The Circuitous Path to Electrification of China's Automotive Industry


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Presentation delivered by Bill Russo at the Green Mobility conference in Beijing, China on September 23, 2011.

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The Circuitous Path to Electrification of China's Automotive Industry

  1. 1. Booz & Company September 2011Synergistics Limited MORNING SESSION Ji HenThe Circuitous Path to Electrification Vice Cof China’s Automotive Industry ChinaAchieving Cross Value Chain Collaboration And New Business Models Vice chairm Ji Hengkuan chairman of China Power ITo Achieve Broader Acceptance Of Electric Vehicles (Beijing) Applied Technolo Electronics Standardization Industry, senior engineer, sePresented at Green Mobility 2011 standardization, quality contrBeijing, ChinaSeptember 23, 2011Bill Russo (罗威)
  2. 2. When the automobile was introduced in late 1800’s, it was notreadily apparent which engine technology would prevail Steam vs. Electric vs. Internal Combustion Steam Car Electric Car Gasoline-Powered Car (Nicolas Joseph Cugnot 1769) (Robert Anderson, 1839) (Carl Benz, 1886) At the end of 19th century, electrics outsold all other types of cars 2
  3. 3. ICE was victorious primarily due to its virtues of speed, power, andrange – courtesy of petroleum’s exceptionally high energy density Competitive Advantages By Powertrain Energy Density Of Petroleum Vs. Other Fuels Energy Available (Mega Criteria Electric Steam ICE Joules per Liter) 40 Clean, free of smoke/odor  X X 36.0 Quiet   X 35 32.0 Reliable, durable  X  30 Simple, easy to maintain  X X Easy to drive and control  X  25 Free of vibration   X 5x 20 Instant starting  X  15 Speed X   Acceleration    10 7.0 Power X   5.0 5 Range, distance X X  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 EngineSource: ANL, DOE, Sion, NRC, Booz & Company analysis 3
  4. 4. 1. A Changing World2. The Battle For Dominance Of The 21st Century Global Auto Industry3. China’s Next Revolution: “Leapfrog” To New Energy Vehicles4. Speed Bump: The Challenge of Reinventing Mobility5. The Alternate Route: Towards a New Ecosystem for Green Mobility 4
  5. 5. The distribution of global wealth has been historically skewedtowards mature markets Emerging and Mature Markets Emerging Markets Mature Markets Population Distribution in Emerging & Mature GDP Contribution by Emerging and Mature Markets Markets (2010; Total = 6,809 MM) (2010; Total = $62 Tn) Mature markets Emerging 17% markets Mature 31% markets Emerging markets 69% 83%Source: Global Insight; Booz & Company analysis 5
  6. 6. Over the past twenty years, China has achieved stunning economicgrowth Key Shifts Shanghai §  Shift of global centers of gravity for some industries 20 Years Ago Now –  e.g., China is now the largest automotive market and producer in the world, and India is among fastest growing countries §  “Must Consider” gaming dynamics for some others –  e.g., China and other emerging market are low cost souring countries for most international manufacturers §  Breeding ground for innovations driven by market demand and/or local competition –  e.g., Coke does more product innovations in China than any other markets except Japan §  Emergence of real wealth (HNWI’s and middle class) and Shenzhen grand-scale urbanization 20 Years Ago Now –  e.g., China soon to become the world’s largest luxury goods market §  Huge infrastructure still ongoing –  US$300 billion plan to build a nationwide high-speed rail network by 2025 §  Increasing prominence of local companies on a global scale –  Resources, capabilities, market positions, etc. §  Significant capital flow to China, in particular private equity funds 6
  7. 7. The world has entered a new era since 2008, with more than half ofhuman population living in urban areas Global Urban Population China’s Urban Population Mil. 2000-2050 Mil. 1980-2020 People Forecast People Forecast10,000 1,500 8,000 Rural 1,200 Rural 6,000 900 4,000 600 70.0% Urban 58% Urban 2,000 300 47% 52% 46.7% 49.5% 50.7% 36% 26% 19% 0 0 2000 2007 2008 2050E 1980 1990 2000 2009 2015E 2020E §  More than half of the global population live in urban §  At start of reform era, more than 80% of China’s area since 2008 population was in rural areas §  Majority of China’s population will reside in urban areas by 2015 §  Creation of urban middle class fuels demand for personal mobilitySource: National Bureau of Statistics, UN, Booz & Company 7
