Indian Automotive Industry Presentation 010709

A U TO M OT I V E I N D U S T RY December 2008 www.ibef.org

AU TO M OT I V E I N D U S T RY December 2008 Contents • Profile of Indian Automotive Industry • Growth Potential of Indian Automotive Industry • India as a Manufacturing Hub www.ibef.org

PROFILE OF INDIAN AUTOMOTIVE INDUSTRY www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian auto industry has entered the era of globalisation Era of globalisation and evolution of India as a global manufacturing hub Pre 1983 1983-1993 1993-2007 • Closed market • Japanisation - • De-licensing of sector • Growth of market limited by GoI-Suzuki joint in 1993 supply venture to form • Outdated models Maruti Udyog • Global major OEMs • Joint ventures start assembly in India - Players with companies (GM, Ford, Honda, • Hindustan Motors in commercial Hyundai) • Premier vehicles and • Telco components • Imports allowed from • Ashok Leyland April 2001 alignment • Mahindra & Mahindra - Players of duty on components • Maruti Udyog and parts to ASEAN • Hindustan levels Motors • Implementation of VAT • Premier • Telco • Ashok Leyland • Mahindra & Mahindra Prerequisites for globalisation, high level of competence and productivity has become the forte of Indian automakers due to the favorable environment in the country. www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian automobile industry crossed a historic landmark of 10 million vehicles in 2006-07 • The Indian auto industry has the potential to emerge Automotive Production (Million units) as one of the largest in the world. Presently, India is 10.83 2007-08 -Second largest two wheeler market in the world 2006-07 11.09 2005-06 9.74 -Fourth largest commercial vehicle market in the world 8.47 2004-05 -11th largest passenger car in the world and is 2003-04 7.24 CAGR expected to be the seventh largest market by 2016. 11.5% 2002-03 6.28 0 2 4 6 8 10 12 million units Source: SIAM, IMaCS analysis Segment Share in CAGR total Two wheelers 74.1% 9.6% Passenger vehicles 16.3% 19.5% Three wheelers 4.6% 12.6% Commercial vehicles 5.0% 21.8% www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The OEM as well as the component industry is highly competitive • GM • Tata Motors • Toyota • Mahindra & Mahindra • Bajaj Auto • Ford Global OEM Indian OEM • TVS Motors • Hyundai • Hero Honda • Maruti Suzuki • Bajaj Tempo • Honda • Skoda • Ashok Leyland • Volvo • Mercedes • Bharat Gorge • Sundram Fasteners • Delphi • Rane Group Global Indian Suppliers Suppliers • Visteon • Shriram Pistons • Bosch • RICO Auto • Denso • Sona Koyo Steering • Valeo • Thyssen Krupp www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The OEM as well as the component industry is highly competitive • The Indian auto industry is highly competitive with a number of global and Indian auto companies present • The supplier industry is equally competitive with a mix of global and Indian players www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Most automotive players are present in more than one segment Manufacturer Segments Manufacturer Segments Ashok Leyland LCVs, M&HCVs, buses Mahindra & Mahindra Three wheelers, cars, MUVs, LCVs Asian Motor Works M&HCVs Majestic Auto Three wheelers Atul Auto Three wheelers Maruti Suzuki Cars, MUVs, MPVs Bajaj Auto Two and three wheelers Piaggio Three wheelers, LCVS BMW India Cars and MUVs Reva Electric Car Co. Electric cars Daimler Chrysler India Cars Royal Enfield Motors Two wheelers Eicher Motors LCVs, M&HCVs, buses Scooters India Three wheelers Electrotherm India Electric two wheelers SkodaAuto India Cars Fiat India Cars Suzuki Motorcycles Two wheelers Force Motors Three wheelers, MUVs and LCVs Swaraj Mazda Ltd LCVs, M&HCVSs, buses Ford India Cars and MUVs Tata Motors Cars, MUVs, LCVs,M&HCVs, buses General Motors India Cars & MUVs Tatra Vectra Motors M&HCVs Hero Honda Motors Two Wheelers Toyota Kirloskar Cars, MUVs Hindustan Motors Cars, MUVs and LCVs TVS Motor Co Two wheelers Honda Two wheelers, cars and MUVS Volvo India M&HCVs, buses Hyundai Motors Cars and MUVs Yamaha Motor India Two wheelers Kinetic Motor Two wheelers MUVs: Multi utility vehicles; MPVs: Multi purpose vehicles; LCV: Light commercial vehicles; M&HCVs: Medium and heavy commercial vehicles www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Two wheelers industry is dominated by motorcycles Domestic two-wheeler industry Break up of the industry by segment Million units • Scooter/Scooterette : 2008 7.25 6% Wheel size less than or equal to 12 inches 2007 7.86 14% • Motorcycle: Wheel size 2006 7.05 more than 12 inches • Mopeds: Engine capacity 2005 6.21 less than 75 cc with fixed transmission, wheel size 2004 5.36 more than 12 inches 2003 • Electric Two Wheelers: 4.81 CAGR 13% Electrically Driven 2002 4.2 80% 0 1 2 3 4 5 6 7 8 Source: SIAM, IMaCS analysis n Motorcycles n Scooters n Mopeds www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Two-wheelers industry is dominated by motorcycles • Domestic two-wheeler industry