Finally, the module will have FCC, IC, and CE marks stating product conformity level with regards to radio
spectrum, EMC, safety, electronic pollution and more. Without these markings, the module or device is
not certified for use in a production vehicle.

22

What is a wireless module?

The main electronics parts that make up a wireless module can be summarized as follows:

Digital/analog baseband processor, caring for all signal processing
Non-volatile memory (e.g. NOR Flash memories with serial, or parallel, input/output
architecture) to store firmware and code
PSRAM as volatile working memory
Antenna and antenna diversity circuitry
TX/RX structure (like RF front-end, amplifiers, transceivers)
Clock generator for signal Synchronization
Filters
Application interfaces like USB, I2C, SPI, SIM interface, analog and digital audio output.

In terms of signal coverage, at the moment wireless modules support several features from
HSPA/UMTS, Quad-Band GSM, GPRS, GPS, and are also compliant with recent telematics directives like
the European eCall.

Market Players

In the wireless module industry for automotive segments, competitive analysis shows two major players
together having an overall share in the range of 70% of total available market. These two module
manufacturers are Sierra Wireless and Cinterion which are offering the automotive market with a broad
range of wireless module solutions and with an experience matured through several years in the field.

According to 2010 market figures, Sierra Wireless dominated the ranking, resulting in about a 45%
market share in Automotive for wireless modules.

In addition to these two players, the automotive market has attracted more players to enter this
segment, not only among module manufacturers. Among those, the following suppliers should be
mentioned: Telit (wireless module maker, ranked in 3
rd
position), Peiker, Sagem and uBlox. The last
manufacturer, known for its GPS solutions, is trying to enter the market after the acquisition of
Neonseven back in 2009.

Conclusion

As explained in this white paper, the automotive market for wireless and cellular modules looks very
promising for the future, due to the expected enhancements of in-vehicle infotainment and telematics
systems and relative services.

Despite the present and emerging mobile connectivity trend, embedded wireless modules are expected
to grow significantly. Such growth is fostered by stringent quality requirements, mainly driven by OEMs
reliability standards, which the handheld approaches will never be able to fulfill.

23

Tight automotive requirements are also expected to be in place to sustain the growth of safety and
security critical equipment that will be mandated following governmental regulations, such as eCall in
Europe. The European eCall regulations will in fact force all new vehicles by 2015 to adopt a connectivity
link for emergency call.

The expectation is that eCall will have a significant catalyst function for telematics, allowing several
additional services layered on top of the basic emergency call. Remote Diagnostics, Remote Vehicle
Control, Update/Upgrades of Vehicle Software, Electronic Toll Connection, Customer Relation
Management, bCall, eCall, EcoDriving, Off-Board Navigation, Mobile Search, and Insurance Services are
just a few of the potential applications which can enhance the in-vehicle experience thanks to the
communication link implementation.

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About IHS iSuppli Inc.

In November 2010, IHS Inc. acquired iSuppli Corp. IHS iSuppli is the global leader in technology value chain research and
advisory services. IHS iSuppli provides market intelligence services for the EMS, OEM and supplier communities in addition to
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