Gaining Traction

1. Gaining Traction A Customer View of Electric Vehicle Mass Adoption in the US Automotive Market January, 2010

2. Contents This study provides a customer view of electric vehicle mass adoption in the US automotive market • Why do we care about EVs? • Who will buy EVs? • What are the barriers to mass adoption? • What is the 2020 volume forecast? • What are the implications for customers and the OEMs?

3. Recent activity and excitement are a testament to the promise that EVs hold for the US automotive market EV Opportunities and Activity Drivers Background Government Incentives and Policies Technology Advancements • Battery technology • Lighter body composites • Smart grid • Clean subsidies and loan guarantees • Consumer tax credits • CAFÉ standards • CO2 emissions • EV Opportunity • Energy independence, security and reliability • Vehicle style and performance • Automotive industry innovation, growth and restructuring Exogenous Variables Industry Investments • Energy prices • Global recession and automotive industry restructuring • Environmental concern • Automotive technology R&D • Battery provider R&D • New vehicles (e.g., Leaf, Volt) Customer adoption remains an industry concern

4. Scope This study focuses on electric vehicles and plug in hybrids in the US market • The focus of this study is electric vehicles, specifically vehicles whose primary source of power is an electric motor powered by on-board battery packs, ultracapacitors, or fuel cells, including both fully electric vehicles, range extenders, and plug-in hybrid electric vehicles • This does not include vehicles with a majority portion of power derived from an internal combustion engine (including but not limited to: non plug-in hybrids, hydrogen, bio-diesel, ethanol, and natural gas powered vehicles) • This study is focused on the US market BYD E6 Mitsubishi I MiEV Nissan Leaf Tesla Roadster Chevy Volt

5. Research Analysis Approach We have combined Deloitte proprietary primary research and secondary research with our Demand Driven analytics • Primary customer research: Two surveys with over 1,700 participants • Voice of the customer analysis: Conducted analysis on survey responses, including cluster analysis and regression analysis • Primary industry research: Twelve interviews with leaders of five major OEMs, four clean technology/electric vehicle start-ups, energy companies and car dealers • Cost analysis: Operational cost analysis of EVs vs. ICVs based on battery cost, gasoline cost, and government incentives • Volume analysis: The scenario driven volume forecast is based on insights received from customer survey and industry benchmarks for adoption • Secondary research: Reviewed latest-thinking from government agencies, EV consortiums, banks, and consultancies

6. Generic Technology Adoption Curve EV Forecasting Approaches Several industry organizations, financial institutions, and consultancies have forecasted the growth of the EV market Background Early Adopter Early Majority • Previous growth methodologies have relied on the following variables and inputs: • Exogenous factors, e.g., global energy prices, overall automotive demand • Potential changes to government policies and incentives • Technology advancement and cost predictions e.g., improvements in battery technology and cost reductions • The adoption of hybrid gas-electric vehicles in the US 1,100K Citi (1,050K) Traffic Safety Administration (750K) Credit Suisse (335K) 0 2010 2020 It is time for a customer driven perspective Source: National Highway Traffic Administration, Citigroup Global Markts, Deloitte Interviews and Analysis

7. Customer Adoption Framework This Deloitte study has improved upon the existing body of work by taking a customer-centric approach to the future of the EV market place Background Consumer Awareness Desirability Adoption Awareness? Desirable? Adopter High/Yes Yes • Probability • Volume Est. • Brand/Product • Price/Cost • Technology • Range • Charging/Infrastructure • How familiar are you about various EV technologies? • How accurate is your understanding? Low/No Yes No Interested to Learn? Non-Adopter No • Different Technologies • Price/TCO • Range • Charging/Infrastructure Needs • Implications to my Lifestyle Our consumer survey reveals current consumer awareness and purchase barriers Our cost and volume analysis estimates the rate of adoption over time

8. Non-Adopters Early Adopter Profile: 2011 - 2020 Target Customers EV early adopters will be eco-enthusiasts • Similar to early adopters of hybrids, early adopters of EVs will be young, very high income individuals – adoption is already being popularized by high-profile celebrities • Average incomes are expected to be in excess of $200K HHI who already own one or more vehicles • Early adoption will be concentrated around southern California where weather and infrastructure allow for ease of EV ownership • Concerned about foreign oil dependency but highly insensitive to environmental considerations • These individuals are drivers of larger vehicles – trucks and SUVs – who wouldn’t be willing to give up on a large vehicle • This group is not politically active and is highly price sensitive Source: Deloitte Survey, Interviews and Analysis

