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Equity Research

Center for Automotive ResearchAutomotive Outlook

August 2021Colin LanganWells Fargo Securities Senior Equity AnalystAutos & Mobility 212-214-8228 | colin.langan@wellsfargo.com

Please see page 22 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 08/03/2021 unless otherwise stated.Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

A Look at the Key Industry Trends

•What is the outlook for US auto sales? •What is driving electric vehicle growth? •When are we going autonomous? •How does this impact suppliers?

2

US Auto Sales Outlook

3

Welcome to a Supply Drive Auto World…

4

US Inventory Days on Hand by Automaker (6/2021)

US Inventory Days on Hand

Source: Wards Auto; Wells Fargo Securities LLC Source: Wards Auto; Wells Fargo Securities LLC

27

63

0

20

40

60

80

100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMax/Min* 2021 Average

* excludes large outliers

4338

3330 28 28 26 23

19

27

0

10

20

30

40

50

Stellantis Daimler Ford BMW Hyundai Nissan GM Honda Toyota Total

020406080

100 Ending Month 5 Year Average

US Inventory Days on Hand by Product (6/2021)

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

$30,000$32,000$34,000$36,000$38,000$40,000$42,000$44,000

Aug-

14

Jan-

15

Jun-

15

Nov

-15

Apr-1

6

Sep-

16

Feb-

17

Jul-1

7

Dec

-17

May

-18

Oct

-18

Mar

-19

Aug-

19

Jan-

20

Jun-

20

Nov

-20

Apr-2

1

% D

iscou

nt to

MSR

P

US A

vera

ge N

ew V

ehic

le

Pric

e

Avg New Vehicle PriceDiscount

Source: Wards Auto; Wells Fargo Securities LLC Source: Bloomberg; Wells Fargo Securities LLC

Average US New Vehicle Pricing

Semi Time Line & Outlook

5

Q2 2020 • OEMs Cancel Semi Orders During COVID

Q4 2020

• Rapid Demand Recovery Drives Global Production Up 86% from Q2

December 2020

• VW, Conti, Bosch Warn of Semi Shortage Risks

February 13th, 2021

• Texas Winter Storm Impacts Infineon & NXP Production

March 19th, 2021

• Renesas Fire

Current• Rising Panic Driving Double Ordering, Etc.

• Infineon & NXP plants 100% by April

• Renesas Naka at 100% by end of June

• Non-auto demand normalizing

Relief is on its way, but auto demand will likely exceed supply until mid 2022

Signs of Relief

Source: Wards Auto; Wells Fargo Securities LLC

Battery Electric Vehicle (BEV) Outlook

6

Battery Costs Outlook

7

$105

$70-77<$60

$0

$20

$40

$60

$80

$100

$120

$140

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

BEV Battery Cost Outlook Ending 2020 ($/kWh) BEV Battery Cost Ending 2020 vs. ICE Cost ($/kWh)

Source: Wells Fargo Securities, LLC estimates Source: Wells Fargo Securities, LLC estimates

$5,775

$2,000

$4,350

$920

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

BEV ICE

Battery Cells Battery Pack Core Engine

Transmission Emissions

$5,500

$7,775

Solid State

• Battery Cost Trending to $70-77/kWh by 2025

• Solid State Batteries Could Bring Costs Below $60/kWh

Total BEV Powertrain Cost Parity

8

E-Powertrain Cost Ending 2020 vs. ICE Cost ($/kWh)

Source: Wells Fargo Securities, LLC estimates

$5,775

$2,000

$1,700$1,050$730

$4,350

$920

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

BEV ICE

Battery Cells Battery Pack eDrive & Inverter Power Electronics

Other Core Engine Transmission Emissions

$5,500

$11,255

Inverter

Vehicle Electronics

Battery Pack

Home Charger

Battery Cells

Electric Motor & Gearbox

Power Distribution

ModuleOn Board Charger

DC/DC Converter

AC

12V DC

DC

AC

Battery Management System

BEV Powertrain Diagram

Source: Wells Fargo Securities, LLC estimates

• BEV E-Powertrain Costs Add ~$3,500 to the Total BEV Cost

• All-In a BEV is ~$5,755 most costly than an ICE…ending 2020

Cell Costs: Significant Raw Mat Headwinds

9

BEV Battery Cost Outlook Current ($/kWh)

