October 15, 2010

Crystal Gazing Beyond 2015 – Trends in the Automotive Industry

Seminar Presentation

RAM KIDAMBI

Copyright © 2010 by A.T. Kearney

This document was prepared by A.T. Kearney for use by a joint Client and A.T. Kearney team and may not be used for other purposes, or disclosed to other parties without the written permission of A.T. Kearney

2

Table of Contents

Strategic Projections for the Automotive Industry Beyond 2015

Technology Trends Beyond 2015 – Powertrain of the Future

3Source: Global Business Policy Council, A.T. Kearney

The global automotive industry will be impacted by 4-5 key macro-economic drivers

Macro-Economic Drivers Affecting the Auto Industry

Consumption Patterns

Globalization

Natural Resources

Demo-graphics

Regulation & Activism

Wildcards

Industry-specifictrends

• Aging population globally• China to hit the demographic wall• Avg. age of 1st time buyer in low 30’ s in India

• Best cost country locations• Global consumers for autos

• Best cost country locations• Global consumers for autos

• Price volatility of input raw materials

• Focus on sustainability

• Environmental concerns driving regulation

All these drivers either individually or in combination affects the overall trends for the future

4

The demand for mobility will vary based on demographic and regulatory trends

Demographic trends and resulting demand patterns

(Population aged 60+ in mn.)1)

Population with income > $30002)

Development of premium customers

• Estimated growth of HNWIs’ wealth at 8%5)

• Perception of "green" as valuable premium attribute and willing-ness to pay markup for hybrid and EVs6)

• Growth of premium shares in all vehicle segments 1996-20087)

142

34

150

207

42

174

0

100

200

300

+46%

+24%

+16%

ChinaJapanEurope

2015

2005

262

6751.000

500

0%

+158%

+16%

IndiaChina

1.307

1.125

1.500

1) UN population statitistics; 2) A.T. Kearney ULCC study, China National Bureau of Statistics, US Bureau of the Census; 3) A.T. Kearney Powertrain of the future study; 4) Current examples include fleet reduction in Beijing since 2008 as well as ban of ICEs in 2km perimeter around historic monuments in Agra 5) Press Trust of India June 25, 2009; 6) A.T. Kearney green sports car study; 7) Global Insight

2015

2005

Development of regulation3)

• By 2015 all major world regions on Euro 5 emission level

• Changing vehicle taxation to CO2, planned EU and US CO2 reduction of 21% and 27%, respectively

• Selective ban of ICEs in China and India4)

Low cost (in emerging markets ultra-low cost) cars, down-sized and easy-to-use cars, basic mobility

Mobility "experi-ments"

Alternative powertrains

Regionally differentiated

luxury

5

The overriding topics of the future will be customer diversity and resulting proliferation of products and services (N=1 & R=G concept)

Advent of new powertrain technologies and mobility concepts

Product spectrum stretched from individualized super luxury to low cost city mobility

Interior innovation focus on

• Comfort (e.g. door and seating concepts for elderly and disabled customers, On-star)

• Communication (e.g. intelligent navigation, compatibility with ipods etc.)

• Safety systems (e.g. lane departure warning, advanced driver assistance systems, adaptive cruise control, predictive safety systems)

Main driver of the industry shape

Product and service landscapeHeterogeneous demand for mobility

Enabling / accelerating drivers:•Regulation

•Technology

6

Globally and in India the Ultra Low Cost Car (ULCC) will be fastest growing segment, adding 13 million vehicles to the market

Global Passenger Car Sales Forecast 2003 – 2020 (in million units) including ULCC

Market Trend

• The ultra low cost car segment (ULCC) will grow by 24.3% per year

• Strong trend towards downsizing(e.g. 4-instead of 6-cylinder) in existing vehicle classes

• E-vehicles and hybrids will play a significant role

• As OEMs from emerging markets dominate the new ULCC segment, their global market share will grow to over 30% from