9. Early Majority Population & Volume Potential Early Majority Profile Target Customers There is a sizeable (1.3M) segment of early adopters • Highly concerned about foreign oil dependency, as well as environmentally conscious • These are relatively high income individuals in multi-vehicle households who have garages and the ability to home charge; they currently drive sedans and small vehicles • This group is HIGHLY motivated by tax breaks and also very politically active • Individuals are convenience sensitive and willing to pay a premium for convenience • Given a few key demographic and psychographic attributes of the mass adopter segment we can approximate the segment’s population size • Men represent 49% of the total population and 67% of this segment • 13.4% of men have an income of $100Kor more • 12.3% of Households have an income between $100K to 150K • 44.9% of men vote, 44.5 % of women vote • There are 1.3 million men and women in the US who have the demographic characteristics in the Early Majority segment Source: U.S. Census, Deloitte Interviews and Analysis

10. Factors Preventing Purchase Factors Driving Purchase Barriers to EV Adoption Customers tell us that six key barriers prevent mass EV adoption Question: What would be your main considerations when purchasing an EV? Question: What is the top factor that would prevent you from purchasing an EV (% of respondents? Low High Six Adoption Barriers 1. Familiarity 2. Brand 3. Range 4. Charging 5. Infrastructure 6. Price and Ownership Cost Source: Deloitte Survey, Interviews and Analysis

11. Drivers of EV Adoption Success EV Adoption Automotive industry insiders confirm the customer view … Automotive Perspective Clean Tech Perspective Least Significant Most Significant Least Significant Most Significant Current Auto Future Auto Current Clean Tech • Automotive executives believe that charging convenience will become less significant in 5 years due to a more extensive charging infrastructure • They are relatively aligned with customers • Clean Tech companies are less concerned about charging convenience than automobile companies • They believe performance , utility and styling will be key drivers of mass adoption • They are less aligned with customers • … but Clean tech executives are not aligned Source: Deloitte Interviews and Analysis

12. Customer Familiarity Customers are largely unfamiliar with alternative fuel technologies other than hybrids 1. Familiarity Question: How familiar are you with the following clean technologies? EV (non pure hybrid) Clean technology Low Familiarity High Familiarity Key Takeaways • Customers are unfamiliar with clean technologies other than hybrids • Lack of awareness could mean both “not knowing” as well as “wrongly knowing” – consumers’ preconceived notion needs to be clarified and overcome • Customers will be hesitant to use technologies that they are not educated on or aware of • Customers are likely unaware of rapid progress in technology – may still be thinking about EV-1 and other previous product attempts Source: Deloitte Survey, Interviews and Analysis

13. Brand Preference 2. Brand Toyota, Honda, and Ford have brand power to launch EVs Question: From whom would you be most likely to purchase an EV? Companies with current models or models launching in next year Other companies % of people Key Takeaways • Automotive purchases are brand driven – consumers will not buy EVs from a brand they do not trust • Toyota, Honda, and Ford have brand “permission” in this space due in part to the green brand equity they built through hybrid sales • Toyota, Honda, and Ford have the opportunity to offer products in the EV space with a higher likelihood of success than their competitors • Nissan and Chevrolet will face challenges in their upcoming EV launches and will bear the burden of educating consumers Source: Deloitte Survey, Interviews and Analysis

14. Range Anxiety Travel Distance Even though EVs meet the daily range requirements of most drivers, range anxiety is pervasive 3. Range Question: Driving Distance (per day) • On weekdays and weekends, few consumers travel more than 100 miles per day • EV’s with a range of 50 miles could meet the daily needs of 66% of drivers on weekdays, and 70% on weekends % of people(Cumulative) • 70% of people surveyed would expect an electric vehicle to travel 300 miles before they would consider purchasing one • Current pure electric vehicle range capabilities do not meet consumer requirements: • Nissan Leaf: 100 miles (electric) • Ford Focus: 100 miles (electric) • Tesla Model S: 160 miles (electric) • Chevy Volt: 40 miles (electric ) + 300 (combustion) • Fisker Karma: 50 miles (electric) + 300 (combustion) Miles (per day) Question: Required range (miles) 1 2 3 4 5 1 2 % of people 3 4 5 Range (miles) Battery technology advancements (currently improving 12% a year) combined with charging improvements are required Source: Deloitte Survey, Interviews and Analysis, Hybridcars.com

