Global Industry Trends & China Market Update Industry Trends & China Market Update December 2016 Autofacts Seminar PwC Autofacts ® Growth of a Global Industry 2 1 Growth of a Global

Global Industry Trends & China Market Update

www.pwc.com

December 2016Autofacts Seminar

Pw C Autofacts ®Pw C Autofacts ®

Growth of a Global Industry

2

1 Grow th of a Global Industry


The global automotive industry is a growth industry and China continues to be the most important growth driver

57.9

13.2

12.15.0 88.2

4.5

9.7

8.8 111.2

-

40

80

120

2009 Triad China ROW 2015 Triad China ROW 2022F

Global Light Vehicle Assembly2009 vs. 2015 vs. 2022 (millions)

Source: Autofacts 2016 Q4 Forecast Release Triad = EU, NAFTA, Japan *Compound Annual Growth Rate

CAGR*09 – 22

3.6%

5.0%

5.2%

8.6%

CAGR*15 – 22

1.4%

5.2%

3.4%

5.1%

Total

Triad

China

ROW

Additional production volume+23.0m

Additional production volume+30.3m

Annual growth: 6.2%+4.3m per year

Annual growth: 3.4%+3.3m per year

3



Sales

Assembly

2016 2022 2016 2022

Global: Light Vehicle Sales vs. Assembly2016 – 2022 (millions)

Source: Autofacts Analysis, Autofacts 2016 Q4 Forecast Release

China

4.9m2016 2022 2016 2022

31.8 25.5 33.024.9

NAFTA

19.821.0 21.6 17 .7

Japan

2016 2022 2016 2022

4.7 4.8 8.28.2

South Korea

2016 2022 2016 2022

4.11.6 1.5 4.3

Growth in global vehicle assembly follows demand, but also leverages location factors and free trade agreements

18.3m 15.8m2016 2022 2016 2022

EU + EFTA

20.217 .0 20.1 19.0

23,4

RoW

2016 2022 2016 2022

24.3 32.1 25.516.7

4



Global production capacity is growing almost exclusively in Asia-Pacific

1.3

2016 2022

European Union

19.3 22.5

2.9

2016 2022

North America

5.8 6.4

0.6

2016 2022

South America

1.1

2016 2022

Eastern Europe

3.7 4.4 0.7

2016 2022

Middle East & Africa

68.1 77.0

9.0

2016 2022

Asia-Pacific

Global Light Vehicle Assembly Capacity2016 – 2022 (millions)

Source: Autofacts 2016 Q4 Forecast Release

+7 plants

+209 product launches

+6 plants

+301 product launches+6 plants


+0 plants


+5 plants


+14 plants


5



Question

Who will be the leading global OEM by assembly volume by 2022?

“

a

b

c

GM

VW

Toyota

6



Top Five OEMS all forecast to capitalise on global demand growth

-

2

4

6

8

10

12

14

1990 1995 2000 2005 2010 2015 2020

Top 5 OEMs by Global Assembly Volume1990 – 2022F (millions)

VW Group

Toyota Group

GM Group

Renault-Nissan

Hyundai Group

CAGR1990 – 2022F

4.2%

2.6%

1.3%

7.6%

2.0%


7



1.5% 1.6%

2.6% 2.6%

3.2%3.5%

4.1%

4.9%

5.8%

6.8%7.2%

8.0%8.5%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

0

2

4

6

8

10

2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Alternative Fuel Vehicles2010 – 2022F (millions)

Hybrid (Mild + Full) Plug-in (PHEV) Pure Electric (PEV) Fuel Cell (FCV) Market Share (R-Axis)

Strict fuel economy limits in all major global markets are expected to drive a significant increase in alternative fuel vehicle production

Looming emission standards, particularly in Europe, are expected to drive a significant increase in alternative fuel vehicle production as manufacturers fight low oil prices and waning consumer demand for fuel efficient products.

Source: Autofacts 2016 Q4 Forecast Release *Includes mild & full hybrid

8



China Automotive market 2016 and beyond

9

2 China Automotive market 2016 and beyond


Housing Bust

Risk

Economy outlook – A slow but sustainable growth will be the trend in the following few years. Challenge will be coexist with opportunities.