  8. 8. 1. A Changing World2. The Battle For Dominance Of The 21st Century Global Auto Industry3. China’s Next Revolution: “Leapfrog” To New Energy Vehicles4. Speed Bump: The Challenge of Reinventing Mobility5. The Alternate Route: Towards a New Ecosystem for Green Mobility 8
  9. 9. For the Global Auto market, Asia pacific represents the greatestopportunity for growth… Eastern Europe Western Europe Growth thru 2020: 2,835K NAFTA Growth thru 2020: 1,527K CAGR (2010-2020): 6% Asia Pacific Growth thru 2020: 5,528K CAGR (2010-2020):1% Growth thru 2020: 12,626K CAGR (2010-2020):4% CAGR (2010-2020): 5% Africa/Middle East Growth thru 2020:1,264K = Area Reflects Size Of 2009 Actual PV Sales Latin America CAGR (2010-2020):4% Growth thru 2020: 2,899K = Area Reflects Size Of 2020 Forecasted PV Sales CAGR (2010-2020): 6% ’000 Units Market 2010 PV 2015 PV 2020 PV Asia Pacific 22,212 30,350 34,838 NAFTA 11,545 16,877 17,073 Western Europe 12,776 14,133 14,302 Eastern Europe 3,261 5,035 6,095 Latin America 4,030 5,570 6,929 Africa/Middle East 2,946 3,783 4,211Source: Global Insight Data 9
  10. 10. …within Asia pacific, the greatest growth opportunity is China China: Growth thru 2020: 8,653K CAGR (2010-2020): 6% Japan: = Area Reflects Size Of 2009 Actual PV Sales Japan Mongolia Growth thru 2020: -457K North Korea CAGR (2010-2020): -1% = Area Reflects Size Of 2020 Forecasted PV Sales China South Korea India Pakistan Nepal South Korea: Bhutan Bangladesh Myanmar Taiwan Growth thru 2020: 110K CAGR (2010-2020): 1% Laos ’000 Units Vietnam Taiwan: Cambodia Market 2010 PV 2015 PV 2020 PV Growth thru 2020: 79K India: Philippines Thailand CAGR (2010-2020): 2% China 11,462 17,296 20,115 Growth thru 2020: 2,621K CAGR (2010-2020): 8% Malaysia Japan 4,254 4,075 3,797 ASEAN: Growth thru 2020: 1,074K India 2,240 3,700 4,862 CAGR (2010-2020): 5% Indonesia ASEAN* 1,634 2,185 2,709 South Korea 1,302 1,407 1,412 Australia 807 1,020 1,117 Australia Australia: Taiwan 299 337 378 Growth thru 2020: 310K CAGR (2010-2020): 3% New Zealand 63 82 87 New Zealand Rest of Asia Pacific 152 247 328 Total 22,212 30,350 34,838Note: ASEAN figures include top 5 ASEAN member countries, including Thailand, Malaysia, Indonesia, Singapore, and Philippines Rest of Asia-Pacific includes Hong Kong and PakistanSource: Global Insight Data 10
  11. 11. China has only recently entered the accelerated growth phasetypical of emerging markets… Canada 600 Australia Discussion Germany The S- U.K. §  A country’s threshold of 500 curve mobility lies near US U.S. $10,000 GDP per capita Poland (PPP), whereCars per 1,000 People 400 Malaysia automobile ownership accelerates Russia 300 Argentina §  China is at the early Mexico taking-off stage of the S- curve Brazil 200 Turkey §  Due to enormous Thailand growth potential, China 100 is likely to be a “game- Iran changer” for the global China Indonesia auto industry 0 India 1,000 10,000 100,000 China GDP Per Capita (Logarithmic Scale)Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP)Source: Booz & Company analysis 11
  12. 12. …and China’s continued economic development will stimulateauto industry growth for the foreseeable future China Passenger Vehicle Installed Base (PARC) Key Drivers Forecast (2009-2030) §  Car ownership in China is powered by the 600 Increase in Car growing economy – the upside is High Forecast substantial Ownership Base Forecast 500Passenger Vehicle PARC (million units) Low Forecast 480 §  Government has been continuously 400 410 Government’s guiding and supporting the industry’s Support to Auto development across manufacturing and Industry distribution 330 300 §  China’s financial system is less exposed China and GDP growth is still very fixed 200 Economy’s investment driven, thus is less vulnerable Resilience to recent financial turbulence impact 100 §  Highway network development provides Infrastructure foundation for more motor vehicle-based 0 Development based transportation 2009 2014 2019 2024 2029 §  China is investing in infrastructure to support alternative propulsionNote: Passenger vehicles contain sedans, MPVs and SUVsSource: Global Insight 2010, OPEC, DGS Report, Booz & Company analysis 12