has steadily grown at a CAGR of 9.5 per cent to reach 7.25 million units in 2006-07 • Motorcycle segment has attained highest growth and dominates the market • Entry level bikes (engine power below 125 cc and price US$ 850-1,100) account for around 80 per cent sales • Cost of ownership and economics of operation are key purchase criteria • Premium bike segment (engine power above 125 cc and price US$ 1,200-2,000) growing at a faster pace as compared to the entry level vehicles, an indication of increasing affluence of users • Some manufacturers have opted out of 100CC segments and are positioning the 125cc as entry level 10 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 While the motorcycles segment is growing, the scooter segment is shrinking • Scooter segment as a whole has been shrinking, Segment-wise analysis of two-wheeler market except for the A2 segment Segment Description Share in Share in 2001-02 2007-08 • Bikes having engine capacity 75-125 cc corner A1 Scooter with engine capacity 5% 0.5% the major share of the two wheeler market less than 75 cc A2 Scooter with engine capacity 5% 13% • B3 segment is the fastest growing segment in the between 75-125 cc Indian two wheeler market. A3 Scooter with engine capacity 12% 1% between 125-250 cc B Motorcycle with engine % % capacity between -1 cc B Motorcycle with engine % 1% capacity between 1-0 cc B4 Motorcycle with engine capacity 1% 0.5% above 250 cc C1 Mopeds 10% 6% 11 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The domestic two wheeler market is dominated by Indian as well as foreign players • Hero Honda: Largest Two-wheeler manufacturer Market share of key players in 2006-07 in the world 3% 9% • Bajaj Auto: Second largest Two-wheeler manufacturer in India and the largest 3 wheeler 42% manufacturer 19% • TVS Motor Co: Third largest Two-wheeler manufacturer in India. Established a manufacturing facility in Indonesia 27% • Honda Motors: Has recently entered the Indian n Hero Honda Motors n Bajaj Auto Ltd market through its direct subsidiary (in addition n TVS Motor Co, n HMSIL to its joint venture Hero Honda) n Others Source: SIAM, IMaCS analysis • Suzuki: Has recently entered the Indian market through its direct subsidiary 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The domestic two wheeler market is dominated by Indian as well as foreign players • In the Two-wheeler market in India, competition is intense with around 10 players competing for the share of the industry • The players include global giants like Honda, Suzuki, Yamaha as well as Indian players like Bajaj and TVS • The market leader is Hero Honda Motors, closely followed by Bajaj Auto • Industry is characterised by frequent new product launches, with over 22 models launched in 2007-08 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Two wheelers exports have grown at an impressive CAGR of 41% Two wheeler exports from India Market share of key players in exports 2007-08 Thousand units 4% 2008 819.8 9% 2007 619.2 2006 11% 513.2 CAGR 41% 59% 2005 366.4 2004 265.1 17% 2003 179.7 2002 104.2 0 100 200 300 400 500 600 700 800 900 (in ‘000 units) n Bajaj Auto n TVS Motor Company Source: SIAM, IMaCS analysis n Hero Honda Motors Ltd n Others n Hond(HMSIL 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Two wheelers exports have grown at an impressive CAGR of 42% • Exports of two wheelers have grown at over 41 per cent CAGR in last six years • Majority of exports are to Bangladesh, Sri Lanka, Bhutan and Nepal • Highest growth (year on year growth of 79 per cent) witnessed in the above 125 CC motorcycles segment, which constituted 36 per cent of two wheeler export market up from previous year’s 26 per cent. • 58 per cent of the bikes exported were those with engine capacity below 125 cc. • Bajaj Auto is the market leader in exports with 59 per cent share. 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Passenger vehicles segment in India is dominated by cars Domestic passenger vehicles industry Domestic passenger vehicles industry thousand units 2008 1548.0 22% 2007 1379.7 2006 1143.1 2005 1061.6 78% 2004 902.1 2003 707.2 CAGR14.8% 2002 675.1 200 400 600 800 1000 1200 1400 1600 n Passenger cars n SUVs/MVs Source: SIAM, IMaCS Analysis 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Passenger vehicles segment in India is dominated by cars • The domestic Indian passenger vehicles market has grown at a CAGR of 14.8 per cent over the last six years to reach 1.5 million units in 2007-08. • Passenger cars, contributing to 78 per cent of volumes, grew at a CAGR of 15 per cent. • The remaining share is with utility vehicles and sports vehicles 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 All major global players in passenger vehicles segment have a presence in India • Maruti Udyog: Largest passenger car manufacturer Market shares of key players in 2007-08 in the country, India considered as strategic market by Suzuki 13% • Tata Motors: Largest automotive player in the 4% Indian