China’s Next Revolution:
Leading the Transition to Electric Cars
                          Presented to:




             ...
Global Trends - Best Timing for New Energy
Driving the Revolution: China Becomes the Largest Car Market
New Energy Vehicle...
When the automobile was introduced in late 1800’s, it was not
readily apparent which engine technology would prevail
     ...
ICE was victorious primarily due to its virtues of speed, power, and
range – courtesy of petroleum’s exceptionally high en...
Key drivers for new era of alternative energy technology

                                                                ...
1 Unsustainable petroleum-based consumption



  Global daily oil consumption is still increasing steadily, of which
  tra...
1 Unsustainable petroleum-based consumption



  Emerging markets such as China are the major forces pushing up
  global o...
2 Increasing environmental pressure



  Our climate is going unsustainable with a gradual global warming trend…




     ...
2 Increasing environmental pressure



  …mainly caused by the world wide increase in CO2 emissions,
  which is more signi...
3 Alternative energy technology reaching threshold



  Cost is still the major barrier in EV, but recent progress has pus...
3 Alternative energy technology reaching threshold



  Also, energy density of electric battery has reached the minimal
 ...
Global Trends - Best Timing for New Energy
Driving the Revolution: China Becomes the Largest Car Market
New Energy Vehicle...
China’s Recently Explosive Automobile Market Growth
• Although 2008 2H growth has flattened, China PV sales are still up 9...
Fall 2008: The Tsunami Struck




          090924_EU_CoC_PRES FINAL.ppt   13
The Crisis Has Brought Major Losses In Wealth And GDP Growth

                                                            ...
The China Government Is Striving to Achieve 8% GDP Growth Target
            Boost Domestic Demand                        ...
In 2009 China exceeds the US to become the world largest auto
market
                           2008 World Auto Sales     ...
As The Leading Automotive Market, China Has The Opportunity To
Drive The Standards And Architecture For The Global Auto In...
3 Infrastructure & legacy: severe environmental pressure



  China has a clear and compelling need to reinvent the propul...
Comparing to mature markets, China appears ready to address the
challenges in introducing electric vehicles
              ...
1 Technology: ample resources & experience in battery manufacturing



  China has much larger resource reservation and mo...
2 Consumer acceptance: consumer habit



  Consumer habit in China is still in the forming process due to
  relatively sho...
3 Infrastructure & legacy: infrastructure, facilities and services



  The popularization of EV largely relies on the rel...
Global Trends - Best Timing for New Energy
Driving the Revolution: China Becomes the Largest Car Market
New Energy Vehicle...
The Chinese government has been a strong driving force, starting 10
years ago, CNG And LPG vehicles were promoted…

      ...
… since 2002, A 3×3 R&D mechanism was initiated to develop EVs
through the 863 program…
                  Milestone in pha...
… since 2006, all types of new energy vehicles are listed on the new
round of 863 program and a new R&D mode is framed…

 ...
… with this structure, China has made progress in development
of key technologies, but more effort is needed on OEM side

...
China’s ministry of science and technology is driving a plan to support
development of “new energy vehicles” (NEVs)


    ...
National governments and global OEMs must take note of China’s
commitment to fund the development of its NEV infrastructur...
Meanwhile, OEMs in China are viewing EV as an opportunity to
catch up with foreign counterparts, thus are actively engagin...
In line with government mandate, many local brands participate in
NEV development, some with support of foreign partners

...
3 Overview of NEV in China



  Initially required by government, now developing NEV is
  gradually integrated into OEMs l...
In view of the large market potential in China, foreign OEMs are
prioritizing NEV development in China

                  ...
China’s push for electric cars was clearly on display at this year’s
Shanghai motor show




Source: Synergistics, Booz & ...
Environmental vehicles must offer customer benefits or they will
fail, GM’s EV1 provides us with a good example

         ...
BYD has introduced the first mass produced plug-in EV to use
a home outlet, yet market acceptance remains challenging
    ...
2 Case Study: BYD’s success with the co-op model



  BYD made the price step from ICE to EV transparent with the
  simila...
Through the co-op model, BYD’s technology innovation has
brought huge cost advantage while improving performance
         ...
2 Consumer acceptance: economic dominant



  Though consumer environmental consciousness is apparent,
  economic consider...
Global Trends - Best Timing for New Energy
Driving the Revolution: China Becomes the Largest Car Market
New Energy Vehicle...
Innovations in both technology and business models will be
needed to succeed in the EV industry
                          ...
The value chain of the EV industry - a new ecosystem
                                                             Key Stak...
1 Technology Innovation: The Co-Op Model