  13. 13. 1. A Changing World2. The Battle For Dominance Of The 21st Century Global Auto Industry3. China’s Next Revolution: “Leapfrog” To New Energy Vehicles4. Speed Bump: The Challenge of Reinventing Mobility5. The Alternate Route: Towards a New Ecosystem for Green Mobility 13
  14. 14. With increasing pressure from air pollution, oil consumption andcongestion, China is compelled to reinvent propulsion technologies China to Reinvent Propulsion Technologies Air Pollution §  Beijing, 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 developmentSource: Synergistics; Booz & Company analysis 14
  15. 15. As the leading automotive market, China has the opportunity todrive 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 dont know a thing about cellphones or batteries," he admits. "And I dont know how cars work." But, he adds, "Charlie Munger and Dave Sokol are smart guys, and they do understand it. And theres no question that whats been accomplished since 1995 at BYD is extraordinary…”Source: Literature research 15
  16. 16. Comparing with mature markets, China stands out as asignificant opportunity and seems more ready to introduce EV Key Forces in China Driven by greater environmental §  Passenger ownership per pressure and energy Government Consumer capita in China suggest a very consumption, China China low penetration of vehicles in Support Acceptance government has stronger Market Is a China incentive to promote cleaner Significant §  Consumer habit in China is still technologies in automobile Opportunity in the forming process due to industry relatively short driving history Meanwhile, China’s automobile §  Thus consumer acceptance to industry has lagged behind EV is comparatively high than foreign leaders under internal mature markets (e.g. US with Mass Production combustion engine era, and approx. 20-year driving history) Environment the emergence of EV provides §  Meanwhile, the switching cost is a great opportunity for China to expected to be low catch up Readiness for EV §  China possesses ample resources to achieve low cost production Mature Market §  Established battery manufacturers with China large-scale capacity, especially supply lithium battery to cell phone/laptopSource: Booz & Company analysis industry 16
  17. 17. Since 2001, EV has been a key part of development agenda, thishas helped propel EV’s technical development to-date 10th Five-Year-Plan 11th Five-Year-Plan 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 National science development program (863): “National science development program (863)”: key electric vehicle projects key energy efficient and alternative energy vehicle projects Car: more prototypes developed by OEMs and Car: small scale production and export overseas universities BEV Bus: demonstration on Beijing city bus line Infrastructure: State Grid considering charge station construction Car: Local OEM released HEV launch plan Car: prototype developed HEV Bus: 400,000km demonstration in Wuhan Bus: HEV and PHEV listed on the government product agenda bulletin Demonstration: UNDP in Shanghai and Beijing Car: prototype developed in Tongji University FCEV Bus: prototype developed in Tsinghua University Infrastructure: 2 filling stations in Shanghai and Beijing Government initiatives led the development More OEMs involved in EV initiatives of a number of EV project More efforts in commercialization EVsNote: BEV = Battery-powered Electric Vehicles; HEV = Hybrid Electric Vehicles; PHEV = Plug-in Hybrid Electric Vehicles; FCEV = Fuel Cell Electric VehiclesSource: Synergistics Limited analysis 17
  18. 18. In the “12-5” period, China has committed to developing sevenemerging industries 12-5 Plan Strategy Highlight Drivers for the Trend §  Continue to increase value added §  China’s leading industries, such as steel §  Eliminate outdated capacity industry and petrochemical industry, consume Leading §  Develop advanced equipment Energy a larger amount of energy per unit of GDP, Industries manufacturing industry Consumption whose growth will not be sustainable with the limited reserve of energy §  Increase government support to §  China has very limited reserve of natural develop the 7 emerging industries* resources such as ore, oil, etc, which motivates Seven Lack of the Chinese government to cultivate industries of strategic significance