95 today

201020092008 202020132012201120072006200520042003 201920182017201620152014

SUV

Meduim

Luxury

ULCC

Large

Small

Unclassified

Gap betweenbest case &worst case

Utility

Global uncertainty due to recession

Source: J.D. Power , Global Insights, A.T. Kearney analysis

ULCC

7

Growth of Emerging Market OEMs

Source: J.D. Power Sales Forecast Global and for Chinese Market, A.T. Kearney analysis

IndiaChina Japan Europe

1.41.0

0.7 0.6 0.6

0.5

2.01.9

3.2

0.6

1.3

1.7

3.2

1.4

3.9

0.4

1.41.5

2.2

0.4

1.11.2

1.9

0.30.30.30.50.5

0.40.3

1.6

1.0

1.7

1.1

1.9

1.2

2.6

1.6

3.7

2.3

2020 Sales (mil. units) organic growthSales (mil units) Growth by acquisition2006 Sales (mil. units) organic growth

Chery SAIC JAC Changan FAW BAIC Tata Suzuki Mazda Mitsubishi Isuzu Fiat Daimler BMW Group

Volvo

Units sold by Top Emerging OEMs Units sold by selected established OEMs

Strong growth (organic and external) will allow OEMs from emerging markets to challenge established players

8

Shift of Innovation Leadership: Past and Future

Source: A.T. Kearney analysis

1990s:

Automotive industry

1970s:

Automotive industry

1960s:

Optical systems

1990s:

Shipbuilding

2000s:

Semi-conductors

2010s: “Big Bang”

Automotive Industry

1980s

Consumer electronics

A key trend will be the shift of innovation hubs towards Emerging Markets

9

Table of Contents

Strategic Projections for the Automotive Industry Beyond 2015

Technology Trends beyond 2015 – Powertrain of the Future

10

Today, Gasoline engines dominate the powertrain land-scape with diesel having strong shares in some regions

Powertrain Landscape Today [units mil. produced]

Note: Light vehicle assembly; Global = 70.3 mil. units (incl. regions not in scope); Europe=EU27; Full Hybrid include Gasoline and Diesel Hybrid; Gasoline includes Biofuels (e.g. Flex Fuel Vehicles in Brazil) Source: J. D. Power Production Forecast Q1 2008, A.T. Kearney

Full HybridDieselGasoline

94%

5% 1%

97%

3%

75%

25%

55%

45%

91%

5% 4%

99%

1%

S 11.1

Europe

S 2.6 S 1.9 S 8.0

S 15.0

NAFTA

S 20.6

Japan

Brazil India China

80%

19%

1%

S 59.3

Total

Regional Shares

Tria

dN

on

-Tria

d

Total

11

The future powertrain portfolio includes Combustion Engines, Hybrids and Electric Motor driven vehicles

Internal Combustion Engine1) Full Hybrid Electric Motor

• Gasoline ICE

• Diesel ICE

• CNG ICE

• LPG ICE

• Hydrogen ICE

• Gasoline Hybrid

• Diesel Hybrid

• CNG Hybrid

• LPG Hybrid

• Fuel Cell Hybrid

• Plug-in Hybrid

• Fuel Cell Vehicle (FCV)

• Electric Vehicle (EV)

Notes: ICE=Internal Combustion Engine1) Micro and mild Hybrids are included in conventional ICE, due to lacking electric drive mode; Sources: A.T. Kearney, expert interviews

Powertrains in scope

bold = in scope of study

12

Technology

Legislation

OEM

Customer

Scenarios were created to model three key powertrain landscape scenarios based on determining parameters for all regions

Scenario parametersLimited drive for

changeModerate drive

for changeChange

enforcement

Crude oil price [$/barrel] 70 100 200

CO2 based vehicle taxation & incentives

None Moderate Strong

Annual cost down for new powertrain technologies

Limited Moderate Aggressive

Customer buying power (Triad markets)