  In order for the technology innovation to achieve performance and
  cost bal...
2 Business Model Innovation: “Paying for miles” Model



  A sufficient infrastructure is critical, thus the business mode...
Conclusions: Driving Market Acceptance

     Consumer acceptance of new energy vehicles is major challenge
     – While th...
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China's Next Revolution: Leading the Transition to Electric Cars

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Presentation to European Union Chamber of Commerce in Shanghai. September 24, 2009

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China's Next Revolution: Leading the Transition to Electric Cars

  1. 1. China’s Next Revolution: Leading the Transition to Electric Cars Presented to: EUROPEAN UNION CHAMBER OF COMMERCE September 24, 2009
  2. 2. Global Trends - Best Timing for New Energy Driving the Revolution: China Becomes the Largest Car Market New Energy Vehicles and Applications in China An New Ecosystem and Strategic Implications 090924_EU_CoC_PRES FINAL.ppt 1
  3. 3. When the automobile was introduced in late 1800’s, it was not readily apparent which engine technology would prevail Steam vs. Electric vs. Internal Combustion Electric Car Steam Car Gasoline-Powered Car (Robert Anderson, 1839) (Nicolas Joseph Cugnot 1769) (Carl Benz, 1886) At the end of 19th century, electrics outsold all other types of cars 090924_EU_CoC_PRES FINAL.ppt 2
  4. 4. ICE was victorious primarily due to its virtues of speed, power, and range – courtesy of petroleum’s exceptionally high energy density Competitive Advantages by Powertrain Energy Density of Petroleum vs. Other Fuels Energy Available Criteria Electric Steam ICE (Mega Joules per Liter) Clean, free of smoke/odor X X 40 36,0 Quiet X 35 Reliable, durable X 32,0 Simple, easy to maintain X X 30 Easy to drive and control X 25 Free of vibration X 5x 5x 20 Instant starting X Speed X 15 Acceleration 10 Power X 7,0 5,0 Range, distance X X 5 1,0 Infrastructure X X 0 Li-Ion Hydrogen Natural Gas Gasoline Diesel Battery (10K psi) (3K psi) Will this time be different? Note: ICE = Internal Combustion Engine Source: ANL, DOE, Sion, NRC, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 3
  5. 5. Key drivers for new era of alternative energy technology Unsustainable petroleum-based 1 consumption New Era of Alternative Energy Technology gy lo no 2 d ch In ess cr u ol te pr ea re sh y re rg si th ene ng en ng e hi tiv vi ro ac na nm re lter en A ta l 3 Source: Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 4
  6. 6. 1 Unsustainable petroleum-based consumption Global daily oil consumption is still increasing steadily, of which transportation takes a large part Global Daily Oil Consumption(1) Global Daily Oil Consumption Breakdown 2001 - 2020E By Application, 2007 Million barrels / day Commercial 100 Residential 93 3% 90 85 87 7% 82 80 77 70 60 50 40 Industrial 35% 55% Transportation 30 20 10 0 2001 2004 2007 2010E 2020E Total Consumption = 85 Million Barrels / Day Note: (1) Estimation is made based on the assumption that CAGR will be the same to that between 2001-2007 Source: BP reports, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  7. 7. 1 Unsustainable petroleum-based consumption Emerging markets such as China are the major forces pushing up global oil consumption US and China Annual Per Capita Oil Consumption 1998-2020E(1) Observation Barrels Per capita oil consumption in China is low but 30 24.6 growing fast 20.5 21.6 21.6 19.7 20 – 1/10 of US per capita consumption – Have grown more than 80% over the last 10 10 5.4 years 1.2 1.4 1.9 2.2 0 Due to large population and fast per capita 1998 2001 2004 2007 2020E consumption growth, China is catching up in terms USA China of total amount – China’s oil consumption in 2007 has almost US and China Annual Total Oil Consumption doubled from 1998 1998-2020E(1) – In 2007, China’s oil consumption is 45% of the Million Barrels US compared with 27% in 1998 786 800 743 626 648 552 595 If assume CAGR between 1998 - 2007 will continue 600 into 2020 400 290 247 – China per capita oil consumption will be more 150 179 200 than 1/5 of US 0 – China total oil consumption will be roughly the 1998 2001 2004 2007 2020E same as US USA China Note: (1) Estimation is made based on the assumption that CAGR will be the same to that between 1998-2007 Source: China bureau of statistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  8. 8. 2 Increasing environmental pressure Our climate is going unsustainable with a gradual global warming trend… Global Warming Trend - Temperature Change Living Environment Is Worsening 1990-2008 Global warming is a continuous trend – Average temperature will increase by between 1.4 and 5.8 degrees Celsius by 2100 Rising temperature is likely to cause catastrophic results – Melting ice caps in North and South Poles – Sea level has risen 4 to 8 inches – More frequent natural disasters, i.e. floods, droughts, etc. Source: World Bank; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 7
