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Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
Towards a Green Automotive Industry
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Towards a Green Automotive Industry

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Presentation delivered by Bill Russo at the NextGen Auto International Summit in Shanghai, China on December 12, 2012. Presentation highlights the need for cross-value chain collaboration and new …

Presentation delivered by Bill Russo at the NextGen Auto International Summit in Shanghai, China on December 12, 2012. Presentation highlights the need for cross-value chain collaboration and new business models to achieve broader acceptance of electric vehicles.

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  • 1. Synergistics Ltd. December 2012Booz & CompanyTowards a Green Automotive IndustryAchieving Cross Value Chain Collaboration And New Business ModelsTo Achieve Broader Acceptance Of Electric VehiclesPresented at NextGen Auto International Summit ChinaKerry Hotel PudongShanghai, ChinaDecember 11-13, 2012Bill Russo (罗威)President, Synergistics Ltd. and Senior Advisor, Booz & Company
  • 2. Recently published articles with perspectives on China’s GreenMobility strategy are available Recent Publications On China’s Green Mobility Strategy  Download Links: Download Links: English: http://www.booz.com/media/file/Leading_the_Transition_to_New_Energy_Vehicles_en.pdf English: http://www.booz.com/media/file/The_Circuitous_Path_to_Electrification_of_China’s_Automotive_Industry_EN.pdf Chinese: http://www.booz.com/media/file/Leading_the_Transition_to_New_Energy_Vehicles_cn.pdf Chinese: http://www.booz.com/media/file/The_Circuitous_Path_to_Electrification_of_China’s_Automotive_Industry_CN.pdf PDF versions of the articles can be downloaded at the above addresses or by sending an email to wmr@synergisticsltd.com 2
  • 3. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 3
  • 4. The China Context - speed and intensity Shanghai 20 Years Ago Now 4
  • 5. The world’s center of gravity is rapidly shifting back towards theEast, and especially towards China China’s Share of Global GDP 1500-2050F, by PPP (constant 2005 international $) China’s Fall and Rise §  China enjoyed cultural and political100% supremacy for two millennia in the pre- 95% US: 10% modern world (600-1750) 90% 85% –  Advanced water management techniques 80% –  Meritocratic imperial bureaucracy 75% China: 28% –  Confucian code of virtuous conduct 70% –  Unchallenged military prowess 65% Western 60% Europe: 7% §  Following the “ Great Divergence”, China 55% Latin America: 50% 7% experienced almost 200 years of upheaval and 45% Japan: 3% chaos (1800-1970s) 40% –  Chinese explanation: aggression, opium India: 12% 35% –  Western explanation: Industrial Revolution 30% –  Other factors: Malthusian crisis, Manchu hubris, 25% 20% shortage of raw materials (e.g., wood), etc. All other 15% countries: 34% 10% §  China has re-emerged during the past thirty 5% years (since 1980s) 0% –  Selective regulatory liberalization (bidirectional) 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 2010 2030F2050F –  Progressive FDI levels and integration of China-based activities into MNCs’ global value chainsSource: EIU, Nexis, World Bank, CEPII, Literature research,; Booz & Company analysis 5
  • 6. China’s re-emergence will have important economic andgeopolitical implications – a smooth transition is unlikely Transition Of Global Economy Impact of China’s Rise Y2010-Y2020Expected Growth Rate §  During the last thirty years, there has been 12% a seismic shift in the global economy 11% “We are in a time of –  China and India, the two most populous transition - The nations on the planet, have rapidly emerged 10% economic world order • as powerful economic forces Trade issues that prevailed in the •  Geopolitical issues 9% –  Meanwhile, the U.S. experienced one of the 1990s is being replaced worst periods of economic performance in 8% by a different kind of China global economy” – Peter its history during the first decade of the 21st 7% Rodriguez (Darden) century India •  Global energy market is violate and 6% §  While certainly impressive, China’s rise unstable 5% will likely also create significant limited •  China’s energy resources are economic Russia and geopolitical tensions 4% –  Environmental sustainability Brazil –  Competition for natural resources (e.g., oil, 3% Western Europe wood, rare earth metals, etc.) 2% –  Incompatible political systems and Japan US economic development philosophies (i.e., 1% Washington Consensus versus State 0% Y2010 GDP Capitalism) (Tn US $) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18Source: Global Insight, CEPII, Literature research, Booz & Company analysis 6