Slight decrease As today Moderate increase

Customer buying power (BRIC markets)

Slow increase Moderate increase Strong increase

OEM’s drive to introduce new powertrains

Limited Moderate Strong

Build-up speed of new infrastructure

Slow Moderate Fast

Progress of new powertrain technologies

Slow Moderate Fast

Introduction of CO2 limits Slow Moderate Fast

Stringency of CO2 limits Low Moderate Significant

Scenario development per region

1) Average real oil price 2007-2020; Real oil prices 2020 [$/barrel]: Limited drive for change = 68; Moderate drive for change = 128; Change enforcement = 328; Triad markets = EU, NAFTA, Japan; BRIC markets = Brazil, Russia, India, China; Source: A.T. Kearney

Perspectives

13

For Moderate drive for change and Change enforcement, CNG and Plug-in Hybrids are the TCO winners

Example: TCO calculation [$ thsd.]

7.7Gas

8.8Diesel

6.4CNG

7.2LPG

8.2Gas

Hybrid

9.6DieselHybrid

8.5Plug-inHybrid

10.2EV

16.7FCV

Limited drive for change

Conventional powertrains are advantageous in terms of TCO

Moderate drive for change

The TCO game is more open; Plug-in Hybrids are already amongst the TCO winners

Change enforcement

Alternative powertrains outperform conventional

ones in terms of TCO

Fuel taxation Fuel cost Vehicle taxation Depreciation of all powertrain hardware

13.1Gas

13.1Diesel

11.7CNG

14.0LPG

12.4Gas

Hybrid

12.9DieselHybrid

8.4Plug-inHybrid

8.4EV

13.3FCV

8.7Gas

8.9Diesel

7.7CNG

9.0LPG

8.8Gas

Hybrid

9.3DieselHybrid

8.1Plug-inHybrid

9.5EV

15.4FCV

Note: TCO = Total cost of ownership (4 years period); Assumptions (Limited drive for change/Moderate drive for change/Change enforcement): Average crude oil price [$/bbl]: 70/100/200; Fuel Cell CIP rate [%]:2/4/6; Battery CIP rate [%]: 2.5/5.0/7.5; ICE CIP rate [%]: 1.5/1.5/1.5; Annual mileage 15,000 km; Source: A.T. Kearney

14

Based on customer demand alone, the share of alternative powertrainsexceeds 31% in all scenarios and regions

1) Alternative powertrains include Full Hybrids, Plug-in Hybrid, Electric Vehicle and Fuel Cell Vehicle2) Representing NAFTASource: A.T. Kearney

Overall assessment: Customer demand

Moderate drive for change Change enforcementLimited drive for change

3%

6%

10%

9%

13%

15%

20%

10%

15%

0% 10% 20% 30% 40% 50%

Gas

Diesel

CNG

LPG

GasHybrid

DieselHybrid

Plug-inHybrid

EV

FCV 4%

10%

14%

12%

13%

9%

14%

11%

12%

0% 10% 20% 30% 40% 50%

Gas

Diesel

CNG

LPG

GasHybrid

DieselHybrid

Plug-inHybrid

EV

FCV 7%

22%

21%

11%

11%

5%

8%

8%

8%

0% 10% 20% 30% 40% 50%

Gas

Diesel

CNG

LPG

GasHybrid

DieselHybrid

Plug-inHybrid

EV

FCV

15

However, mid-term planning of OEMs today reveals a slow penetration of alternative powertrains

Mid-term planning OEMs global[units mn produced]