  9. 9. 2 Increasing environmental pressure …mainly caused by the world wide increase in CO2 emissions, which is more significant in developing countries, i.e. China… Global CO2 Emissions Growth 1990-2030E (Billion Metric Tons) 40 38 Other Countries India China US 32 30 27 22 20 18 10 0 1990 2000 2010E 2020E 2030E World 2.8 3.3 4.1 4.9 5.8 Emissions per Capita US 16.7 18.3 20.0 21.7 23.3 (metric tons China 1.9 2.3 3.8 5.8 7.7 per capita) India 0.6 0.9 1.1 1.8 2.7 According to EIA, China’s CO2 emissions per capita is increasing full speed and will catch up to 1/3 of US’s in 2030 Source: EIA; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  10. 10. 3 Alternative energy technology reaching threshold Cost is still the major barrier in EV, but recent progress has pushed the technology to the minimum threshold of consumer acceptance Cost Curve of EV Battery 1,000 RMB per KwH 100 Key Assumptions Experimental Stage Toyota Prius is one of the most popular (excluding scale effect) hybrid models in the world and use Ni-Li 10 battery that generates energy at a rate of 12 KwH We assume that the cost curve of the (now) battery used by Toyota Pirus is identical 1 (2012) with that of general Li-ion battery Minimum Line of Acceptance by For the cost at experimental stage, we Consumers assumed that the cost in year 1995 0.1 before the commercialized production is 0.001 0.01 0.1 1 10 Cumulative production representative Experimental Stage (Million Units) Toyota Pirus BYD Source: Prius Report; BYD interview notes; China Investment industry report; Gasgoo Auto; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 9
  11. 11. 3 Alternative energy technology reaching threshold Also, energy density of electric battery has reached the minimal threshold Battery Energy Content Expected Energy Density over Time Wh/kg 1,600 1,500 1,400 Significant increases in 1,200 energy density and DoDs of up to 90% will allow 1,000 town cars to reach drive distances of more than 100 800 km in short future 600 400 Nickel-Metal-Hydride-Battery +11% 190 Lithium-Ion Battery 200 40 65 75 25 0 1998 2003 2008 2013 2018 2025 Source: literature research; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  12. 12. Global Trends - Best Timing for New Energy Driving the Revolution: China Becomes the Largest Car Market New Energy Vehicles and Applications in China An New Ecosystem and Strategic Implications 090924_EU_CoC_PRES FINAL.ppt 11
  13. 13. China’s Recently Explosive Automobile Market Growth • Although 2008 2H growth has flattened, China PV sales are still up 9% YoY • Passenger vehicles consistently represent the majority of total automobile demand • China’s compact segment is still the dominant force (i.e. 34% of total PV in 2008) Total Vehicle Industry including Import: China 2008 Sales 2007 Sales 9% 9.67 Million - 22% 8.98 Million 2006 Sales 25% 7.34 Million Truck 2005 Sales Truck 21% 2004 Sales 11% 5.90 Million 22% 2003 Sales 15% 5.24 Million Truck PV Bus 4.56 Million 21% PV Bus 61% 2% Truck Van 25% Bus 60% 2% Truck 2% Van 16% PV Van 16% Truc 26% PV Bus k24% PV 3% 59% 18% PV 51% Bus 53% Van PV Bus 51% 3% 51% Van 2% 19% Van 21% 22% PV=2.36Million PV=2.66 Million PV=3.23 Million PV=4.45 Million PV=5.43Million PV=5.91Million Source: CAAM auto market press release, Synergistics Limited analysis 12 090924_EU_CoC_PRES FINAL.ppt
  14. 14. Fall 2008: The Tsunami Struck 090924_EU_CoC_PRES FINAL.ppt 13
  15. 15. The Crisis Has Brought Major Losses In Wealth And GDP Growth (1) Wealth Destroyed by Crises OECD Economic Outlook - Impact on GDP (As % of Corresponding Annual GDP) (GDP growth rate in percent) (1) 2009 growth rate is March 2009 projection Source: Asian Development Bank; Federal Reserve; Japan Economic Statistics, OECD; Prospect Magazine; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 14