Emerging Natural that are less natural resource consuming Industries §  GDP contribution of the 7 industries Resources should increase to 8% by 2015 from the current 2% §  Cultivate the culture industry to be a §  With China’s labor cost rising, Chinese industries leading industry have been losing edge in international competition Producer Services §  Implication: the share of value added Increasing §  It is necessary for China to transform its industry Industry of GDP by the culture industry needs Labor Cost structure to make it more technology and to double from the current 2.5% to innovation-driven 5%Note: 7 strategic emerging industries include energy efficiency & environmental protection, new generation information technology, bio-technology, high-end equipment manufacturing, alternative energy, new materials, electric vehicleSource: China 12-5 plan; Literature research; Booz & Company analysis 18
  19. 19. Summary of China 12th Five-Year Plan, the Energy Saving andNew Energy Vehicles Development plan (2011-2020) proposal Policies Summary Implication §  Government will push core technology OEM §  Improving energy efficiency, environmental protection and transfer from international brands to Innovation safety technologies; indigenous brands through approval of new JV and capacities §  Revised Policy on Development of Automotive §  Promote cross-regional M&As Increase Industry might be released this year. Industry §  To form 2 to 3 super big automotive groups with production §  SAIC, FAW, Dongfeng and Chang’An will be Concentration capacity with over 3 million units encouraged to conduct more takeovers MIIT, NDRC, MOST and MOF are key regulatory authorities §  Government Funding: 100 billion yuan •  MOST supports development of electric vehicles as priority, ($15.28 billion) New-Energy pure EV for buses and mini cars and hybrid and plug-in hybrid Vehicles power auto for medium size vehicles •  MIIT supports development of energy saving vehicles (including hybrid power vehicles) and new energy vehicles (including pure EV and plug-in hybrid power vehicles) §  Encourage the development of self-owned brands §  Domestic self-owned brands to reach 50% Industry Upgrading §  Enhance R&D capability for whole vehicles and key modules/ §  Over 10% self-owned brands to export parts §  More tax break and incentives for electric Consumption §  Encourage the purchase of energy saving vehicles car makers and buyers are expected Stimulus §  Differentiated incentives for hybrid and electric car buyers are releasedSource: China 12-5 plan; Literature research; Booz & Company analysis 19
  20. 20. China government has established their medium-term targets forNEVs, and planned around 5~10Mn PARC by 2020 Electric vehicles in Chinese central government’s Alternative-energy vehicles 12th five-year plan (2011-15) development plan (2011-20) Highlights Highlights §  No. of electric vehicles on the road: 1Mn by 2015 §  Financials: Chinese central government to provide §  Production capacity of vehicle batteries: 10Bn 100Bn RMB for the next 10 years in developing WH. Cost of vehicle batteries should halve due to alternative-energy electric vehicles increased production scale §  Number of electric vehicles on the road: 5~10Mn by 2020. Equivalent to 20% of all private passenger Guidelines vehicles §  R&D: continue the country’s 3-by-3 R&D framework §  Production capacity of BEV: 1Mn a year by 2020 and increase its pace in EV commercialization §  Infrastructure: increase the network of EV charging Program coverage stations §  R&D and technical developments §  Technical standards: set Chinas own EV standards §  Development of core EV components as well as participating in setting international §  Commercialization, demonstration and roll-out pilot standards programs §  Expand the use of EV in the public transport §  Establish network of charging stations in public sector places (such as car parks) §  Increase technical collaborations between EV stakeholders §  Develop technical and R&D talentsSource: Literature research, Booz & Company analysis 20
  21. 21. 1. A Changing World2. The Battle For Dominance Of The 21st Century Global Auto Industry3. China’s Next Revolution: “Leapfrog” To New Energy Vehicles4. Speed Bump: The Challenge of Reinventing Mobility5. The Alternate Route: Towards a New Ecosystem for Green Mobility 21
