A new era: Transformation in the Automotive Industry

1. A new era:Transformation in the Automotive Industry 8th December 2010, Istanbul Dr. Martin H�lzPartner & Global Head of Automotive

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3. 3 The global automotive industry will not be the same as it has been in the past 100 years...

4. The future of the automotive industry will have significantly different characteristics Vertically integrated structure Sales channels are monopolized by OEM�s High entry barriers for new�players� High capital requirement High dependencies between suppliers & OEMs 4 Adoption to energy transformation and on sustainability Increasing focus on renewable energy resources Lack of fossil fuels Regulations on CO emission are getting higher importance Barriers in order to reach mass adoption of environment friendly mobilityAdoption to energy transformation and on sustainability Increasing focus on renewable energy resources Lack of fossil fuels Regulations on CO emission are getting higher importance Barriers in order to reach mass adoption of environment friendly mobility

5. With the transformation to e-mobility there will be a significant change in the value chain of the automotive industry  Key Points Shift in profit allocation from assembly to information technology and components New �players� from different industries such as energy, IT and electronics Change from one-to-one towards multi-multi structure Lower entry barriers 5

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7. Most of the OEMs have already invested in different e-mobility technologies 7

8. The companies which already invested in e-mobility related topics are leading in the customer preferences 8 CE The next barrier is around brand � Automotive purchases are very brand driven When we asked customers who they would be most likely to purchase an EV from it wasn�t too much of a surprise that their responses reflected OEMs with the highest hybrid volumes � these OEMs have built �GREEN EQUITY� through their hybrid sales That means that Toyota, Honda, and Ford have a great opportunity to enter the EV market, when ready, and potentially dominate it Unfortunately for Chevy, Nissan, Tesla, and Fisker � this means they may face significant brand challenges in their upcoming EV launchesCE The next barrier is around brand � Automotive purchases are very brand driven When we asked customers who they would be most likely to purchase an EV from it wasn�t too much of a surprise that their responses reflected OEMs with the highest hybrid volumes � these OEMs have built �GREEN EQUITY� through their hybrid sales That means that Toyota, Honda, and Ford have a great opportunity to enter the EV market, when ready, and potentially dominate it Unfortunately for Chevy, Nissan, Tesla, and Fisker � this means they may face significant brand challenges in their upcoming EV launches

9. Tesla Motors Case in Silicon Valley Managed by founder of an IT venture-company Hires talent from the aerospace and IT industry New Chinese Entrants (Baoya, Shifeng, etc.) New comers from different industries have already started to enter the car-manufacturing business 9

10. Alliances with companies from different industries against new comers and threats will be another critical decision for OEMs Key Points How to manage the threat for lack of new technological know-how In-house development vs. strategic alliances with suppliers, IT and electronic companies Strategies against new comers from different industries like electronics & energy 10

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12. The quite simple structure of EV�s and new business models enable new players to enter the manufacturing of cars Case 1: Taiwan�s Hua-chuang Automobile Information Technical Center Co. Ltd. developed its own EV without any support from traditional suppliers Procured key components from electronics manufacturers Adopted driving module control technology from a venture company in the US Case 2: China�s BYD Auto (former mobile phone battery manufacturer) built the capacity to manufacture EVs Acquired an automobile and an inverter manufacturer Gathered motor technologies from Chongqing University 12 http://www.byd.com/company.php?index=1 BYD 1995: Establishment 1997: li-ion manufacturing 2003: Tsinchuan Automobile Company Limited �i acqusition (BYD auto establishment) 2008: SinoMOS semiconductor (Ningbo) INC. acqusition About 95% availability of the resources for battery manufacturing (esp. noble earths as dysprosium, terbium) in China, which could lead to a significant competitive advantage for Chinese battery suppliers http://www.byd.com/company.php?index=1 BYD 1995: Establishment 1997: li-ion manufacturing 2003: Tsinchuan Automobile Company Limited �i acqusition (BYD auto establishment) 2008: SinoMOS semiconductor (Ningbo) INC. acqusition About 95% availability of the resources for battery manufacturing (esp. noble earths as dysprosium, terbium) in China, which could lead to a significant competitive advantage for Chinese battery suppliers

13. With �modularization-� and �plug-and-play-� concepts the role and power of suppliers in the industry will significantly shift Definition of global standards enable �Modularization� Connectivity without calibration - �Plug-and-Play� Supply to two or more automakers Achieve economies of scale (similar to semiconductor industry) Mega-suppliers would become profitable, while automakers producing relatively small volumes of EVs would be less so 13

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15. Many countries have already set challenging goals for the penetration of HV/EVs. 15

16. Many countries already heavily invested on e-mobility: More than US $44 B. 16

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18. With the changing preferences and new dynamics, e-mobility will also play a critical role in the future urban transportation 18 E-vehicle sharing Case: LISELEC - La Rochelle, France 50 EV�s (Peugeot 106 and Citro�n Saxo) 7 stations across the city Membership structure (Membership in Car clubs reached 100.000 in 2009) We can hihlight this slide as a part of government incentives...We can hihlight this slide as a part of government incentives...