industry; launching the Rs. 1 lakh (US$ 2,500) car 8% 46% • Hyundai Motors: Third largest passenger car 14% manufacturer in India, has established India as one of its manufacturing bases in the world 15% n Maruti Udyog Ltd. n Tata Motors Ltd . n Hyundai Motor India Ltd. n Mahindra & Mahindra n Toyota n Others Source: SIAM, IMaCS Analysis 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 All major global players in passenger vehicles segment have a presence in India • Mahindra & Mahindra: Amongst the largest players in the multi utility vehicles segment, has tied up with Renault for manufacturing and marketing of Logan brand of cars in India • Toyota: Has vision of capturing 10 per cent share of the Indian passenger car market by 2010 • Honda Motors: One of the leading players in the Indian premium cars segment • Ford: Leading player in the premium cars segment • General Motors: Leading player in the premium segment; entered the compact car segment recently 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 All major global players in passenger vehicles segment have a presence in India • There are more than a dozen manufacturers in the industry • Most of the leading global players have a presence in India in the form of joint ventures or subsidiaries • The industry leader is Maruti Udyog with 46 per cent market share, closely followed by Tata Motors and Hyundai Motors at 15 per cent and 14 per cent respectively 0 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 India is increasingly becoming a manufacturing hub for passenger cars Cars Exports from India Market share of key players in exports 2007-08 Thousand units 3% 2008 217.05 7% 2007 198.48 2006 175.57 166.40 2005 24% 66% 2004 129.29 2003 72.01 CAGR 26% 2002 53.17 0 50 100 150 200 250 300 350 400 n Hyundai Motor India Ltd. n Maruti Suzuki India Ltd n Tata Motors Ltd n Others Source: SIAM, IMaCS Analysis 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 India is increasingly becoming a manufacturing hub for passenger cars • Exports of cars from India have grown at a CAGR of 26 per cent CAGR in the last six years to reach 217 thousand units in 2007-08. • Hyundai Motors is the market leader in exports of cars with 66 per cent share up from previous year’s 58 per cent share; the company uses India as a manufacturing base for compact cars across the globe. • Exports are made to South America, Africa, Europe, Latin America and the Middle East. www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Commercial vehicles segment has witnessed the highest growth rate in the automotive industry Domestic CV Industry Breakup of the Industry by segment 2008 486.82 6% 8% 2007 467.88 351.04 2006 2005 318.43 48% 38% 2004 260.11 CAGR 2003 190.68 22% 2002 146.67 0 100 200 300 400 500 n M & HCV Goods n LCV Goods n M & HCV Passenger n LCV Passenger Source: SIAM, IMaCS Analysis www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Commercial vehicles segment has witnessed the highest growth rate in the automotive industry • Domestic CV industry sales reached 486.82 thousand vehicles in 2007-08, registering a CAGR of 22 per cent over last six years. • Share of LCVs is gradually increasing, indicating the emergence of hub and spoke model of transportation • In 2007-08, M&HCV passenger vehicles lead the growth at 34 per cent over the last year. • Goods industry is dominated by multi axle vehicles, which account for nearly 50 per cent of the market www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 CV industry is dominated by Indian players • Tata Motors Ltd: Largest commercial vehicle Market Shares of Key Players in 2006-07 manufacturer in the country, has acquired the 6% Korean manufacturer Daewoo Gap Motors 6% • Ashok Leyland Ltd: Second largest player with 11% considerable market share in M&HCV segment; has formed a JV to manufacture LCVs with Nissan 15% 62% • Mahindra & Mahindra Ltd: Relatively new player in the segment; has formed JV with International Trucks to manufacture M&HCV trucks in India n Tata Motors Ltd n Ashok Leyland Ltd • Eicher Motors Ltd: Leading player in the LCV trucks n M&M Ltd n Eicher Motors Ltd segment; has entered the M&HCV trucks segment n Others Source: SIAM, IMaCS Analysis recently • Swaraj Mazda Ltd: One of the leading players in the LCV segment • Volvo India: One of the leading players in luxury passenger buses and heavy duty tippers www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 CV industry is dominated by Indian players • Tata Motors is the market leader in both goods and passenger segments, closely followed by Ashok Leyland • LCV market is dominated by Tata Motors, followed by Mahindra & Mahindra • Introduction of Tata Ace has contributed significant growth in the sub one tonne segment • Many players are in the process of strengthening their hold in the market through JVs . www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian CV exports have witnessed a more impressive growth CV Exports from India (Thousand units Market Share of