15. Charging Location Charging Stations Customers want to be able to charge at home and have the convenience of rapid charging stations (i.e., have the same experience as buying gas) 4. Charging Question: Would you rather charge your vehicle at home or at work? • 81% of people would prefer to charge from home, but 61% don’t have access to home charging capabilities such as a garage with an electric power source • Increasing public and private infrastructure is necessary for wide adoption: • 54% of surveyed consumers would not consider purchasing an EV until charging locations were widely available and as easy to locate as a gas station is today • Currently, less than 500 charging stations exist in the US, with over 80% in California • Cost to set up new location is substantial: • Home Level 2 Charging: $500-$1,500 ($2,500 if upgrade is required) • Public Level 2 Charging: $2,000-$3,000 • However, infrastructure is predicted to expand • Pike research predicts that there will be 5.3 million charging locations by 2015 (globally) Highest Population Density The economics are not strong enough to attract enough private investment Source: Deloitte Survey, Interviews and Analysis, Electrification Coalition, Pike Research

16. Cost to Reduce Charge Time Charging Time 4. Charging Customers are unwilling to pay a premium for rapid charging Question: How do you feel about charging at home for the following amount of hours? • Only 17% of consumers are willing to charge from home when it takes 8 hours • People are twice as likely to consider charging from home when it takes 4 hours • Fully recharging depleted PHEV/EV batteries can take 2-8 hours, depending the type of charging equipment and battery size • According to an auto executive interviewed: “You need an electric car that can recharge in 5 minutes- that’s how a gas station works” % of people Question: How much would you be willing to pay to reduce your charge time from 8 to 4 hours? • Most people are not willing to pay over $1K to significantly reduce their charging time. • A rapid charge station that that can service 100 customers in a 24 hour period at 50kWh per charge would cost $1.8 to $3.0 million • $2K federal tax credit for home installed units lowers home charging cost % of people Cost ($) Widespread rapid charging stations are a key enabler Source: Deloitte Survey, Interviews and Analysis, Electrification Coalition, Pike Research, Edmunds

17. Willingness to Swap Batteries Barriers to Battery Swapping Customers are willing to consider battery swapping … automotive industry insiders cite challenges 4. Charging Question: Would you consider battery swapping as an alternative to charging your vehicle at a charging station? • 79% of surveyed consumers would consider battery swapping as an alternative to charging their vehicle at home • Customers are open to new technologies to improve driving range • While consumers are open to battery swapping to avoid charging (79% of people surveyed): there are many limitations: • Cost: Each battery swapping station may cost as much as $500K • Standardization: Battery Swapping requires battery standardization • Tragedy of the Commons: Consumers will have the incentive to treat their batteries poorly, knowing they will swap with someone else Improved battery performance will offset the need for battery swapping Source: Deloitte Survey, Interviews and Analysis, Electrification Coalition

18. Grid Concern Smart Grid and Customer Awareness Customers are concerned about the grid…industry insiders believe that improvements will be forthcoming 5. Infrastructure Question: Are you concerned about the capacity and reliability of your local utility to support electric vehicle charging? • Customers are anxious about the availability and convenience of infrastructure to support electric vehicles • Charging tends to be between the hours of 6:00pm and 10:pm, which has the potential to place heavy strain on the power infrastructure • The government has shown willingness to fund the first $100 million of infrastructure, but to build out extensively requires a much larger investment • To overcome this anxiety, additional investments are being made to build out the infrastructure and educating customers on availability and convenience • Smart Grid with digital real time metering should be ready by 2015 • Developments should be clearly communicated to the customer The energy industry needs to better job of increasing customer awareness Source: Deloitte Survey, Interviews and Analysis, Electrification Coalition, Idaho National Laboratory

19. Purchase considerations Price Expectations The greatest factor that will drive or prevent adoption is purchase price; most people expect to pay less than $30K for an EV 6. Cost Question: When you evaluate a purchase decision, what are the main costs you think about? • 69% of consumers consider purchase price the most important factor in a vehicle purchase • 23% of consumers consider gasoline costs the most significant factor: Opportunity exists to educate the consumer about total cost of ownership • “Customers will buy an EV if the cost is comparable to an ICV, if it’s more they won’t buy it. People will not sacrifice themselves to save the environment” % of people Question: How much would you expect to pay for an EV? • 73% of people expect to pay between $8K and $35K for an electric vehicle • Current EV prices / price projections: • Nissan Leaf: $30K • Chevy Volt: $40K • Tesla Model S: $58K • Fisker Karma: $87K • Federal tax credits up to $7.5K for EV’s may help offset high purchase price % of people Cost ($) Government incentives will be required until economies of scale are achieved Source: Deloitte Survey, Analysis, HyrbidCars.com

