The Electric Car Tipping Point

1. NOVEMBER 2, 2017 The Electric Car Tipping Point Research highlights

2. 2 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. This research underlies our fourth report on automotive propulsion and electric car adoption (out soon) Focus areas • Potential of ICE technologies • Consumer perspective • Updated volume forecasts • Go-to-market challenges • Carbon-cost tradeoffs • Total costs of ownership (TCO) • Volume forecasts • Battery technology and industry overview • Battery cost analysis • Total costs of ownership (TCO) revisited • Evolution of battery costs • Total costs of ownership by powertrain • Impact of shared mobility • 2030 volume forecast 2009 2010 2011 2017 The Electric Car Tipping Point

3. Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. 3 Battery costs have been declining at a rapid pace since 2009, at ~20% annually We should reach an inflection point for a viable economic proposition for consumers between 2025 and 2030 without incentives Until that time, regulation, rather than consumer demand, will still drive the electrification of cars Until 2020, advanced internal combustion engines (ICEs) will be sufficient to meet regulations. After that, electrification will be required In 2025, most cars will still have an ICE. The average cost per car sold to meet regulatory requirements will be ~$500 per unit above ICE costs Electrification will manifest in different ways around the world. In the US, it will be driven by mild hybrids or 48-volt hybrids (MHEVs) and battery-operated electric vehicles (BEVs); in the EU and China, by BEVs; and in Japan and the rest of the world, by mainly full hybrids (HEVs) and MHEVs The shared economy (taxis and car sharing) will spur HEV and BEV adoption before individual customers, given higher mileage. Autonomous vehicles will boost shared mobility and therefore demand for HEVs and BEVs Globally, we expect the share of electrified vehicles (xEVs) to be ~30% by 2025 and ~50% by 2030. The share of BEVs is projected to be 6% in 2025 and 14% in 2030 Executive summary Source: BCG analysis

4. 4 Our approach Energy price (oil, electricity) Government incentives Battery & ICE tech. cost/benefit Regulatory standards Regulation-driven output Consumer-driven output Total miles driven (mobility, consumer) OEM economics (lowest-cost solution) TCO for consumer (breakeven expectations) Battery & ICE tech. cost/benefit No Does consumer output meet regulation standards? Yes FactorsaffectingconsumersFactorsaffectingOEMs OutputAnalysisDriver BCG view of powertrain evolution and xEV market forecast to 2030 OEM vehicle options Key

5. 5 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. • Starting in 2021, emission of passenger car fleets in Europe limited to max. 95g CO2/km • Starting in 2025, max. 78g CO2/km • Optimization of combustion engines reaches economical limits • CO2 targets in EU and US can be achieved only with xEV technologies 200 150 100 0 2120 115 117 95 191817151413 172 127 165 121110 139 Proposed 78 CO2 (g/km) 97 242322 2516 Governments have set aggressive CO2 targets Today ChinaEU JapanUSA Ambitious CO2 targets... ...with strong implications Note: China limits only include combustion engines (limits lower if alternative drive technologies included); US limits show NHTSA's efficiency standards and do not include credits for low-GWP cooling according to the EPA's GHG standards; regulations apply for passenger cars Sources: BCG analysis; ICCT December 2014; AMS – Spagat zwischen Effizienz und Emission, 21.09.2015; EU-Study "CO2-Emissionsreduktion bei Pkw und leichten Nutzfahrzeugen nach 2020" Alternative drive technologies

6. 6 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. ICEs will be sufficient to meet regulations until 2020, not beyond -1,000 0 -500 500 2025 CAFE credits -398 2024 -543 Industry CAFE credits (M) 2023 -262 2022 -135 2021 -23 2020 43 2019 46 2018 40 2017 41 2016 123 108 106 104 102 100 98 96 93 91 87 95100106112119125 7881858895 0 50 100 150 Industry CO2 emissions EU (g/CO2) 20252020 2021 20242022 20232016 2017 2018 2019 Proposed Regulatory requirements CO2 projected emissions US and EU regulation not met after 2020 US projections EU projections

7. 7 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Countries have set various ways to incentivize xEV sales • $7.5K per purchase of full BEV, credits are less for PHEV (~5K), federal tax credit • ~$2.5K additional vary by state • Up to €4K rebate for BEV and €3K for PHEV • €1B fund for rebates/chargers • Up to €6.3K for CO2 20g emissions or less • Up to €10K for BEV when scrapping old diesel • BEVs exempt from purchase tax (up to 100%) and VAT • Pay far lower circulation tax, pay 50% company car tax • Exempt from parking, ferry, bridge, toll fees • ~$17K (RMB ~55K) national rebate, RMB 30K for a PHEV • Municipal government offering additional RMB ~55K • License plate exempt from charge and xEVs avoid 6-to 12- month wait • Up to $8.5K subsidy based on purchase price and benefit from ICE alternative • Exemption from tonnage, ownership and acquisition tax • Formerly had subsidy of $700- $1K on HEVs USA Germany France Norway China Japan