Key Players in Exports (2007-08) 2% 59.00 2008 4% 49.77 2007 15% 40.60 2006 12% 29.94 2005 17.43 2004 67% 12.26 2003 CAGR 30.6% 11.87 2002 n Tata Motors Ltd n Ashok Leyland Ltd 10 20 30 40 50 60 0 n M&M Ltd n Eicher Motors Ltd n Others Source: SIAM, IMaCS Analysis www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian CV exports have witnessed a more impressive growth • Exports have grown at a fast pace of over 30 per cent over the last six years. • Tata Motors accounts more than 70 per cent of the CV exports, with Ashok Leyland and Mahindra&Mahindra making up for a large portion of the balance. • LCV goods carriers accounted for 52 per cent of the overall exports • Major portion of the exports are to Sri Lanka, Gulf countries and Africa www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Growth in three wheelers has been driven by the need for low cost last mile transportation system Domestic three wheeler Industry (Thousand units) Break-up of Industry by segment (2008) 2008 364.70 2007 403.91 2006 359.92 36% 2005 307.86 64% 284.08 2004 2003 231.53 CAGR 10.5% 200.28 2002 0 100 200 300 400 500 n Passenger Carrier n Goods Carrier Source: SIAM, IMaCS Analysis www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Growth in three wheelers has been driven by the need for low cost last mile transportation system • Three Wheeler sales in India touched a new record of 0.36 Million registering a growth of 10.5 per cent CAGR over the last six years • The proportion of Goods carriers in the proportion of overall sales has doubled indicating towards the increased need for low cost last mile transportation systems • Sub 3.5 tonne segment in goods accounted for 71 per cent of the sales and Sub Four seater segment in passenger versions accounted for 97 per cent of the sales 0 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The three wheeler market is dominated by Bajaj Auto • Bajaj Auto Ltd. : Market leader in the Market Share of Key players 2007-08 Three wheeler segment, in the process of revamping its product portfolio 8% 9% • Piaggio Vehicles : The Italian manufacturer is one of the leading players with fast growing market 42% share, in the process of making India as their global hub 41% • M&M Ltd: One of the leading players in the segment • Atul Auto Ltd: Have introduced new products n Bajaj Auto n Piaggio Vehicles in the rear engine segment, and also is a manufacturer n M&M n Others of ‘Chakda’’ a Three wheeler reengineered from Two Source: SIAM, IMaCS Analysis wheeler, popular in the western parts of the country • Force Motors Ltd: A JV between Bajaj Tempo and MAN AG of Germany; leading player in the goods segment 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The Three wheeler market is dominated by Bajaj Auto • Bajaj Auto emerged the leader in Three Wheeler industry with 42 per cent share, closely followed by Piaggio with 41 per cent share • Bajaj Auto lead the passenger carrier segment with 54 per cent share, while Piaggio lead the goods segment with 44 per cent market share www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Exports of Three wheelers have been growing rapidly, with Bajaj Auto the clear market leader • Exports of three wheelers touched a new high Three wheeler exports and growth (Thousand Units) of 141.24 thousand units, registering a robust growth of 44.5 per cent CAGR over the last six years 2008 141.24 143.90 2007 • This has been contributed almost entirely by Bajaj Auto, which accounted for around 2006 76.88 2005 66.80 97 per cent of exports in 2006-07 2004 68.14 • Bajaj Auto exports to Sri Lanka, Egypt, Nepal, 43.37 2003 CAGR 44.5% Bangladesh among other countries 15.46 2002 0 25 50 75 100 125 150 175 Source: SIAM, IMaCS Analysis www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian firms are increasingly partnering with foreign firms Indian OEM Foreign Partner Type of Partnership Maruti Suzuki Suzuki Motor Corporation- Equity partner Japan Mahindra Logan Renault Joint Venture Tata motors Fiat Tie-up for manufacturing and marketing in India KINETIC Group Sanyang Industry Co Ltd Technology (SYM- Taiwan Italjet -Italy Tie-up for manufacturing and distribution Hero Honda- Japan Technology Hero Cycles Ultra Motor Company, U.K Technology Bajaj Auto Kawasaki Heavy Industries Ltd, Engine Technology Japan Engine Technology Technology Kubota Corp, Japan Technology L&T Ltd Scania-Spain Tie-up for marketing in India Ashok Leyland Hino-Japan Engine Technology Irizar-Spain Bus body Technology ZF-Germany Gearbox Technology Tata Motors Marco Polo-Brazil Bus/Coach Technology Cummins-USA Engine Technology www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Three major automotive clusters exist in India • Major automotive clusters - Mumbai-Pune-Nasik- Aurangabad (West), Chennai-Bangalore-Hosur (South) and Delhi-Gurgaon-Faridabad (North) • Export oriented companies have formed base in the West/South regions, due to proximity to ports www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Three major