  22. 22. The road to the new automotive world order will be challengingand will require significant transitions from today’s status quo Key Challenges §  How can OEMs build up the new structures and capabilities required to develop alternative powertrain vehicles? Capabilities §  Who should the OEMs partner with in order to build and improve these capabilities? §  Where and how do OEMs find the suppliers for new technologies? How will these relationships be different from relationships with current suppliers? Suppliers §  How can the supply chain be aligned to meet the needs of the new supplier landscape? §  How will infrastructure supply (e.g. electric charging stations) be built up? §  What changes are in store for the current manufacturing structure and how can they be Change managed most effectively? Engineering? Sales & Marketing? Management22
  23. 23. Among different technology trends, the reinvention of automotivepropulsion has been a key focus globally and in China 1 Different Technology Trends Gasoline/ Diesel ICE Mercedes E-Class 2 Biofuel Mass Reduction via Light- ICE Weight Materials Chevy Tahoe E-85 2 CNG ICE Telematics and Sustainable Mercedes E-Class Blue-Tec Infotainment Mobility: the 3 Conventional Reinvention of Hybrid Automotive Toyota Prius Propulsion Enhanced Safety & 3 Plug-in Comfort Hybrid Chevrolet Volt 3 “Glocalization”: Global Electric Vehicle Products Adapted to Local Requirements i-MiEV 4 Hydrogen Fuel Cell xEVs - Covered in detail Vehicles Honda FCX ClarityBooz & Company 23
  24. 24. 3 Hybrid/ Electric VehiclesxEVs are becoming popular as they provide higher fuel efficiencyby using electric motor to supplement/ replace engine power Comparison between Different Powertrain Technologies Internal Hybrid Electric Plug-In Hybrid Extended Range Electric Vehicle Combustion Vehicle Electric Vehicle Electric Vehicles (EV) Engine (ICE) (HEV) (PHEV) (ER-EV) Car Model Honda Toyota Ford Chevrolet Tesla Civic Prius Escape Volt Roadster Petrol usage: Petrol usage: Petrol usage: Petrol usage: Petrol usage: Powered entirely by Engine powers car Petrol generator Petrol generator None petrol, diesel, CNG or when additional power recharges battery when recharges battery when biofuels, other than a is required charge is low charge is low Technology battery for starting Electricity usage: Electricity usage: Electricity usage: Electricity usage: Electricity usage: Generated by Battery with mains runs Battery with mains or Runs entirely on None regenerative braking, the vehicle alone or to generator charge runs electricity from mains supplements engine supplement the vehicle alone charge powerFuel Efficiency savings 0% 5 - 40% 1 5 - 50% 1 35 – 60% 1 100% Electrification Petrol / Diesel Electricity1) Depends on xEV battery sizeSource: Official car websites, Booz & Company analysisJune 2011 24
  25. 25. The focus of OEMs is clearly on full hybrids and full batteryelectric vehicles Number of Electric Models Launched Number of Electric Models Launched By Technology, 2009-2013 By Technology and Segment 2009-2013 Main Models Mild Full Plug-in Battery Type of Vehicle Hybrids Hybrids Hybrids Electric §  BMW ActiveHybrid 5 SeriesMild Hybrids 6 §  Chery A5 Mild Hybrid A&B– “Mini & Small” 3 13 §  Mercury Milan Hybrid C – “Middle” 2 3 3 7 §  Toyota Prius III Full Hybrids 25 §  Ford Fusion Hybrid D – “Large” 1 5 2 1 §  Mercedes E400 Hybrid E&F “Luxury & Sport” 2 6 3 4 §  Toyota Prius Plug-in Hybrid SUV 6 1 1 Plug-in 10 §  Chevrolet Volt Hybrids §  Mercedes S500 Plug-in-Hybrid MPV 1 2 §  Nissan Leaf LCV 1 1 Battery 29 §  Renault Fluence Z.E Electric Total 6 25 10 29 §  Ford Focus BEV.Source: Just-Auto, Booz & Company 25
  26. 26. The potential for xEVs is tied to cost of ownership for a powertrain 5 Year Total Cost of Ownership Discussion of Component Measured in USD Thousands, Year = 2010 $27.4 §  Fuel cost represents mix of vehicle efficiency, driving patterns and fuel prices $6.5 Fuel Cost §  In the example, fuel cost assumes a fuel price of $3.00 per gallon, annual mileage of 12,500 and blended mpg of 25.4 §  Maintenance expense includes oil, filters, brake pads, and $3.4 Maintenance Cost other wear items replaced at regular intervals §  Fixed cost includes initial purchase price minus the residual value of the vehicle at end of life (in this example - 5 year life cycle) §  Residual values are adjusted based on vehicle miles $17.5 Fixed Cost (net of depreciation) Midsize Gas ICE (12,500 miles / year)Booz & CompanyApril 2011 26