  • 7. Economically, China is already - or will soon become - the world’slargest market for many consumer and industrial products Asia’s Share of the Automotive Market 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% Mobile Phones Beer Dairy Products Crude Steel Paper §  833M Users (2010) §  42B liters (2010 §  37.3M tonnes (2009 §  572M tonnes (2009 §  89.7M tonnes (2009 §  Global #1 Production) Production) Production) Production) §  Global #1 §  Global #3 §  Global #1 (46.7% of §  Global #1 total production)Source: Global Insight Data, Booz & Company analysis 7
  • 8. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 8
  • 9. China contributed 32% of the global light vehicle sales increasefrom 2007 to date Country share of incremental Global Light Vehicles Sales 1) 2007 - 2012 Other Develope Mature d Markets: Japan Countries 23% 2% Korea 2% China US 32% 12% Other Developing Countries 11% (1) Brazil 2% India Thailand 19% 2% Mexico 2% Indonisia 3% Russia Developing 5% Countries: 77%1) Includes A, B, C, D, E, F, MPV,SUV,light passenger car, and light trucksource: Global Insight 2010, Booz & Company analysis 9
  • 10. China is still just entering the accelerated growth phase typical ofemerging markets… Canada 600 Australia Discussion Germany §  A country’s threshold of 500 U.K. mobility lies near US The S- curve U.S. $10,000 GDP per capita Poland (PPP), where 400 automobile ownershipCars per 1,000 People Malaysia accelerates Russia 300 Argentina §  China is at the early taking-off stage of the S- Mexico curve 200 Brazil Turkey §  India remains fairly distant from the mobility India Thailand 100 inflection point, but Iran continues to make China Indonesia steady progress 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 10
  • 11. …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) 600 §  Car ownership in China is powered by Increase in Car the growing economy – the upside is High Forecast Ownership substantial 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 Industry 330 and distribution 300 §  China’s financial system is less China 200 exposed and GDP growth is still very Economy’s fixed investment driven, thus is less Resilience vulnerable to recent financial 100 turbulence impact §  Highway network development Infrastructure provides foundation for more motor 0 Development vehicle-based 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 11
  • 12. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 12
  • 13. The world has entered a new era since 2008, more than half of thepopulation lives 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 13
  • 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. 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. Comparing with mature markets, China stands out as asignificant opportunity and seems more ready to push 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. Three key shifts are driving the need for a green revolution whichrequires a new era of collaborative partnership Emerging Market Growth An Increasingly Urbanized Environmental and Economic Forces Global Redistribution World Challenges the Sustainability Drive Green of Assets Established Transportation Car Innovations Paradigm Revolutionary Changes Require a New “Eco-system” of Collaborative Partnerships 17
  • 18. 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 18
  • 19. Six major themes marked China‘s “12-5” strategic plan Six Major Themes of “12-5” Strategic Plan Boosting Domestic Consumption 2 GDP Growth Rate Industry Upgrade Adjustment and Innovation 1 3 “12-5” Strategic Plan 6 4 Internationalization Energy Saving and 5 Environmental Regional Protection Coordinated Development 19
  • 20. 3 Industry Upgrade and InnovationIn 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 20
  • 21. 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 21
  • 22. China government has established their medium-term targets forNEVs, and planned around 5-Mn 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: 0.5 Mn by §  Financials: Chinese central government to provide 2015 100Bn RMB for the next 10 years in developing §  Production capacity of vehicle batteries: 10Bn alternative-energy electric vehicles WH. Cost of vehicle batteries should halve due to §  Cumulative number of electric vehicles on the increased production scale road: 5 Mn by 2020. §  Production capacity of BEV: 1Mn a year by 2020 Guidelines §  R&D: continue the country’s 3-by-3 R&D framework Program coverage and increase its pace in EV commercialization §  R&D and technical developments §  Infrastructure: increase the network of EV charging §  Development of core EV components stations §  Commercialization, demonstration and roll-out pilot §  Technical standards: set Chinas own EV standards programs as well as participating in setting international §  Establish network of charging stations in public standards places (such as car parks) §  Expand the use of EV in the public transport sector §  Increase technical collaborations between EV stakeholders §  Develop technical and R&D talentsSource: Literature research, Booz & Company analysis 22