automotive clusters exist in India North / Central • Ashok Leyland • Eicher Delhi-Gurgaon-Noida- Ghaziabad • Force Motors • Hero Honda Ludhian Haridwar a • Hindustan Motors • Honda • Honda SIEL • ICML Jamshedpur • Kinetic • LML Pitampur Kolkata • Majestic • Maruti Suzuki • Piaggio • Yamaha • Swaraj Mazda • Tata Motors East • Hindustan Motors • Tata Motors Chennai Bangalore Hosur www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Three major automotive clusters exist in India West • Ashok Leyland • Atul Auto Delhi-Gurgaon-Noida- Ghaziabad • Bajaj Auto • Daimler Chrysler Ludhian Haridwar a • FIAT • Force Motors • GM • Greaves Jamshedpur • Kinetic • M&M Pitampur Kolkata • Piaggio • Premier • Skoda • Tata Motors Chennai Bangalore Hosur www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Three major automotive clusters exist in India South • Ashok Leyland • Enfield Delhi-Gurgaon-Noida- Ghaziabad • Ford • Greaves Ludhian Haridwar a • Hindustan Motors • Hyundai • Mahindra & Mahindra Jamshedpur • Tatra • Volvo Pitampur Kolkata • Toyota Kirloskar • TVS Motors Chennai Bangalore Hosur www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian Auto Policy is designed for supporting the growth of the industry In 2002, the Indian Government • Automatic Approval for Foreign formulated an Auto Policy aimed equity investment up to 100% • No Minimum Investment Criteria at promoting an integrated, phased enduring and self-sustained growth of the industry LOW ENTRY BARRIER • Investment Incentives by the • Government’s intention on Indian Auto Policy 2002 INVESTMENT CONCERN FOR Local State Governments: Most harmonizing the regulatory INCENTIVES EMISSIONS States Customise incentives for standards with the rest of Large Investments world EMPHASIS ON R&D • Weighted Tax Deduction up to 150 per cent for in-house research and R&D activities Source: ARAI, IMaCS Analysis www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian automotive regulations are in the process of being aligned with European regulations • Indian automotive regulations are closely aligned 81 21 20 to the ECE regulations. The diagram below depicts the level of alignment of the Indian regulations with 2007 the ECE regulations 0 50 100 122 • The key regulations that are likely to impact the n Fully/ Partially Allign n In Process of Being Aligned n Items/ Regulations to be covered auto industry and create the need for world class Source: ARAI, IMaCS Analysis products in the future are crash related regulations and introduction of Bharat Stage IV norms 0 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Safety and emission related regulations in India - Achievements and Plans Achievements Till Date Plan NCR and 10 EURO - IV Major Cities NCR and 10 Entire Country EURO - III Major Cities Emission Regulations NCR and 3 NCR and 10 Entire Country EURO - II Major Metros Major Cities Entire Country EURO - I 2000 2001 2003 2005 2010 • Anti Brake Skid –2007 • Brakes•Steering effort•Gradeability•Installation • Truck cab occupant of mirror, Horn & Lighting devices•Rear Under protection -Crash run Protective Devices (RUPD) Lateral Protective • Super structure of bus. Safety Regulations Devices (LPD)•Safety belt•Electro Magnetic •Airbags Interference (EMI)•Wiping system•Rear View • Electro Magnetic Compa- Mirror etc tibility (EMC) • Front Under run protective Devices (FUPD) Source: ARAI, IMaCS Analysis 1 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Rae Bareilly Centre Complete homologation services to Agri Tractors, Off road Vehicles , Gensets as per Indian or Global standards & Driver Training centre Center of Excellence For Accident Data Analysis Commissioning Schedule Phase-I : July 2010; Phase-II : Aug 2010 Ahmednagar-VRDE Up-Gradation Research, Design, Development and Testing of Vehicles Centre of Excellence For Photometry, EMC, EMI,Test Tracks Commissioning Schedule Phase-I : July 2010; Phase-II : Aug 2010 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Pune- ARAI Up-Gradation Complete homologation services to all vehicle categories as per Indian or Global Standards Centre of Excellence For Power Training Development, Materials, Fatigue Commissioning Schedule Phase-I : 2008; Phase-II : 2009 Manesar- iCAT Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Component Development, NVH Commissioning Schedule Phase-I : 2008; Phase-II : 2010 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Silchar Centre Hill area Driver Training Centre and Inspection & Maintainence Facilities Centre of Excellence For Driver Training Commissioning Schedule Phase-I : 2008; Phase-II : 2010 Indore -Proving Grounds Complete Testing Facilities to all vehicle categories as per Indian or Global Standards Centre of Excellence For Vehicle Dynamics, Tyre Development Commissioning Schedule Phase-I : 2009; Phase-II : 2010 www.ibef.org