  27. 27. After considering the key decision factors, xEVs are not economical today, as the initial costs far outweigh operating cost savings U.S. MIDSIZE CAR EXAMPLE 2010 Total Cost of Ownership (5 Years) 5 Year TCO 12,500 Miles Per Year, $3.00/gallon fuel, Battery Cost/kWh = $750, No Range Anxiety Adj for BEV($ in Thousands) Electricity Fuel Maintenance Fixed Cost (net of depreciation) 50 48.6 1.7 Pattern holds true for 2.0 China and Europe 40 (where diesel beats gas) 36.1 1.0 1.5 2.2 30 28.1 29.0 27.4 4.9 6.5 5.9 3.0 44.9 20 3.4 3.4 31.4 10 18.8 21.1 17.5 0 Gas Diesel Hybrid PHEV 40 BEV 100 Sources: Booz & Company market model Booz & Company April 2011 27
  28. 28. However, in ten years, the gap between ICE and xEVs will close considerably U.S. MIDSIZE CAR EXAMPLE 2020 Total Cost of Ownership (5 Years) 5 Year TCO 12,500 Miles Per Year, $3.00/gallon fuel, Battery Cost/kWh = $340 - $460, No Range Anxiety Adj for BEV($ in Thousands) Electricity Fuel Maintenance Fixed Cost (net of depreciation) 50 Pattern holds true for 40 China and Europe 30.8 32.0 30 1.0 1.7 27.2 27.9 28.0 1.4 2.0 2.2 5.3 4.5 5.9 3.4 3.0 20 3.4 26.2 28.3 10 19.2 20.4 17.9 0 Gas Diesel Hybrid PHEV 40 BEV 100 Sources: Booz & Company market model Booz & Company April 2011 28
  29. 29. In the interim, a number of technologies will achieve incrementalimpact on efficiency improvement in ICE Technology for Improved Fuel Economy and Reduced CO2 Emissions Fuel Efficiency Gain* Incremental Cost Per Car (%) (€) Engine Downsizing (with Turbo or Supercharger) 13% 300 Direct Injection/Lean Burn 12% 400 Light Weighting 10% 500 Stop Start with Regenerative Braking 7% 550 Dual Clutch Transmission 7% 1,400 Variable Valve Actuation 6% 300 Electric Steering 5% 100 Reduced Mechanical Friction 4% 50 Electric Power Hydraulic Steering 4% 50 Stop Start 4% 200 Low Rolling Resistance Tires 3% 100 Aerodynamics 2% N/A* Fuel efficiency gains are calculated as the individual technology impact to fuel efficiency immediately after it is applied to a base engine using state-of-the-art technologySource: King Review, Deutsche Bank, NHTSA, Booz & Company analysis 29
  30. 30. Having said that, hybrid powertrains are expected to gain onlyabout 10% market share by 2020 - diesel & gasoline will stillremain leading technologies Sales forecast for PVs that use various technologies 2000-2050 Forecast, millionSource: IEA, Booz & Company analysis 30
  31. 31. A “leapfrog” of propulsion technology to electrical power willrequire concurrent innovation in auto design Evolution from Horse Power to Electric Power Example of an Electric Powered Skateboard Mechanical Electrical power power power HorseSource: Reinventing the Automobile, Booz & Company analysis 31
  32. 32. Future electric vehicles will be both internally and externallydifferent from current ICE vehicles Internal External ICE Vehicle Electric Vehicle §  Power-trains of electric vehicles are §  Future electric vehicles will have completely different from that of ICE vehicles smaller size and lighter weightSource: Reinventing the Automobile, Booz & Company analysis 32
  33. 33. Different electric-drive vehicles will meet different transportationneeds Characteristics of Electric-drive systems Electric-drive Vehicles for Different Transportation Needs Battery- Extended- Fuel-cell High load electric range electric electric vehicle vehicle vehicle Vehicle size ≤Small ≤Compact ≤Family Hours Refueling time Hours (battery Minutes Duty cycle charging) Range 100+ 300+ 300-400 (miles) Vehicle 0~40 miles 0 0 emissions daily Diverse/ Diverse/ Diverse/ Energy source Petroleum with Light load petroleum free petroleum free range extender Already Already Refueling available at Must be available at infrastructure home and deployed home City Intra-urban Highway-cycle Highway station Stop and Go Drive cycle ContinuousSource: Reinventing the Automobile, Booz & Company analysis 33
  34. 34. 1. A Changing World2. The Battle For Dominance Of The 21st Century Global Auto Industry3. China’s Path To Electrification4. Speed Bump: The Challenge of Reinventing Mobility5. The Alternate Route: Towards a New Ecosystem for Green Mobility 34
