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One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
One Billion Customers in China, estimation of passenger car demand for year 2030
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One Billion Customers in China, estimation of passenger car demand for year 2030

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  • 1. Discussion Document: Shanghai Volkswagen 上海大众 One Billion Customers in China? Estimation of Passenger Car Demand for Year 2030 S pecific M easurable A chievable R elevant T imeline based
  • 2. Agenda• Objective• Model of Replacement Customers• Model of 1st Time Customers• Estimation• Implications• AppendixesEstimation of China Passenger Car Demand by SMART 2
  • 3. SMART estimates passenger car demand in China for year2030• Analyze historical dataset from 1999 to 2007• Do not consider – Segments – Regions – Supply (technology, competition)Estimation of China Passenger Car Demand by SMART 3
  • 4. Dataset breaks down as 1st time and replacementcustomers, where replacement model is time series linear• 10-year write-off is defined by regulation• Auto insurance companies assume average 10-year write- off and 90% replacement rate in China market• Total year n = Replacement year n + New year n – Replacement year n = 90% x Total year n-10 – New year n = 1st Time Customers Model year n 1st Time 90% 90% Total Replacement Year 2000 2010 2020Estimation of China Passenger Car Demand by SMART 4
  • 5. Influence chart indicates potential drivers for 1st timecustomers demand Public Motorcycle Transportation + Cars are not necessities at + Substitute current stage Household + Income Bicycle - + + Demand Consumer Insurance + + - Urban Population + Complement + - Road Highway GasolineEstimation of China Passenger Car Demand by SMART 5
  • 6. SMART analyzes potential drivers and remove weak one,e.g. fuel oil priceFuel oil price has very weak Fuel oil has weak correlationcorrelation with car sales with gasoline in ChinaPearson = 0.2573105 Pearson = 0.4063604 1,000 7.00 900 6.00 800 Gasoline Price (RMB) 5.00 Car Sales (K Unit) 700 600 4.00 500 400 3.00 300 2.00 200 1.00 100 - 0.00 - 500 1,000 - 500 1,000 Fuel Oil Price (USD) Fuel Oil Price (USD)Source: BloombergEstimation of China Passenger Car Demand by SMART 6
  • 7. Multiple regression model (square root) explains 99.4%historical car sales 6,000 5,000 4,000 3,000 2,000 1,000 0 Actual Car Sales (K Unit) Model Prediction (K Unit)Source: CSBEstimation of China Passenger Car Demand by SMART 7
  • 8. SMART forecasts drivers, e.g. time series square root model for highway length 120 Forecast meets 100 government plan: 85K KM in 2022 80 60 40 20 0 2011 2009 2015 2029 1999 2001 2003 2005 2007 2013 2017 2019 2021 2023 2025 2027 Highway (K KM) Forecast (K KM)Source: CSB, http://www.gov.cn/ztzl/2005-09/16/content_64418.htmEstimation of China Passenger Car Demand by SMART 8
  • 9. Multiple regression model predicts demand of 1st timecustomers 9,000 100% 8,000 90% 7,000 80% 70% 6,000 60% 5,000 Threshold of Mature Stage 50% 4,000 Penetration Rate 40% 3,000 30% 2,000 20% 1,000 10% 0 0% 2011 2009 2015 1999 2001 2003 2005 2007 2013 2017 2019 2021 2023 2025 2027 2029 Car/Urban Capita% Actual Car Sales (K Unit) Model Prediction (K Unit)Source: CSBEstimation of China Passenger Car Demand by SMART 9
  • 10. SMART estimates passenger car demand in China for year2030 25,000 ≈ 20M 20,000 2007 2022 2024 15,000 ≈ 12M 10,000 ≈ 6M 5,000 ≈ 8M 0 Replacement Est. (K Unit) 1st Time Customer Est. (K Unit) Actual Car Sales (K Unit) Car Sales Est. (K Unit)Source: CSBEstimation of China Passenger Car Demand by SMART 10
  • 11. Estimation identifies managerial implications• Demand will increase to 20M in year 2030 – Investing China today will bring SVW significant financial return• Customers behaviors will change around year 2022 – SVW could consider developing new products for replacement customers• Household income is the most significant driver in short- term – Small cities also have business opportunity for SVWEstimation of China Passenger Car Demand by SMART 11
  • 12. Appendixes S pecific M easurable A chievable R elevant T imeline basedEstimation of China Passenger Car Demand by SMART 12
  • 13. Passenger car sales pushes up China gasoline price 7.00 6.00 5.00 Gasoline Price (RMB) 4.00 3.00 2.00 1.00 0.00 - 200 400 600 800 1,000 Car Sales (K Unit)Source: BloombergEstimation of China Passenger Car Demand by SMART 13
  • 14. Insurance premium is not a driver for passenger car sales 35,000 10 9 30,000 8 25,000 7 20,000 6 5 15,000 4 10,000 3 2 5,000 1 - - 2000 2002 1998 1999 2001 2003 2004 2005 2006 2007 Possesion of Passenger Cars (K) Average Premium (K RMB)Source: CSBEstimation of China Passenger Car Demand by SMART 14
  • 15. Road length is too volatile to be a strong driver 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - 2005 1999 2000 2001 2002 2003 2004 2006 2007 Road Length (K KM) Linear (Road Length (K KM))Source: CSBEstimation of China Passenger Car Demand by SMART 15
  • 16. Tornado sensitivity chart indicates household income isthe most critical driver 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Household Income Urban Population Highway Length Minus PlusEstimation of China Passenger Car Demand by SMART 16
  • 17. Time series S-Shape model forecasts household income 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Household Income (RMB) Forecast (RMB)Source: BloombergEstimation of China Passenger Car Demand by SMART 17
  • 18. Time series square root model forecasts urban population, while government plan indicates same trend 1,000,000 Forecast 900,000 meets 2020 goal 60% 800,000 700,000 600,000 Forecast 500,000 meets 2010 400,000 goal 50% 300,000 200,000 100,000 - 2003 2009 2015 2021 2027 1999 2001 2005 2007 2013 2017 2019 2023 2025 2029 2011 Population (K People) Forecast (K People)Source: CSB, http://www.chinabgao.com/reports/65327.htmlEstimation of China Passenger Car Demand by SMART 18
  • 19. USA historical dataset indicates 48% is start point for mature stage 90.0% 7.0% 80.0% 6.0% 70.0% 5.0% 60.0% 4.0% 50.0% 3.0% 40.0% 2.0% 30.0% 20.0% 1.0% 10.0% 0.0% 0.0% -1.0% 1971 1973 1999 2001 1961 1963 1965 1967 1969 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 2003 Increase YoY% Motor/Capita%Source: US Department of TransportationEstimation of China Passenger Car Demand by SMART 19

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