PRO F I L E OF I N D I A N AU TO MOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 The Government of India has taken a strong initiative to strengthen automotive related R&D infrastructure Facilities of National Automotive Testing and R&D Infrastructure Project (NATRIP) Chennai Centre Complete homologation services to all vehicle categories as per Indian or Global Standards Center of Excellence For Infotronics,EMC,Passive Safety Commissioning Schedule Phase-I : 2008; Phase-II : 2011 www.ibef.org

GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRY www.ibef.org

GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Growth drivers for the Indian automotive industry - Overall economic growth - Lower duties and taxes Government Policies - Growth in income levels - Contemporary products - Easier financing New products Increasing consumer Indian Automotive - Shorter life cycle launches demand Industry Cost Competiveness - Export competitiveness - Reduced cost to consumer - India emerging as a manufacturing hub www.ibef.org

GROW T H P OT E N T I A L O F I NDIAN AUTOMOTIVE INDUSTRY AUTOMOTIVE INDUSTRY • December 2008 Indian Automotive Mission Plan – Vehicle sales expected to grow to 32 million by 2015-16 Potential vehicle sales in India (2015-16) • The size of the Indian automotive industry million units is expected to grow at 13 per cent p.a over the next decade to reach around US$ 120-159 billion Cars 2.65 by 2016 • The total investments required to support the CVs 0.64 growth are estimated at around US$ 35-40 billion Two 27.8 • The Two wheelers industry is expected to lead wheelers the growth, with an estimated sales of 27.8 0.87 Three million units by 2016 Wheelers • Total export in the automotive sector would 31.96 Total be around US$ 30-35 billion, of which component exports would account for US$ 20-25 billion Source: SIAM, ACMA, AMP Vision & IMaCS Analysis and vehicle exports for the rest www.ibef.org

INDIA AS A MANUFACTURING HUB www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Global passenger car companies are taking advantage of India’s manufacturing base • Nissan Motor Co. has identified India as one of the five low-cost countries to manufacture its new generation compact cars, including the Micra. • Volkswagen is investing in 110,000-unit passenger car assembly plant, expected to be operational by end of 2009.Volkswagen’s India plans include manufacture of small cars based on the ‘Polo’ platform. • Toyota has announced plans for a second plant to begin operations in 2010, having an initial annual production capacity of around 100,000 vehicles apart from the transmission plant which it had already setup to meet the regional demand. Source: Industry News 0 www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Global passenger car companies are taking advantage of India’s manufacturing base • Hyundai Motors - Hyundai has shifted its entire production of the Atos Prime, its compact model, to its Chennai Plant. It has also set up a US$ 40 million computer-aided design centre in Hyderabad. For the newly launched Model i10,India would be the sole manufacturing base. The company also plans to invest a further US$ 250 million in India by 2013, raising its cumulative investment in the country to around US$ one billion. • General Motors, the US$ 60 million technical centre in Bangalore will be its powerhouse for developing future technologies and shaping new cars. • Ford Motor Co: It exports 58 per cent of the total production from India. Source: Industry News 1 www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Indian Auto Industry is witnessing more JVs and acquisitions than ever. • Mergers, acquisitions and joint ventures have continued to be the driving force in the Indian automobile industry in sync with the dynamics of an open market. Leading automobile companies have either set up their own manufacturing base in India or have tied up with Indian automotive firms to roll out new products from Indian market. The list includes International, MAN, Daimler, Toyota, Nissan, Renault, Fiat, Honda, Kawasaki, Cummins and many more. During the first half of 2008, Daimler AG bought 26 per cent stake in Sutlej Motors. • Indian companies have also been bullish in acquiring foreign automobile companies to reinforce their presence in the global market. The landmark deal in the first half of 2008 has been Tata Motors’ acquisition of Jaguar-Land Rover from Ford for US$ 2.30 billion. During this period M&M acquired three Italian companies - GR Grafica Ricerca, Metalcastello and Engines Engineering. www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Several factors make India a favourite investment destination Proven product developmental capabilities Proximity to Markets - More than 125 Fortune 500 (including - Proximity to other Asian economies large auto companies) have R&D cen- - Proximity to the emerging markets like tres in India Africa - Companies can leverage India’s acknow- - Shipments to Europe are cheaper than ledged leadership in the IT industry those from Brazil and Thailand High quality standards - 11 Indian component manufacturers Stable economic policies have won