  35. 35. Solutions for the“mobility revolution”require a new“eco-system”of collaborative partnerships 3 Dimensions of the New Eco-system Regulatory Innovation Frontier (Government) §  New policies (including subsidy policy) to support the commercialization of green transportation technologies Technical Innovation Frontier Business Innovation Frontier (Auto Industry) (Cross Industry/Value Chain) §  Partnerships among key §  Partnerships between other players to deliver deep, industries and auto makers/ scalable solutions for future suppliers to develop new green transportation business model for future green cars 35
  36. 36. RThe central government is playing a key role in shaping industrydevelopment Official China at Work SASAC Vehicle Manufactures Electric Vehicles Market Battery Utilities Manufacturers CompaniesNote: SASAC: State-owned Assets Supervision and Administration Commission of the State CouncilSource: Booz & Company analysisBooz & Company 36
  37. 37. TThere will be changes in OEM manufacturing footprint, and newsuppliers will play a role in the new EV powertrain value chain Dynamic Changes for OEMs and Suppliers New Supplier Segmentation in the EV Powertrain Value Chain Powertrain Development Power Train Integration Market changes from ICE to PT Infrastructure EV PT Batteries E-Motor Cables & System EV System Integration Components Auto OEMs Third-Party EV Depend OEMs Powertrain on E.g. Suppliers Utilities §  Traditional in-house Standard industry ICE production Tier 1 capabilities Suppliers New Supplier Base Non-auto Suppliers 1.  OEMs’ assets previously bound in ICE manufacturing facilities will be diversified Supplier 2.  New suppliers that do not have a role in Concentration the past will come into play High Concentration Low Concentration Key Supplier Research/Minor SupplierSource: Interviews, Booz & Company analysisBooz & Company 37
  38. 38. TIn EV manufacturing, powertrain will be substantially reshapedby the technology migration from ICE to EV … Key Components in EV Ecosystem Description Discontinuities §  Different integration challenges §  Outsource for manufacturing Vehicle §  Challenge in in-house focus of Assembler & §  Integration and assembly production Developer §  Brand refocus and new service requirements §  Charging System §  New Powertrain components with §  EV Battery with BMS completely different technologies Powertrain §  Inverter §  Electrification of other components §  Electric Motor §  Consolidation of cell manufacturers §  Transmission §  Structure Optimization §  Acceleration of lightweight §  Lightweight technologies for new development of vehicle body Vehicle Body materials §  Connection & Joining Technologies §  Bottom plate §  Much simpler to design and §  Suspension produce, compared with ICE Chassis vehicles §  Wheels §  … 38
  39. 39. T… which will provide the most tangible potential Vehicle assembly and development: §  Established OEM brands exist: new entrants will have extreme difficulties to establish trusted brands with consumer Charging System §  Highly sophisticated engineering capabilities §  Allows the drive battery to be charged by the required for vehicle development on a continuing basis: most vehicle assembly does not add much power supply infrastructure value without vehicle development EV Battery with Battery Management System 1 st Powertrain §  Stores electric energy to operate the vehicle with Revealing the biggest “discontinuity” driven by the BMS for monitoring and protection of the battery technology migration from ICE to EV Holding the most value of vehicle Inverter Vehicle Body §  Converts high-voltage direct current to alternating 2 nd EV needs for new lighter and stronger materials to current and supplies motor with the power replace relatively heavy steel body of conventional vehicles Electric Motor However, currently available technologies cost is too high; thus the key challenge would be to develop §  Generates torque power with engine speed and economical materials for vehicle body recovers the electrical energy Chassis Transmission Not too difficult (even much simpler) to design and §  Transmits power between the electric motor shaft produce, compared with ICE vehicles and the wheels Not much value-added 39