  16. 16. The China Government Is Striving to Achieve 8% GDP Growth Target Boost Domestic Demand Increase Money Supply • New bank loans soar to 1.6 Trillion RMB in • Fiscal subsidy to farmers for electronics and January as part of 5 Trillion full year plan vehicle replacement • Car purchase tax rate reduction by 5% Impact of Global • Majority of government spending allocated to infrastructure and public insurance system • Tax and interest rate cut for housing transaction Financial Crisis • Lowered bank interest rates by 5 times in 2008 Policies Stimulus Stimulus Policies • Relax consumer credit to promote individual Export Slump • Eased deposit reserve ratio requirement of and family buying •Y/Y growth -9% in ’08 Credit Crunch commercial banks •Vehicle export see •Money supply (M1) the first drop over dropped -12% in ‘08 past decade Weakened Increased Profitability Unemployment Stimulate Backbone Industries Secure and Create Jobs Stimulus • 20 Mil migrant Policies •Industry production Policies Stimulus • Published stimulus plans of 10 key industries dropped -5.3% in ‘08 workers lost jobs in Jan.-Feb.,2009 • 6.1 Mil university • Encourage development of medium/small •Automotive, Light Industry graduates seek jobs enterprises and service industry •Oil and Petrol Chemistry • Support SOEs to reduce job cuts •Electronics and IT •Ship Manufacturing, Textile • Ease enterprise burden by suspension or exemption of social insurance fee •Machinery Manufacturing •Iron and Steel, Logistics • Offer professional training to migrant workers •Mining/Metals and university graduates • Encourage industry consolidation and technology upgrade • Promote export and autonomous brand development 15 090924_EU_CoC_PRES FINAL.ppt Source: www.caijing.com.cn, Feb.,2009, www.sina.com.cn
  17. 17. In 2009 China exceeds the US to become the world largest auto market 2008 World Auto Sales 2009 1H Auto Sales in Major Markets (in Thousand) Million Units 60,481 6.5 6.10 6.0 5.5 30,000 5.0 4.80 4.5 4.0 3,000 3.5 3.0 4,900 2.5 2.06 9,381 2.0 13,200 1.5 1.30 1.13 1.0 0.5 0.0 US China Japan Germany Other Total China US Japan Germany France Countries Source: literature research, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  18. 18. As The Leading Automotive Market, China Has The Opportunity To Drive The Standards And Architecture For The Global Auto Industry Shanghai: A Lean, Green Detroit “… In acquiring a stake in BYD, Buffett broke a couple of his own rules. "I don't know a thing about cellphones or batteries," he admits. "And I don't know how cars work." But, he adds, "Charlie Munger and Dave Sokol are smart guys, and they do understand it. And there's no question that what's been accomplished since 1995 at BYD is extraordinary…” Source: Newsweek; May 4, 2009 Source: Fortune; Literature Research 090924_EU_CoC_PRES FINAL.ppt 17
  19. 19. 3 Infrastructure & legacy: severe environmental pressure China has a clear and compelling need to reinvent the propulsion technology of the automobile Air Pollution – Bejing, Xi’an, Shenyang, Shanghai and Guangzhou have been listed among the Top 10 cities with the worst air pollution. The massive growth of the automotive market only adds to the problem – The rapid growth of the automotive market worsens the problem. For example, Beijing’s automobile industry contributed 73% of the overall pollution problem in 2003 Energy Consumption – China imports two-thirds of its oil, and its ever-increasing thirst has had a dramatic impact on global energy prices – The gasoline and diesel consumption has accounted for half of the total consumption of petroleum products Traffic Congestion – In the light of the current rate of development and gas consumption level, China will have over 150 million vehicles and petroleum consumption will exceed 250 million tons in 2020 For alternative propulsion technologies such as clean diesel, hybrid and electric vehicles, China does not lead the technological development Source: Synergistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 18
  20. 20. Comparing to mature markets, China appears ready to address the challenges in introducing electric vehicles Readiness for EV Key Forces in China Mature Market China 1 Ample resources to achieve low cost production More battery manufacturing experience with larger scale, i.e. lithium Technology battery for cell phone 2 Relatively short driving history makes it easier to cross over to new Consumer products Acceptance Less stringent requirement on performance due to short community distance and crowd traffic 3 China faces much greater environmental pressure, there is huge need Infrastructure & to switch into cleaner energy Legacy The Chinese government has been a strong driving force behind the development of industry technology and infrastructure Local VMs are looking to leverage EV to get ahead in the automotive market, thus resistance from market incumbents is low Source: Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 19