the Deming Award for quality - Continuity in economic reforms - Most leading component manufacturers and policies related to investments are QS and ISO certified India as an Auto Large and growing domestic demand Hub - Demand growth of 14% CAGR makes Competitive manufacturing cost India one of the fastest growing markets - Skilled labour costs amongst the lowest in India Availability of Manpower Export Potential - 0.4 million Engineering graduates pass - Total value of exports by 2015 expected out every year to reach US$ 8–10 billion for vehicles - Seven million enter workforce every year and US$ 20–25 billion for components www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Competitiveness of Indian automotive manufacturing In order to emerge as a manufacturing hub, India would face competition from other low cost countries such as • China • Thailand • Brazil IMaCS has compared the cost competitiveness of automotive (car and CV compared separately) manufacturing in India with respect to these countries in terms of factors like • Taxes and duties • Cost of manufacturing (for example, power and fuel costs, labour costs, including productivity interest rates) • Economies of scale www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Competitiveness of Indian automotive manufacturing Competitiveness of manufacturing in India can be improved by reducing the level of taxes and the cascading impact of taxes and by improving the business infrastructure www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Tax structure in India vis-à-vis other countries The burden of direct and indirect taxes is higher India Brazil China Thailand in India than in other countries Excise Small CVs* - - - Cars* • Government of India announced an across the 8.18% 12.27% +cess +cess board excise duty reduction of four per cent across VAT 12.5% 17% 17% 7% automobiles on December,7 2008. In case of Bus Other Taxes - 15%# - - chassis, Excise duty is further less at 8.18 per cent. Corporate Tax 34% 34% 25% 30% #Refers to local taxes(WHT) Exemptions Specific Tax incentives Preferential Tax incentives packages for companies corporate for investments ^Import duty on heavy plates have been reduced to twp provided by in export tax policies outside central states for large processing for Foreign zone per cent, but with a cap of 20,000 tonnes. investments zones Investment Enterprises Import duty on 13% 16% 8% Free rubber Import duty on 5% 12%^ 2% 10% steel Source: GOI, Apectariff, www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Labour & Labour Productivity in India vis-a-vis other countries • India compares favourably with other low cost India Brazil China Thailand countries in productivity adjusted labour cost Labour cost (US$/hour) 0.75 4.2 0.75 0..8 • Indian labour productivity in the manufacturing Labour cost (US$/day)* 6 33.6 6 6.4 sector is on an increase with the application of Productivity index** 1.0 2.0 1.0 1.2 production management techniques and many Productivity adjusted 6 16.8 6 5.33 companies have doubled their productivity labour cost (US$/day) in last five years *Assuming 8 hour shift per day ** Gross value added per person employed when compared to India • Government of India has earmarked nearly Rs 10 billion for human resource skill development Source: GOI, Apectariff, initiatives across industry sectors. www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Power Cost in India vis-à-vis other countries • Recent downturn across the global economy has Power costs forced the central banks of major countries to slash Country Cost per kwh (US$) lending rates. India 0.14 Brazil 0.05 • Power cost in India is the highest amongst the China 0.03 competing countries Thailand 0.11 • However, power cost accounts for around 3 per cent of the overall cost structure, hence not a significant disadvantage Interest costs • Power costs in India varies by state and Country Annual lending interest rate is as low as US$ 0.1 in states like Maharashtra India 10-11% Brazil 14-16% • With privatisation and competition in the China 5-6% emerging Indian power sector, cost of power Thailand 7-8% is expected to come under control • Interest rates in India are high as compared to competing countries, but expected to soften in the future www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Cost competitiveness - India versus China • Indian manufacturers suffer from a cost Cost breakup Cars CV disadvantage vis-à-vis Chinese manufacturers Cost of vehicle of an Indian 100 100 mainly because of higher level of taxes and their Company Less cascading impact, higher cost of labour (arising Taxes and Duties Net state level -1.2% -1.89% out of inflexible labour laws) and higher interest levies and cascading impact of taxes costs and power and fuel costs Import duty on -0.62% -0.34% raw materials • Power costs in India vary from state to state, and Corporate taxes -0.24% -0.24 is much lower than the average considered for Total -0.0% -.