19. Vehicle conversion to social networks Transportation Information Traffic stream control Pricing and payment systems Lifelog Business Understanding consumer behavior Creation of new businesses IT and electronics into the car Web in the car Car to car communication Technological advancements will increase the appetite of companies like Google, Microsoft, HP, etc. to invest in the automotive industry 19 We can also highlight the electric control units for communication with smart grid? And also communication of different tools (like battery, ultra capasitor (electiricity storage unit), battery control unit, e-vehicle control unit) and driver in the e vehicle?We can also highlight the electric control units for communication with smart grid? And also communication of different tools (like battery, ultra capasitor (electiricity storage unit), battery control unit, e-vehicle control unit) and driver in the e vehicle?

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21. One of the important challenge of the industry is overcoming the barriers against mass adoption of new generation vehicles... 21 CE We asked customers what factors they would consider when purchasing an EV. We also asked them what factors would prevent them from purchasing an EV We synthesized those results into 6 KEY barriers to mass adoption of EV Familiarity � Customers are in large part unfamiliar with the technologies and models that are available or emerging Brand � The brands that customers associate with EV as we�ll discuss in more detail later, do not offer EVs Range � Customers expect a pretty extensive range before they will consider an EV, current electric ranges aren�t sufficient Charging � Customers are worried about how to charge, where to charge, how long it will take Infrastructure � specifically, the power grid and it�s ability to handle higher than normal volumes Price and Cost of Ownership � this is the biggest concern, as it tends to be with ICVs as well � customers are very sensitive to price, it�s the top purchase driver and the top purchase inhibitor CE We asked customers what factors they would consider when purchasing an EV. We also asked them what factors would prevent them from purchasing an EV We synthesized those results into 6 KEY barriers to mass adoption of EV Familiarity � Customers are in large part unfamiliar with the technologies and models that are available or emerging Brand � The brands that customers associate with EV as we�ll discuss in more detail later, do not offer EVs Range � Customers expect a pretty extensive range before they will consider an EV, current electric ranges aren�t sufficient Charging � Customers are worried about how to charge, where to charge, how long it will take Infrastructure � specifically, the power grid and it�s ability to handle higher than normal volumes Price and Cost of Ownership � this is the biggest concern, as it tends to be with ICVs as well � customers are very sensitive to price, it�s the top purchase driver and the top purchase inhibitor

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23. The strategies and policies on e-mobility need to be built based on the needs and alignment of all parties in the automotive value chain 23 Government Goal: To be the most competitive manufacturing hub of e-vehicle OSD also says that: should lead R&D studies for new generation environment friendly vehicles considering all value chain Incentives: - For consumers - For manufaturers both OEM and supplier For infrastructure (battery stations, e-vehicle sharing areas, R&D Centers (Do you think we should add this as a seperate box?) Infrastructure Smart Grid, regulation of energy peaks and managing the huge elecricity requirement in the most efficient way Battery stations e vehicle sharing centers Manufactruring strategy Focus on the Development of parts like battery, inverter... Energy Policy The tax loss from e-vehicle Focus on renewable energy resources (coal, nuclear, wind solar) Regulations The regulation on motor vehicles should be reconsidered based on e-vehicles (For ex. Tax is based on horse power now however it can be based on CO2 emission) The additional safety regulations because of the usage of high voltage in the car Government Goal: To be the most competitive manufacturing hub of e-vehicle OSD also says that: should lead R&D studies for new generation environment friendly vehicles considering all value chain Incentives: - For consumers - For manufaturers both OEM and supplier For infrastructure (battery stations, e-vehicle sharing areas, R&D Centers (Do you think we should add this as a seperate box?) Infrastructure Smart Grid, regulation of energy peaks and managing the huge elecricity requirement in the most efficient way Battery stations e vehicle sharing centers Manufactruring strategy Focus on the Development of parts like battery, inverter... Energy Policy The tax loss from e-vehicle Focus on renewable energy resources (coal, nuclear, wind solar) Regulations The regulation on motor vehicles should be reconsidered based on e-vehicles (For ex. Tax is based on horse power now however it can be based on CO2 emission) The additional safety regulations because of the usage of high voltage in the car