Source: Wells Fargo Securities, LLC estimates

Source: Wells Fargo Securities, LLC estimates

50

70

90

110

130

150

170

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Dec

-16

Mar

-17

Jun-

17Se

p-17

Dec

-17

Mar

-18

Jun-

18Se

p-18

Dec

-18

Mar

-19

Jun-

19Se

p-19

Dec

-19

Mar

-20

Jun-

20Se

p-20

Dec

-20

Mar

-21

Jun-

21

Weighted EV Battery Raw Material Index Price Per Cell

Source: Bloomberg; Factset; Wells Fargo Securities LLC estimates

+40% y/y

~$140

$70-77<$60

$0$20$40$60$80

$100$120$140

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Raw Mat HeadwindBase Cost Per kWh

E-Powertrain Cost Current vs. ICE Cost ($/kWh)

$7,700

$2,000$1,700$1,050

$4,350

$920

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000

BEV ICE

Battery Cells Battery Pack eDrive & Inverter Power Electronics

Other Core Engine Transmission Emissions

$5,500

$13,180

• BEV Raw Material Costs are up over 40% Y/Y

• This adds ~$35/kWh or $1,925/vehicle in costs

• This implies ~$7,680 gap with ICE

BEV Cost Parity Math

10

BEV vs. ICE Up-Front Cost Parity Outlook

Source: Wells Fargo Securities, LLC estimates

$4,000$5,000$6,000$7,000$8,000$9,000

$10,000$11,000$12,000$13,000$14,000

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

BEV ICE

$0.20 $0.27

$0.09

$0.11 $0.05

$0.04 $0.09 $0.03

$0.00$0.05$0.10$0.15$0.20$0.25$0.30$0.35$0.40$0.45$0.50

ICE BEV

Depreciation Insurance Maintenance Fuel

$0.43 $0.45

Source: Wells Fargo Securities, LLC estimates

BEV vs. ICE Total Cost of Ownership Outlook (150k Miles)

• Regulations are driving ICE costs higher

• Estimate up-front cost parity by end of decade

• Total cost of ownership (TCO) also challenging until BEV prices (costs) come down

BEV Forecast

11

BEV Forecast by Region

Source: IHS: Wells Fargo Securities, LLC estimates

• Government is critical in pushing BEV adoption– Need Credits to Fund the Added BEV Costs – Need Funding for Charging Infrastructure– US Needs Massive Investment Around Entire Battery Supply Chain, including chemical processing

2%4% 5%

1%3.0%

8%

18%15%

3%

11.0%

16%

31%33%

6%

22%

0%

5%

10%

15%

20%

25%

30%

35%

North America Europe China Rest of World Total

2020 2025E 2030E

Autonomous Outlook

12

Level 2 vs. Level 4/5

• Level 1: adaptive cruise control; auto emergency braking (AEB)

• Level 2: lane keeping; auto park assist; advanced AEB

• Level 2+: highway driving assist; traffic jam assist; auto park; park valet

• Level 4/5: no human oversight

13

$300

$500

$1,000

$0

$200

$400

$600

$800

$1,000

$1,200

Level 0/1 Level 2 Level 2+

Note: Estimates as of June 1, 2021Source: Company reports; Wells Fargo Securities, LLC estimates

Note: Estimates as of June 1, 2021Source: Company reports; Wells Fargo Securities, LLC estimates

Estimated ADAS Content Opportunity by Level Level 1 to 2+ Autonomy Outlook

16%

6%1%

43%

17%

3%

33%

23%19%

0%

10%

20%

30%

40%

50%

L1 L2 L2+% o

f Glo

bal V

ehic

les

with

Te

ch

2020 2025 2030

Advanced Driver Assistance System (ADAS) Levels • Significant growth and content opportunities for Level 2

and Level 2+ systems

• “Scale” Level 4/5 end of decade at the earliest

Who’s Leading in Full Autonomy?

14

Autonomous Rideshare Startup Valuations

Source: Various Media Reports including CNBC, Bloomberg, Venture Beat, The Verge, and TechCrunch; Wells Fargo Securities, LLC

• Recent funding valuations for autonomous startups range from about $30bn to $1bn

• Top Autonomous Rideshare leaders likely hard to catch up to

• Shift to delivery focus

$30.0 $30.0

$13.0$7.0 $5.3 $4.0

$1.3

Waymo Cruise Aurora (UberATG)

Argo AI Pony.ai Motional Zoox

$ bi

llion

s

Date: Mar-20 Jan-21 Nov-20Jul-19 Jul-20Sept-19Nov-20

$7.7$5.2 $5.0 $3.3

TuSimple Embark Nuro PlusAI Inc.