% calculations in the power surplus, hydroelectricity Industry costs Power & fuel -3.4% -3.6% generating states. Labour cost - - Cost of funds -0.8% -0.8% Total -.% -.% Cost disadvantage -6.02% -11.4% for India Economies of scale no diff no diff Total cost -.% -.% disadvantage for India Source: Government websites, discussions with leading automotive players, IMaCS analysis www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Cost competitiveness - India versus Thailand • Indian vehicle manufacturers have a small cost Cost Break-up Cars CV disadvantage vis-à-vis Thai vehicle manufacturers, Cost of vehicle of an Indian 100 100 primarily due to higher level of taxes in India. Company Less The cost disadvantage has reduced by 2.23 per cent Taxes and Duties Net state level -4.69% -5.36% over last year in the case of small cars due to two levies and cascading impact of taxes consecutive cuts in excise duty announced by GOI in Import duty on -0.1% -0.1% FY 2008-2009. raw materials Corporate taxes -0.2% -0.20% • However the large market potential and steady Total -.% -.% growth of the Indian market more than makes Industry costs Power & fuel -1.26% -1.11% up for this disadvantage. Labour cost -0.3% -0.5% Cost of funds -0.5% -0.66% Total -.0% -.% Cost disadvantage -6.85% -7.73% for India Economies of scale no diff no diff Total cost -.% -.% disadvantage for India Source: Government websites, discussions with leading automotive players, IMaCS Analysis 0 www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Cost Competitiveness - India versus Brazil • India is competitively positioned vis-à-vis Brazil Cost Break-up Cars CV in cars as well as CV Cost of vehicle of an 100 100 Indian Company • India enjoys greater scale advantage as compared to Less Brazil in the case of cars as capacity utilisation Taxes and Duties Net state level levies -0.2% -1% and cascading impact in India is better, despite Brazil having larger of taxes installed capacities Import duty on raw - - materials Corporate taxes - 0% - 0% Total -0.% -1.0% Industry costs Power & Fuel - 2.36% - 2.56% Labour cost 8% 16.4% Cost of funds 0.1% 0.16% Total .% .1% Cost advantage for 5.54% 13.0% India Economies of scale 7% no diff Total cost 1.% 1.0% advantage for India Source: Government websites, discussions with leading automotive players, IMaCS Analysis 1 www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Conclusions • India has a cost advantage when compared to Brazil • However, India suffers from a cost disadvantage vis-à-vis China and Thailand, primarily due to high level of taxes and their cascading impact • India, in the near future is expected to go ahead with the abolition of interstate Central Sales Tax (CST), which will reduce the cascading impact of taxes to some extent www.ibef.org

IN D I A A S A M A N U FAC T U R I NG HUB AUTOMOTIVE INDUSTRY • December 2008 Conclusions • Implementation of Goods & Services tax (along the lines of VAT) and abolition of all other taxes by 2010 is under consideration, which will reduce the taxation loading on the automotive sector considerably. This step is expected to strengthen India’s future position as a leading automobile manufacturing hub • Various steps being taken by the Indian government in improving infrastructure would reduce the disadvantage that India suffers from because of poor infrastructure that causes project delays, delays in deliveries and so on. This would increase the demand for road transportation in the country www.ibef.org

AU TO M OT I V E I N D U S T RY December 2008 DISCLAIMER This presentation has been prepared jointly by the India Brand Author’s and IBEF’s knowledge and belief, the content is not Equity Foundation (“IBEF”) and ICRA Management Consulting to be construed in any manner whatsoever as a substitute for Services Limited, IMaCS (“Authors”). professional advice. All rights reserved. All copyright in this presentation and related The Author and IBEF neither recommend or endorse any works is owned by IBEF and the Authors. The same may not be specific products or services that may have been mentioned reproduced, wholly or in part in any material form (including in this presentation and nor do they assume any liability or photocopying or storing it in any medium by electronic responsibility for the outcome of decisions taken as a result means and whether or not transiently or incidentally to some of any reliance placed in this presentation. other use of this presentation), modified or in any manner Neither the Author nor IBEF shall be liable for any direct or communicated to any third party except with the written indirect damages that may arise due to any act or omission approval of IBEF. on the part of the user due to any reliance placed or guidance This presentation is for information purposes only. While due taken from any portion of this presentation. care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the www.ibef.org

Indian Automotive Industry Presentation 010709

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