  21. 21. 1 Technology: ample resources & experience in battery manufacturing China has much larger resource reservation and more experience in manufacturing lithium batteries 2007 Distribution of Global Lithium Carbonate China is the Largest Lithium Battery Production Production Capacity Base Globally Other Countries China 6% 17% Argentina 19% 54% Chile 21% 83% China Other Countries Total Global Production in 2007 = 79.4 K Tons Total Global Production in 2008 = 9.3 Bn Units Source: China galaxy securities, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  22. 22. 2 Consumer acceptance: consumer habit Consumer habit in China is still in the forming process due to relatively short driving history 2006 Per Capita PV Ownership Observation Units China has very low car ownership 0.60 0.57 penetration compared with developed 0.55 countries 0.50 – The realistic and potential cost of 0.45 0.45 0.45 switching from a traditional vehicle to EV 0.40 is lower 0.35 – Less adjustment is needed in consumer 0.30 habit 0.25 0.20 Chinese citizens rely much more on public 0.15 transportation 0.10 0.05 – Public transportation companies might be 0.02 0.02 a way out even if private consumers are 0.00 Germany US Japan China reluctant to buy EVs Source: China automotive industry yearbook 2008, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  23. 23. 3 Infrastructure & legacy: infrastructure, facilities and services The popularization of EV largely relies on the relevant service, infrastructure and facilities, which are still at preliminary stage EV Acquirable Repair & New Specific Services, Maintenance for EV i.e. Insurance for EV Construction of Infrastructure, i.e. EV Charging Station 090924_EU_CoC_PRES FINAL.ppt 22
  24. 24. Global Trends - Best Timing for New Energy Driving the Revolution: China Becomes the Largest Car Market New Energy Vehicles and Applications in China An New Ecosystem and Strategic Implications 090924_EU_CoC_PRES FINAL.ppt 23
  25. 25. The Chinese government has been a strong driving force, starting 10 years ago, CNG And LPG vehicles were promoted… Milestone in Phase 1: Clean Auto Action (1999-2002) Investment: 100 Million RMB Background In 1999, Beijing, Xi’an, Shenyang, Shanghai and Guangzhou were listed in the World Top 10 Cities with The government then did not Worst Air Condition put forward specialized requirement for new energy vehicles Main Tasks New energy vehicles did not serve for national strategy Improving the air pollution in big cities by: - Improving the emission of fossil fuel vehicles to meet Euro II Standard - CNG and LPG vehicles’ R&D and demonstration - Other CAFV’s R&D Source: MOST; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 24
  26. 26. … since 2002, A 3×3 R&D mechanism was initiated to develop EVs through the 863 program… Milestone in phase 2: Electric Vehicle Key Project in 863 Program during 10th five-year Plan (2002-2006) Government Investment: 880 Million RMB 3×3 R&D Mechanism Achievements • Prototypes of BEV, HEV and FCV FCEV HEV BEV developed Vehicle • BEV and HEV are qualified to be Whole Development produced Vehicle Platform Powertrain Control System • BEV and HEV started Demonstration demonstration in 7 cities Electric Drive Motor Key Tech Traction Battery • 26 national standards established Others • 796 patents applied Source: MOST; Synergistics Limited analysis 090924_EU_CoC_PRES FINAL.ppt 25
  27. 27. … since 2006, all types of new energy vehicles are listed on the new round of 863 program and a new R&D mode is framed… Milestone in phase 3: Energy Saving and New Energy Vehicle Key Project in 863 Program during 11th five-year Plan (2006-2010) Government Investment: 1.1 Billion RMB (for 2006-2008) New R&D Mode of 863 Project in 11th Five-Year-Plan: Product All types of vehicle products Development FCEV HEV BEV CAFV Vehicle Platform Battery Technology Fuel cell engine, traction battery, ultracapacitor... Key Electric Drive System Drive motor, motor driving system, engine... Technology for CAFV Basic Technology New material, new component, infrastructure... Public Support Test, standard, policy, demonstration, financing, intellectual property, Platform technology Information Source: MOST; Synergistics Limited analysis 090924_EU_CoC_PRES FINAL.ppt 26