Rationale for OEM strategy

• Current asset structure

• Investment requirements for

alternative technologies

• Time-to-market of new

technologies

• (Limited) fit of alternative

technologies to own

competencies/ capabilities

1.0%

7.0%

3.0%

20.8%

0.3%

19.8%

77.5%78.9%

57.8

2015

48.5

2008

0.5% 1.2%

53.3

2010

20.0%

70.0%

0.8% 1.6%

21.7%

75.9%

61.2

2020

Note: Passenger vehicle assembly; Total = regions in scope; Full Hybrid includes Gasoline Hybrid and Diesel Hybrid; 1) Including Flex Fuel Vehicles Sources: A.T. Kearney, Base: J.D. Power Engine database Q1/2008

Full HybridDieselGasoline1) Other

16

Powertrain landscape 2009 vs. 2020

Powertrain Landscape 2010

Worldwide Average

18%

80%

Powertrain Landscape 2020

Americas

9%

18%

12%

14%

46%

Plug-in Hybrid/Electric VehicalFull-HybridsNatural GasDieselGasoline

Europe

10%

19%

14%28%

29%

Asia

8%

15%

11%

14%

51%

(1) "Moderate drive for change" scenarioSource: A.T. Kearney study “Powertrain of the future”

Overall we project the share for alternative powertrains will be ~40% by 2020

17

Table of Contents

Executive Summary

Strategic Projections for the Automotive Industry Beyond 2015

Technology Trends beyond 2015

A.T. Kearney Qualifications

18

A.T. Kearney is one of the world’s largest management consulting firms, with more than 65 offices in 35 countries

• Buenos Aires

• Caracas

• Mexico City

• São Paulo

• Bangkok

• Beijing

• Hong Kong

• Jakarta

• Kuala Lumpur

• Mumbai

• New Delhi• Seoul

• Shanghai

• Singapore

• Taipei

• Tokyo

• Melbourne

• Sydney

• Johannesburg

• Alexandria

• Atlanta

• Boca Raton

• Cambridge

• Chicago

• Cleveland

• Coraopolis

• Costa Mesa

• Los Angeles

• Miami

• Minneapolis

• New York

• Plano

• Redwood City

• Rosslyn

• San Diego

• San Francisco

• Santa Clara

• Southfield

• Stamford

• Toronto

• Amsterdam

• Athens

• Barcelona

• Berlin

• Brussels

• Budapest

• Copenhagen

• Duesseldorf

• Frankfurt

• Geneva

• Istanbul

• Lisbon

• London

• Madrid

• Milan

• Moscow

• Munich

• Oslo

• Paris

• Prague

• Rome

• Stockholm

• Stuttgart

• Vienna

• Warsaw

• Zurich

A.T. Kearney has a global presence… …and a long history of assisting clients

• Founded in 1926 in Chicago, USA

• Recognized as one of the world’s leading management consulting firms

• Revenues of USD ~1bn, with over 2500 consultants across 35 countries

• Serves Fortune 500 and other leading companies across industries within each of the markets

South America

Asia

ANZAfrica

EuropeNorth America

19

In India, A.T. Kearney has over 30 years of experience with a large pool of experienced consultants with significant international experience

• Consulting presence in India for over 30

years

• More than 200 client engagements

completed in the last 10 years

• Two offices, one each in New Delhi and

Mumbai with over 100 consultants

• Consultants with a good mix of consulting

and industry experience in India and

abroad

• Direct access to A.T. Kearney’s global

network of industry and functional experts,

resources and methodologies

• Internationally experienced consultants

– work on projects in the greater Asian

region, Middle East, Europe and US

• Many of the senior Indian consultants are

recognized as Subject Matter Experts

within global A.T. Kearney fraternity

A.T. Kearney India experience and capabilities

New Delhi

Mumbai

Over 100 consultants with good mix of industry and consulting experience in India and abroad

20

Contact Details

Ram KidambiPrincipal

A.T. Kearney Limited

Future Capital House

1st Floor, Unit No. 101-A

Peninsula Corporate Park

Ganpatrao Kadam Marg,

Lower Parel, Mumbai - 400 013

+91 983 341 8799 (Cell)

+91 22 4097 0720 (Office)

ram.kidambi@atkearney.com