  40. 40. BIn addition, the development of EV industry requires partnershipacross the value chain 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 Product Flow Cooperation or Battery Leasing & Contract Utility Recharging Collaborative partnerships with emerging players will ultimately drive the green revolutionSource: Booz & Company analysis 40
  41. 41. BCoda’s network of partnerships is an example of a new businessmodel for collaborative EV development Collaboration Model The Co-Op Model: Case 1 §  Partners in Powertrain System –  Coda formed a Joint Venture with Lishen Power Battery called Lio Energy Systems to develop batery systems exclusively for Coda Lio Energy –  Motor technology from UQM, a U.S. based Systems manufacturer of electric motors, generators and controllers §  Partners in Vehicle Platform –  Entered a letter of intent with Great Wall Motor, a fast-growing Chinese automaker, to supply advanced electric powertrains and jointly develop BEVs that will be sold Hafei worldwide. –  Current EV models sold in U.S. are based on gasoline-powered vehicle from Hafei Motor, a Global partnerships to develop EV models for sale worldwide subsidiary of stated-owned Changan Group, China’s fourth largest auto group.Source: Synergistics Limited analysis 41
  42. 42. BBetter Place is challenging the fundamental economics of EVownership by offering a battery leasing and service model Collaboration Model The Co-Op Model: Case 2 §  Business Model –  Customers enter into contracts to purchase driving distance. The initial cost of an electric vehicle may also be subsidized by the ongoing per-distance revenue contract. The goal is to enable electric cars to sell for less than the price of the average gasoline car sold in the US. §  Cooperation Model –  The Israeli government will provide tax incentives to customers, Renault will supply the electric vehicles, and Project Better Place OEM Partnersips Government partnerships will construct and operate an Electric Recharge Grid across the entire country. Electric vehicles will be available for Infrastructure to be deployed on a country-by-country basis, beginning with Israel and Denmark customers in 2011.Source: Synergistics Limited analysis 42
  43. 43. BHertz is teaming up with GE Energy and BYD to expand itspresence in the China market leveraging EV partnerships Collaboration Model The Co-Op Model: Case 3 §  Cooperation Model –  Rental giant Hertz Global Holdings announced it will team up with GE Energy and BYD Auto to expand its electric-vehicle leasing business into China. –  The intention is to capitalize on Chinas still- nascent EV market, though high cost and weak infrastructure remain the biggest hurdles to popularizing the technology. –  Hertz will offer EV leasing to consumers and companies in Shanghai, Shenzhen and Beijing, initially using E6 electric crossovers made by BYD, with GE helping to build up an initial network of 770 charging stations. Private sector collaboration to jointly address infrastructure challenge with support from governmentSource: Synergistics Limited analysis 43
  44. 44. Conclusions: An auto revolution requires a new eco-system ofcollaborative partnerships Trends Implications§  The global economic center of gravity §  The Green Mobility revolution requires new “eco- has shifted to the East, and China has system” of collaborative partnerships become the battleground for 21st Century –  Regulatory frontier: proactive government auto industry dominance interventions to develop policies and deploy infrastructure for green cars§  Population, environmental, and –  Technical frontier: partner among economical problems are urging ”Green automakers and new class of xEV suppliers to Mobility” innovations, which will deliver deep, scalable green mobility solutions dramatically change the auto industry –  Business frontier: partner across value chain among OEMs, utility companies, distributors,§  China, with desire for a sustainable service and infrastructure providers to develop new business model growth and strong government support, is striving to lead this green mobility §  Be fully aware of China’s leadership in the future auto industry and find opportunities to get revolution involved in its new EV eco-system development A mobility revolution requires a new “eco-system” of collaborative partnerships 44
  45. 45. Thank You!Booz & Company 45