$ bi

llion

s

Date: Jul-21 Nov-20Mkt Cap 8/3/2020 May-21

Autonomous Delivery Startup Valuations

Source: FactSet; Various Media Reports including CNBC, Bloomberg, Venture Beat, The Verge, and TechCrunch; Wells Fargo Securities, LLC

Autonomous Rideshare Economics are Challenging

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• The math behind the savings of autonomous rideshare is more challenging than most realize.

• AV delivery economics easier since the driver is part of the cost

• Smart way to prove out the technology earlier

Operating Cost Per Mile of Taxi Today

Estimated Autonomous Rideshare Cost Per Mile Today

Note: Analysis as of June 1, 2021Source: Nunes Driverless Taxi Cost Study; Wells Fargo Securities, LLC estimates

Note: Analysis as of June 1, 2021Source: Nunes Driverless Taxi Cost Study; Wells Fargo Securities, LLC estimates

$0.36

$1.58

$0.67

$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60$1.80

Cost ExDriver,

Dispatch, &Medalion

Finance Cost Tele-Ops Profit 52%Utilizatoin

PersonalOwnership

Autonomous Delivery Economics Today

$2.55 $2.02

$3.95 $3.29

$2.09 $1.81

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

Heavy Heavy AV Medium Med AV Light Light AV

Note: Analysis as of June 1, 2021Source: Wells Fargo Securities, LLC estimates

Tough Outlook for Traditional Suppliers

16

$13,723

$14,786

$314

$188 $11

$565

$405

$1,334

$638$202

$472

$12,500

$13,000

$13,500

$14,000

$14,500

$15,000

2021E Raw Mat Interiors Body Electronics ICE Adds Other ICE EV Cells EV Packs Other EV 2031E

What Parts of the Vehicle Will See Growth?

17

Content Per Vehicle 10 Year Outlook

Note: Analysis reflects estimates as of June 1, 2021Source: Company reports; Wells Fargo Securities, LLC estimates

• The market opportunities are shrinking for traditional suppliers

• Most part of the vehicle under pressure from pricedowns

• E-Powertrain and Electronics still growing

E-Powertrain Competition Very Tough

18Source: Company Reports; Wells Fargo Securities, LLC estimates

Content Per Vehicle Valeo Bosch Vitesco

(Conti) BWA MGA LG Electronics

Hyundia Mobis Hitachi Denso Aisin Mitsubishi

Electronic ZF Melrose Nidec

Electric Motor $700 *

Electric Gear Box $400 *

Inverter $600 * ** LG has assembled these in the past but some of the design work was done by customers; Melrose partners with Delta Electronics on interters

Content Per Vehicle Valeo Vitesco

(Conti) BWA LG Electronics MGA Denso Mahle Hanon APTV TEL Yazaki Sumitomo Leoni LEA

Climate RelatedPTC Heater $150

Electric AC $200

Wiring RelatedHV Wiring $200

Charge Cord $150

Content Per Vehicle Valeo Bosch Vitesco

(Conti) BWA MGA LG Electronics

Hyundia Mobis Hitachi Denso TEL Mitsubishi

Electronic Sumitomo Hella APTV VC LEA

BMS $200 *

On-Board Chargers $400

DC/DC Converter $150 *

PDM $300 *

* Will largely be supplied though JV with LG Electronics

• Over a dozen major suppliers looking at E-Powertrain

• High in-sourcing risk

• Need breadth of technology as e-powertrain systems consolidate

• Need scale to make the economics work

Major Suppliers E-Powertrain Products

Similarly Tough in Auto Electronics

• Largest Global Suppliers Already Dominating ADAS Market

• Infotainment & Other Segments Relatively Fragmented

• Core Technical Competences Different

19

Bosch Continental

Valeo Aptiv

Magna / Veoneer ZF

Leading Global ADAS Suppliers

Source: Company reports; Wells Fargo Securities, LLC

Thanks!!

Please reach out at colin.langan@wellsfargo.com!

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Disclosures

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Disclosures

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Disclosures

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