China: GDP Growth2006-2021F

Sou rce: IMF Forecast

Excess

capacity

Potential Domestic

Consumption

Credit and Corporate

Debts

Expanding Service

Industry

Acceleration in

Urbanization

Industries

upgrade

Lack of Technology

Innovation

Consumer sentiment down as export and fix asset investments

began to slow down and consumption slowed

GDP growth drops below 10% due to the global financial crisis;Chinese government launches

40 trillion RMB economic stimulus package

While GDP continued to slow in 2015, several measures taken by the central government are likely

to keep growth between 6.0-6.5% in the near to midterm

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F

9.6%

7.7%6.9%

10



Source: CBU

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

-

2

4

6

8

10

12

14

16

18

20

22

24

26

2006 2008 2010 2012 2013 2014 2015 2016Q3,YTD

Mil

lio

ns

China: Light Vehicles Sales by Segment2004 – 2016 (Millions)

PC SUV LCV Minivan MPV YOY (R-Axis)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 Q3,YTD

China: Sales by Segment2013 – 2016 (% Share)

PC SUV LCV Minivan MPV

Driven by SUVs，the YOY sales growth reach 13.3% by September.Passengercar was up 2.8%, SUV increased 45.1%, MPV was up 23.4%, minivan was down 31.5% and LCV almost have no changes in the volume

11



1 2 2 3 4 4 6 7 811

16 16 1820 22 23

27 28 29 30 32 32 33

2 2 11 2 2

23

5

3

34

5

5

8

11

1314 14

13 12 13 12

-

10

20

30

40

50

60

70

80

90

0

5

10

15

20

25

30

35

40

45

50

China : Light Vehicle Assembly2000 – 2022 (Millions)

Assembly Volume Excess Capacity Utilisation (R-Axis)

Autofacts expects 13.9 % growth in 2016 due to continuous tax stimulus and ~5.1% cagr growth between 2015 and 2022

The integration in automobile industry do benefits to

solve the problems in excess capacity for the domestic

brands.

Tier 2 and Tier 3 cities have unlimited potency to be

developed . Also, the demands for the premium

vehicles in tier 1 cities is another profitable market.

NEV is still booming the automotive market with a

dramatically growth thanks to a series of favour

policies.

Tax cut for vehicles below 1.6L will be expired by the

end of 2016 taking the knock for overall market.

OEMs are facing technology difficulties in stricter

emission reduction standard.

Uncertainty in China macro economy influence the

purchasing power directly

Hinders

Drivers

12

Source: AutofactsForecast



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Car SUV MPV Minivan LCV

2006-2022 Product structure evolvement underlines trends of demographic structure changes and consumption upgrade

• With the stabilized demands and Product offering, the

phenomenal growth of SUV will moderate, but growth

rate is still expected to top all segments.

• Passenger car will keep the leading positioning in

volume. An increasing numbers of variant models will

be launched into the market to add its practicability.

41% of the domestic assembled vehicles is expected to

be sedan by 2022.

• Despte its past growth, OEMs are still lacking

confidence in MPV sector

• LCV will witness a decrease period since 2016 to 2022

and the CAGR figure is negative (-2.2%).

China: Assembly by segment2006-2022F PwC Insights

13




Consumers’ shift from car ownership to car utilizing will fundamentally change the industry, breeding a series of new business, car sharing, Intelligent drive, and car connection

New Business generated

4

New dynamics to appear when the market turn matured and competition landscape changes

Growth moderated Market will continue the slowdown however some segments will grow higher

Consumption upgrade favored segments: middle sized and large car, SUV, MPV, luxury cars will enjoy higher growth

Government backed NEV sector will continue hyper growth in short term, however, with a clear schedule of exist of policy stimulus, sector growth remains uncertainty

1

Consolidation expected

At present, this industry suffers from excess capacity, especially in large state-owned enterprises and small and medium-sized companies.

Since automobile industry will be integrated, it will be hard to survive for some weak small and medium sized automobile companies.

The efficiency of automobile industry could be raised by eliminating excess capacity and effective integration.