  28. 28. … with this structure, China has made progress in development of key technologies, but more effort is needed on OEM side 10th Five-Year-Plan 11th Five-Year-Plan 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 National 863 Energy Saving and New National 863 Electric Vehicle Key Project Energy Vehicle Key Project Car: OEMs and universities developed more prototypes Car: small scale production and export BEV overseas Infrastructure: State Grid are considering charge station Bus: demonstration on Beijing city bus line construction Car: prototype developed Car: Most local OEM released HEV launch plan HEV Bus: 400,000km demonstration in Wuhan Bus: Two types are listed on the product bulletin Car: prototype developed by Tongji University Demonstration: UNDP in Shanghai and Beijing FCEV Bus: prototype developed by Tsinghua Infrastructure: 2 filling station in Shanghai and University Beijing More and more OEMs are involved in initiative A few models were developed under government project More efforts for commercialization are made Source: MOST; Synergistics Limited analysis 090924_EU_CoC_PRES FINAL.ppt 27
  29. 29. China’s ministry of science and technology is driving a plan to support development of “new energy vehicles” (NEVs) In April 2009, Prof. Wan Gang announced an ambitious plan in cooperation with the Ministry of Finance & the National Development and Reform Commission – to promote the use of NEVs initially targeting 13 pilot cities, including Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming, and Nanchang – to support the development of energy-saving technology for use in government fleets, including buses, postal, and sanitation vehicles – to deploy 60,000 energy saving vehicles in China by 2012 Key Objectives of Ministry of Science & Technology – to promote industrial development and expansion of 863 project and HEV & EV development plan – to technically support the development of NEV, R&D for NEV, and their promotion and industrialization Tenth Five Year Plan introduced goal to commercialize and industrialize EVs – 3 Vertical Plans: force assembly, driving electric motor and dynamic battery – 3 Horizontal Plans: FCEV, HEV and EV Source: Synergistics, Synergistics Limited analysis 090924_EU_CoC_PRES FINAL.ppt 28
  30. 30. National governments and global OEMs must take note of China’s commitment to fund the development of its NEV infrastructure About 45% of China’s $588 billion USD Examples stimulus plan is to be invested in projects related to developing China’s infrastructure, Beijing: purchased 800 HEV buses from Beijing which includes support for a variety of clean Foton car technologies Shanghai: hydrogen fuel cell car project was Therefore, local governments initiated by Shanghai Major Project Promotion Office – support the development of energy-saving tech as 2008 Olympics project for use in government fleets, incl. buses, postal, and sanitation vehicles Jinan: promotes NEVs and plans to use HEV buses – give priority to the EV, and to replace some of the old bus system to meet the – promote collaborations with business to develop requirement of National Sports Meeting in the fall infrastructure in NEV Shenzhen: is going to establish a charging station 863 Projects Undertaking Initiative BEV R&D Units Units in the downtown area for NEVs and F3DM duel Beijing Keling Tsinghua mode EV was first launched in Shenzhen which is University the first mass produced duel mode EV in the world Beijin g Tianjin Qingyuan Tianji Wuhan: becomes new energy resource n Wuhan Hangzhou experimental unit for Nissan, and Nissan will Wuhan Dongfeng contribute 300 HEV buses in the city Zhejiang Wanxiang BEV Demonstration Chongqing: bought 10 HEVs from Changan Group Cities Demonstrations are located in the same cities Changchun & Dalian: Partnered with FAW of 863 Project undertaking units Source: Synergistics, Synergistics Limited analysis 090924_EU_CoC_PRES FINAL.ppt 29
  31. 31. Meanwhile, OEMs in China are viewing EV as an opportunity to catch up with foreign counterparts, thus are actively engaging VM Global Top 5 v.s. China Top 2 Observation Revenue in 2008 $ Billions Local OEMs fall far behind foreign 220 counterparts in conventional automotive 204 200 market 180 – Domestic top 2 OEMs is merely 12% the 167 160 size of Toyota in sales term 149 146 140 – Most advanced automotive technologies 140 120 are mostly controlled by global players 100 80 EV might give local OEMs a chance to 60 China Top 2 catch up 40 – There is no large gap in relevant 25 24 20 technology 0 – Local OEMs enjoy some natural GM Toyota Ford FAW VW Daimler SAIC advantages, i.e. low cost Source: Fortune 500 Ranking; Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 30
  32. 32. In line with government mandate, many local brands participate in NEV development, some with support of foreign partners Local brand engaged in NEV Overseas company engaged in NEV Joint Venture License Manufacturing Share Minority Share Majority Source: Synergistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 31
  33. 33. 3 Overview of NEV in China Initially required by government, now developing NEV is gradually integrated into OEMs long-term strategy BEV HEV BEV HEV BEV Bus under Research Covered Area Focus Area Source: Synergistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 32