20. Reduction in battery cost is the most significant lever for increasing the EV’s operating benefit over ICE vehicles 6. Cost Sensitivity of operating benefits for EV to key costs and gas prices Projected Li-ion Battery Cost per KWH Note: the base line values for the analysis are: Battery cost /KWh = $1100, Gas price = $3.00 per gallon), and Govt. Subsidy = $4000 per EV Source: Pike Research Key Takeaways • Reduction in battery cost is most significant lever for increasing EV’s operating benefit over ICV, followed by gas prices • Technology is driving lower battery costs albeit the decrease is slow Source: Deloitte Analysis, Pike Research, HyrbidCars.com

21. Battery costs will have decrease to 40% for EVs to match the ICE’s total cost of ownership 6. Cost Operating Benefit of EV over ICV Appx. 2010 Battery Cost Battery cost / KWh ($) EV has an Operating Benefit over ICV Gas Price ($) Key Takeaways • Since both the gas price and battery costs will inhibit adoption, OEMs will need to spend large incentives to sell EVs in next two to three years • Adoption will pick-up as battery costs cross the $600/KWh mark in 2014, assuming fuel costs remain stable Source: Deloitte Analysis, Pike Research, HyrbidCars.com

22. In light of customer adoption barriers, the most probable purchase funnel scenario results in a 3.1% EV market share in the US market Volume Forecast Adoption Barriers Scenario Analysis: Purchase funnel in 2020 26% 2010 Purchase Funnel Aggressive Probable Conservative 93% 83% 75% Familiarity 19% Awareness Brand 55% 44% 28% 13% Charging Opinion 44% 24% 14% Infrastructure Consideration N/A Range 5.6% 3.1% 1.9% Purchase Price and Ownership Cost Note: 1. Analysis considered BEVs and PHEVs only. 2, Current funnel is derived based on the customer survey. The 2020 purchase funnel is based on sensitivity of consideration to purchase price and range within customer clusters and the purchase funnel metrics for Hybrid adoption 3. The US light vehicle volume for 2020 is assumed to be 15 Million. Sources: Deloitte analysis, Primary research, GfK Automotive Purchase Funnel Benchmarks, Jan 2010

23. Assuming a 2020 volume of 15M, a 3.1% share translates to approximately 500k units Volume Forecast Market Penetration and Volume Trends for EVs (BEVs and PHEVs) Market share in 2020 5.6% (840K units) Market share in 2015 3.1% (465K units) Aggressive 0.5% (75K units) 0.4% (60K units) Probable 1.9% (285K units) 0.3% (45K units) Conservative Note: Volume estimates are based on an automobile market of 15 million Key Takeaways • Due to barriers such as battery cost and gas price, adoption will be slow for the first three years but will pick-up as battery costs decrease Note: 1. Analysis considered BEVs and PHEVs only. 2, Current funnel is derived based on the customer survey. The 2020 purchase funnel is based on sensitivity of consideration to purchase price and range within customer clusters and the purchase funnel metrics for Hybrid adoption 3. The US light vehicle volume for 2020 is assumed to be 15 Million. Sources: Deloitte analysis, Primary research, GfK Automotive Purchase Funnel Benchmarks, Jan 2010

24. Conclusion The Conclusion: Long Road Ahead Summary Implications • Customers • EVs bring performance and styling improvement opportunities • Understanding of technology needs to improve and range anxieties addressed • Key to adoption is reduction of price and assurance of EV lifestyle • Automotive Industry • Green tech investments are accelerating, supported by government incentives • Through investments on hybrids, Toyota, Honda and Ford have the upper hand on green image • New EV introductions will broaden awareness, build excitement and imagery • Given forecasted volume of 465k units the 15 brands/models will struggle to achieve profitability and manufacturing efficiencies • EVs are attractive to customers, the automotive industry and the country • There are approximately 1.3m individuals with the demographic and psychographic profile of potential ‘early majority’ EV customers in the US • There are six barriers to adoption • Familiarity • Brand • Range • Charging • Infrastructure • Price and Cost of Ownership • Ultimately, consumer adoption of EVs will be challenged for the next decade • Mass adoption will be gradual – roughly 3% by 2020 • Complimentary technologies will continue to gain acceptance