  • 23. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 23
  • 24. 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 beChange managed most effectively? Engineering? Sales & Marketing?Management 24
  • 25. Among different technology trends, sustainable mobility and massreduction have 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 ü 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 Clarity 25
  • 26. 3 Hybrid/ Electric VehiclesxEVs provide higher fuel efficiency by using electric motor tosupplement/ 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 26
  • 27. 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 27
  • 28. 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 28
  • 29. 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 29
  • 30. 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 30
  • 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. 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. 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. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 34
  • 35. Solutions for the “green mobility revolution” require a neweco-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. 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 36
  • 37. 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 §  … 37
  • 38. 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 38
  • 39. BThe development of green mobility solutions 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 39
  • 40. 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 40
  • 41. 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 41
  • 42. 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 42
  • 43. 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 analysis 43
  • 44. RIt is important to carefully map-out of the key stakeholders andunderstand their specific roles/priorities The State Council Premier: Wen Jiabao Ministry of Industry National Ministry of and Information State-owned Assets Development and Commerce of Technology of Supervision and Reform People’s Republic Other Associations People’s Republic Administration Commission of China of China Commission (SASAC) (NDRC) (MOFCOM) (MIIT) §  Responsible for §  Responsible for §  Responsible for §  Responsible for China Automotive controlling and designing administering China’s conducting Technology & coordinating regulations and foreign trade, regulation and Research Center economic and policies for industry economic policy of industry, (CATARC) social development sector cooperation and and developing new plan §  Responsible for foreign investment technology managing auto industry from a technical supporting perspective §  Very select individuals (5-7) that need to be targeted for auto/heavy industrials in most govt. associations (automotive department) §  For CATARC, multiple stakeholders are present for different technical standards §  Proactively developing relationships with key individuals are vital to business in ChinaSource: Literature research; Expert Interviews; Booz & Company analysis 44
  • 45. 1. A Changing World2. China’s Dominance Of The 21st Century Global Auto Industry3. China’s Challenge: Driving a Green Car Revolution4. The Challenge of Reinventing Mobility5. Towards a New Ecosystem for Green Mobility6. Conclusions 45
  • 46. Conclusions:§  A structural shift of economic power from West to the East is taking place, with stunning economic growth most evident in China over the past 20 years. This growth momentum will continue, making the China market the most important in the world for the auto industry.§  The world has entered a new era since 2008, with over half of the world population now living in cities, and this increasingly urbanized world challenges the established set of paradigms for personal and commercial transportation, especially in the densely populated urban centers in China.§  For the global auto makers, Asia Pacific represents the greatest opportunity for growth, and within Asia Pacific the greatest growth opportunity is in China. China’s automotive market has been experiencing explosive growth, surpassing the US in 2009 as the world’s largest market§  However, China believes that its position as the leading automotive market creates an opportunity to drive the standards and architecture of future automotive technology. As a result, China has launched an ambitious program to electrify transportation, with significant implications for the global auto industry.§  China’s 12th 5-year plan identified 7 strategic emerging industries including energy efficiency & environmental protection, new generation information technology, bio-technology, high-end equipment manufacturing, alternative energy, new materials, electric vehicle§  Key stakeholders must help shape the new green mobility “ecosystem” by proactively partnering with leading Chinese institutions to introduce new technologies 46

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