2

The Chinese market begins to reflect some dynamics in matured market: the take off of after-market, opportunities will appear in such fields as automobile finance, second-hand car, maintenance, and automobile E-commerce.

Further development of after-market requires a set of optimizing mechanism for the whole industry

Aftermarket to be take off

3

Source：PwC Analysis

14



0

10,000

20,000

0

50

100

The Chinese automotive industry is at a major inflection point

2014201220102008200620042002200019981996

OEMs

Source: Global Insight, Literature Research, PwC Strategy& analysis

Product Lifecycle (Production)

Industry Lifecycle (Independent OEMs)

“Chinese manufacturing presently faces the biggest

crisis in its history” – Chairman, Chinese

Automotive SOE

Annual sales expected to slow down from 21%

CAGR (2004-2014) to ~6% CAGR in the next

decade (2015-2025)

The product and industry lifecycles are beginning

to decouple, suggesting that an (orderly) shake-out

may be imminent

Competitive dynamics will start to resemble those

elsewhere

– Emergence of used vehicles and lease/ finance

– Price and margin pressure

– High level of overcapacity

China: Industry Dynamics1996 -2014 ( Thousands ) PwC Insights

15



28.7% 29.0% 28.7%32.5%

37.0% 39.0%

20.3% 22.3% 22.5%21.8%

19.9%20.3%3.4%

3.4% 3.5%3.9%

3.5%2.7%

23.7% 20.8% 20.3%18.3%

18.4% 17.8%

10.4% 10.5% 10.4% 9.9% 8.1% 7.5%

13.5% 14.0% 14.6% 13.6% 13.0% 12.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 Q3,YTD

China : Market share by brand origin2011-2016Q3

China German France Japan South Korea U.S.

Competition Landscape: Market Share Gained by Chinese OEMs

The diesel emission turmoil cause the loss of the market share of

Germany brands in 2015 .However ,the effect has gradually passed.

The development of domestic brands were impressive thanks to the

improved manufacturing technology and comprehensive product profile

The deep anti Japanese sentiment in China continues to negatively

impacts Japanese vehicles' growth in the Chinese market..

Korean brands lack premium products which do harm to the brand

image.

The market share of U.S brands are stable. Also , U.S automakers are

investing more in Turbo charged engine to get rid of impression of large

displacement and high fuel consumption

Source: CBU

PwC Insights

16



5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F

Competition Landscape: Industry Consolidation Slowed

China : GDP Growth2006 – 2021


Hinders

Drivers

• The local government is possible to

protect the development of local

automakers

• The integration of corporate culture is

one of the key factor influencing the

result of M&A

• Due to the shell companies problems,

small automakers will be closed or

acquired.

• The inefficient capacities is required to

be eliminated.

• As for the tier1 automakers, integration

is one of the most efficient method for

domestic brands to expand their

capacity, product line and company scale

SAIC

NAC

GAG

LIEBAO

Chang’an

HAFEI

GAG

CHANGHE GONGW

BAIC

CHANGHE

17



Competition Landscape: New Entrants to the Market

Wangxiang & SAIC/BMW

Automotive Parts

Battery

Wind Power Generation

Natural Gas Generation

Cooperating with SAIC for NEV buses and BMW with Karma PV

Do-Fluoride & HongXing

Inorganic Fluoride

Fluorine Electronic Chemicals

Lithium Battery

Nanometallic Materials

Acquiring with Hongxing Auto for BEV development

Jiangte Motor & Joylong Auto

Electric Motor

Lithium Energy Products

Minerals and Highly Processed Products

Acquiring Joylong Auto for electric vehicles development

LeTV: LeEco & LeSEE

Leading Chinese Video website

LeSEE Plant will be founded in Zhejiang Qingde with 400k capacity

Cooperating with BAIC and Aston Marin for R&D

LeTV became a shareholder for Y idao for car sharing service

Chehejia

Startup founded by automotive experts from internet companies

The plants is constructing and the capacity is expected to be 200,000 units per year by the end of 2017. Also, they will built a battery plants

Tecent & Foxconn & Harmony Auto:

Future Mobility

Leading Chinese hi-tech company

Integrating with different industry (Internet & manufacturing & Automotive Dealer)