  34. 34. In view of the large market potential in China, foreign OEMs are prioritizing NEV development in China Product Promotion Cooperation with Chinese partner Concept introduction R&D in China Launch product Prius RX400h LS600h •Support the HEV R&D work of CATARC June 25, 2009 Civic HEV General Motors will build the Chevrolet Volt extended-range electric car in China beginning in 2011 as part of the automaker's plan to roll out its revolutionary technology in a wide variety of vehicles around the world, LaCrosse HEV the newsletter AutoBeat Asia reports. •Establish 2 NEV R&D centers in China •Cooperate with SGM and All Volts built in China are to be sold PATAC to develop new there. HEV Touran HEV •Take advantage of SVW to cooperate with SAIC to develop Touran HEV Fuel-cell bus Source: Synergistics, Booz & Company analysis Booz & Company 090924_EU_CoC_PRES FINAL.ppt DATE 33
  35. 35. China’s push for electric cars was clearly on display at this year’s Shanghai motor show Source: Synergistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 34
  36. 36. Environmental vehicles must offer customer benefits or they will fail, GM’s EV1 provides us with a good example Forcing revolutionary technology into the market can be counterproductive… GM EV1 600 kg vehicle with 400 kg lead acid batteries = 1000 kg 102 kW Motor - 90 miles range (in California) - 40 miles in the NE states in the winter Cost GM $350 m to develop Lease cost = $399/month About 1000 made in total “These environmentally friendly vehicles are great… I hope my neighbor buys one!” Source: RICARDO, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 35
  37. 37. BYD has introduced the first mass produced plug-in EV to use a home outlet, yet market acceptance remains challenging BYD F3DM & F6DM – Convertible between EV and HEV modes – Market launch in 12/2008 (Fleet orders only) – Retail sales to begin in 9/2009 – MSRP: RMB 149.8K – Combined total power output: 125kW – Acceleration 0-100km/h: 9 sec. – Charging time: 7 hours with normal household power outlet – Max. distance for one charge: 100 km – Sales available in 14 1st-tier and 2nd-tier cities in China Source: Synergistics, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 36
  38. 38. 2 Case Study: BYD’s success with the co-op model BYD made the price step from ICE to EV transparent with the similarly-named F3 and F3DM BYD - F3 BYD F3 Specification Engine: L4/16 Valve, Water cooling, SOHC Displacement: 1.5L Max. Power: 78/6000 (Kw/rpm) Max. Torque: 134/4500 (N*m/rpm) Compression ratio: 10 There is a huge Price Difference between F3DM and F3(1) Max. Speed: 180Km/h 1,000 RMB 149.8 150 Transmission: 5MT 125 Tank Capacity: 50L 100 75 59.8 Min. Fuel Consumption: 4.7L/100km 59.8 50 25 0 Note: (1) The price for BYD F3 is based on F3 G-I model F3DM F3 Source: literature research, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  39. 39. Through the co-op model, BYD’s technology innovation has brought huge cost advantage while improving performance BYD is Ahead of the Game EV Auto Planned EV launch Key Success Factors for BYD Battery Integrating battery manufacturing with the role of a traditional VM – Integrated battery and EV R&D, while Year 1995 2005 2008 2009 2010 2012 other OEMs do it separately – Capitalize on the current battery and auto BYD has Obtained Significant Cost Advantage(1) manufacturing resources and facilities $ 1,000 Prioritize the role that local government (or 40 utility) plays 40 – Approach local government as the first 30 22 customer base to create the market 20 22 – Work closely with these partners to 10 develop the market in order to increase production size and drive down cost 0 ChevyVolt F3DM Note: (1) CheryVolt will be launched around 1020, its retail price is prejected by GM management Source: literature research, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  40. 40. 2 Consumer acceptance: economic dominant Though consumer environmental consciousness is apparent, economic considerations still remain the key decision criteria How concerned are you about climate change? Would you be prepared to pay more for a less polluting car? 59% 54% 53% 57% 27% 25% 22% 19% 17% 14% 16% 12% 9% 6% 3% 4% 1% 1% Very Fairly Not very Not at all Don’t know Yes, a Yes, a No I wouldn’t buy Don´t concerned concerned concerned concerned lot more little more a new car know Aug.2006 Aug.2007 Feb.2008 Source: UK National Statistics Omnibus Survey, Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt
  41. 41. Global Trends - Best Timing for New Energy Driving the Revolution: China Becomes the Largest Car Market New Energy Vehicles and Applications in China An New Ecosystem and Strategic Implications 090924_EU_CoC_PRES FINAL.ppt 40
  42. 42. Innovations in both technology and business models will be needed to succeed in the EV industry Consumers’ Greatest Combined Innovation Solutions Concerns about EV over ICE Technology Innovation Cost To provide a solution that balances performance (power, range, etc) and cost Winning Consumers Performance + Business Model Innovation To meet the needs of Infrastructure consumers while benefiting all stakeholders in the industry value chain The logic flow – To win over consumers, EV manufacturers will need to address their greatest concerns, of The Logic Flow which only a combined technology and business model innovation solutions can solve The action flow The Action Flow – From the EV manufacturers’ viewpoint, they have to start from setting up appropriate technology and business innovation models and work backwards to win over consumers Source: Booz & Company Analysis 090924_EU_CoC_PRES FINAL.ppt 41
  43. 43. The value chain of the EV industry - a new ecosystem Key Stakeholders of the EV Industry After-Market R&D Sourcing Assembly Distribution Retail Services Auto Part OEM R&D VM Distributor Dealership Consumer Battery OEM 1 2 Product Flow Cooperation or Contract Battery Leasing & Utility Recharging Government may have more active engagement over the value chain – Enact relevant industry policies Government – May take the initiative to invest in the construction of EV infrastructure, i.e. charge stations Source: Booz & Company Analysis 090924_EU_CoC_PRES FINAL.ppt 42
  44. 44. 1 Technology Innovation: The Co-Op Model In order for the technology innovation to achieve performance and cost balance, the co-op model will be a good way to go The Co-Op Model Why Adopt Co-op Model Shortfalls in going alone – Potential compatibility issues may greatly Battery OEM impair vehicle performance VM – Lack of standardization will have a negative impact on achieving critical mass, thus makes it difficult to drive down costs Advantages from working together – Joint R&D opportunities to leverage the “Know-How” of each party to improve vehicle Utility performance – Able to reach critical mass and drive down Working together to improve performance while cost gaining scale to drive down costs Source: Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 43
  45. 45. 2 Business Model Innovation: “Paying for miles” Model A sufficient infrastructure is critical, thus the business model innovation should address the interests of different stakeholders Utility is Well-positioned to Act as Consumer not Willing to Own the Battery Owner Batteries Another revenue generating Battery takes up a huge part of source the entire vehicle budget From “paying Large existing customer base for hardware” Battery life cycle tends to be to “paying for short, value depreciation is Mature infrastructure and miles” networks already exist to serve severe potential EV clients Individual battery products may Amend the revenue fluctuation have compatibility issues with from current product portfolio recharging station networks Battery Leasing & Recharging Consumer Source: Booz & Company analysis 090924_EU_CoC_PRES FINAL.ppt 44
  46. 46. Conclusions: Driving Market Acceptance Consumer acceptance of new energy vehicles is major challenge – While the infrastructure investments already described will help tip the scales in favor of new energy vehicles, consumers must also be convinced that the price and performance of the new energy vehicle can in fact meet their expectations. – As a national priority, we can expect the China government to help by offering incentives for the retail consumer to purchase new energy vehicles. – Chinese consumers have less experience with gasoline-powered cars, and are already accustomed to short distance, low-speed commuting – conditions very favorable for electric cars. The China government’s willingness to invest in the infrastructure to support alternative propulsion technology will ultimately help drive demand side market acceptance – This is where China has the opportunity to take the lead, and that will drive supply side investment in new technology – For the development of NEVs, the infrastructure must come first - and this will drive supply-side innovation It takes a combination of business and government working together to make this revolutionary change possible and nowhere in the world is there a closer link between business and government than in China. 45 090924_EU_CoC_PRES FINAL.ppt

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