Traditional Value Chain Player Breakthrough Value Chain Player

18




Topics: China NEV Market

19

3 Topics:China NEV market


0.1% 0.1% 0.1%0.1%

0.2%

1.2%

2.3%

3.1%

3.6%

4.2%

4.6%

5.1%5.6%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015 2016F2017F2018F2019F2020F2021F2022F

Pure Electric (PEV) Plug in Hybrid (PHEV)

Hybrid (Mild + Full) Market Share (R-Axis)

Assembly forecast - Alternative energy vehicles

• A large number of automakers are involved in the new energy

subsidy cheating scandal which will effect the policy of NEV

subsidy. NEV subsidies will gradually phase down by 2021.

• Battery technology including battery range, life and charging

period still needs to be improved progressively.

• The establishment of charging station hasn’t been popularized

yet which will effect customers’ confidence in purchasing

NEVs.

• Chinese government announced that new automakers who is

expected to produce fuel consumption vehicles will not

allowed to be founded in principle. It is a good news for the

development of alternative energy vehicles.

• Separate NEV license plates are issued to stimulate the NEV

growth, especially in combustion plate restriction cities.

• Policy in carbon emission restriction and carbon emission

trading accelerate the process of the transformation for NEVs

Hinders

Drivers

Assembly forecast - Alternative energy vehicles2010 -2022F ( Thousands )

20




Policy update: National and regional regulations with impact on other key drivers and NEVs sales volumes

“Push” “Pull”

Subsidy

Infrastructure

Tax regimes

City restrictions/ Licensing

Energy costs

• National: 25 ～ 55k RMB range depending subsidy, expected pay-out until 2020

• Regional: additional benefits on same level like national programs

• VAT exemption (2014-2017)• Exemption/ reduction of “Vehicle & Vessel Tax”• Consumption Tax omitted for BEV

• NEV as exception from licensing restrictions (e.g. Shanghai, Beijing)

• Planned exemption from toll and parking fees

• Dedicated NEV parking space in new buildings• Subsidy for charging stations

• Reduced electricity tariffs for NEV

Fleet consumption

Mandatory NEV share for Officials

NEV Demo Cities

Charging Standards

Penalties

• Phase III: 6.9l/100km• Phase IV: 5.0l/100km• Phase V: ~4.0l/100km

• 40 Cluster-regions / 88 demo cities• NEV target for 2015 in demo cities:

~330k vehicles

• Application of national charging standards from 2015 on (AC/DC)

• Mandatory NEV-quota for newly purchased vehicles of officials: ≥30% (2014-2016)

• Penalties phase III: “Name and Shame list”, no new projects approved

• Mandatory NEV production quota (ZEV) currently in discussion

R: Regulation I: Infrastructure

Impact

R

Emission quota trade

• The policy will be carried out in 2017• Selling quota is one of the capital source for NEVs

manufacturers

Impact

R

R

R

R

I

I

I

I

R

R

NEV-target of the Chinese Government: 5 million cars until 2020

21




In NEV race: Who’s doing what, and how

Te

chn

olo

gy

Business Model

Illustrative

Uber

Wanxiang

Denza

JAC

BMW

VW BYD

CAR2GO

SAIC

BAIC

ChANGJIANG EV

HARMONY AUTO

Chehejia

FOXCONN

Baidu Tencent

HUAWEI Alibaba

NEXTEV

LeSEE

XPENG

TESLA

TELD

Didi TaxiStar Charge

EZZY

Breakthrough Innovation Radical Innovation

Incremental Innovation Breakthrough Innovation

Clo

sin

g t

o e

xis

tN

ew

Closing to exist New

22



Pw C Autofacts ®

Thank you for your attention!

Autofacts®

23

This content is for general information purposes only, and should not be used as a substitute for consultation w ith professional advisors.

© 2016 Pw C. All rights reserved. Pw C refers to the Pw C netw ork and/or one or more of its member f irms, each of w hich is a separate legal entity. Please see

w ww.pwc.com/structure for further details.

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Global Industry Trends & China Market Update Industry Trends & China Market Update December 2016 Autofacts Seminar PwC Autofacts ® Growth of a Global Industry 2 1 Growth of a Global