8. 8 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Global penetration of electrified vehicles has been limited to date xEVs are expected to account for 5% of total production this year 0 85 80 75 60 70 65 90 95 90.4 77.4% 18.8% 2015 71.3 79.2% 2.1% 19.3% 76.1% 18.9% 2.4% 0.7% 0.9% F 2017 91.2 73.7 78.2% 20.3% 2010 86.6 78.1% 19.1% 2014 84.3 79.0% 2013 81.6 2012 78.5 18.3% 78.3% 19.3% 2011 78.8% 18.6% 0.2% 1.0% 0.1% 0.2% 2016 Annual Vehicles Produced (M) Source: 2017 August IHS Data MHEV HEV PHEV BEV Diesel Gasoline BEV 0.0% 0.1% 0.1% 0.2% 0.3% 0.4% 0.6% 0.9% PHEV 0.0% 0.0% 0.1% 0.1% 0.2% 0.3% 0.4% 0.7% HEV 1.4% 1.3% 2.0% 2.1% 2.2% 1.9% 2.2% 2.4% MHEV 0.1% 0.0% 0.2% 0.2% 0.1% 0.3% 0.6% 1.0% Total xEV 1.5% 1.5% 2.4% 2.5% 2.8% 2.9% 3.8% 5.0% HEV ICEPHEV DieselMHEVBEV

9. 9 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Battery costs for BEVs and PHEVs, however, are declining fast Potential evolution of battery cell costs by 2030 2018 180 150 120 90 0 2030202920282027202620252024202320222021202020192017 173 152 Cell level ($/kWh) 145 159 143 70 90 97 106 80 106 120 128 135 128 147 Note: TAR report D segment battery cell cost used at ~65 kWH to 2025 Sources: BCG analysis and forecast; TAR report; JP Morgan Global xEV Components report; UBS Future of Powertrain report; expert interviews; GM annual global conference LG/GMUBSTAR JP MorganBCG low case projectionsBCG base case projections

10. Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. 10 Key parameters Cost curve from $150 per cell to $90 per cell $60 a barrel Incentives are not included Regulations are assumed to remain in place Battery costs Oil costs Incentives/ Regulations

11. 11 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Comparison of TCO across powertrains: US 5-year TCO C-segment cost of ownership year-over-year change for different xEVs Source: BCG analysis In 2020, purchasing a PHEV will cost consumer $35,541 over life of 5 years from 2020-2025 In 2027, purchasing a BEV will cost consumer $30,678 over life of 5 years from 2027-203235,541 191817 3015 40,000 35,000 30,000 25,000 2928272625242322212016 Year 30,678 5-year TCO, C segment ($) PHEV BEVHEVMHEVICE

12. 12 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Comparison of TCO across powertrains: US 10-year TCO C-segment cost of ownership year-over-year change for different xEVs 41,434 2027202620252024202320222021202020192018201720162015 50,000 45,000 40,000 35,000 30,000 203020292028 35,705 10-year TCO, C segment ($) Source: BCG analysis BEVPHEVHEVMHEVICE In 2020, purchasing a PHEV will cost consumer $41,434 over life of 10 years from 2020-2030 In 2025, purchasing a BEV will cost consumer $35,705 over life of 10 years from 2025-2035

13. 13 Gas-to-electricity ratio and number of miles driven in region will drive a favorable TCO $/Gallon1 2.50 5.70 3.80 4.16 $/kWh 0.12 0.36 0.08 0.26 Gas-to-electricity ratio 20.8 15.8 47.5 16.0 Number of miles driven 13,671 9,012 12,460 5,594 xEVs beneficial 2nd 3rd 1st 4th 1. Base case assumes $60/barrel Sources: US Energy Information Administration; Energy.gov China provides the most favorable combination of energy prices and mileage for xEV penetration

14. 14 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Electrified vehicles are increasingly attractive at high mileage rates 2017 payback period, HEV versus ICE (years)1 2017 payback period, BEV versus ICE (years)1 Miles/yr USA China EU 25,000 6 4 3 50,000 3 2 2 75,000 2 2 1 100,000 2 1 1 Miles/yr USA China EU 25,000 11 5 6 50,000 6 3 3 75,000 4 2 2 100,000 3 2 2 1. Based on 2017 prices without incentives Source: BCG analysis

15. 15 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Cost-per-mile difference will be ~40% for urban shared vehicles in 2030 Comparison: 2030 annual cost by category 0.0 0.5 1.0 1.5 1.22 Conventional ICE (10K yearly miles) 2030 Shared Autonomous Vehicle (HEV) (60K yearly passenger miles) 0.77 2030 Shared Autonomous Electric Vehicle (BEV) (60K yearly passenger miles)1 0.74 -40% $/passenger mile per category -37% Car type and mileage 1. Corresponds to ~90K total miles, when passenger-less miles driven are added Source: Upcoming BCG report, The Reimagined Car: Shared, Autonomous, and Electric Cleaning Tickets Replacement (covers, mats, etc.) Fleet Tax Fleet Markup Fleet Mgmt. Data Battery Replacement Tires Taxes/Fees Software Upgrades Financing Fuel/Electric Maintenance Insurance Depreciation Parking

16. Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. 16 Assumptions for 2030 ride-sharing adoption by population density for in-scope geographies Source: BCG analysis Description Low end of band (%) High end of band (%) Major city Within limits of a city with population of >1M (2M for China) 40 80 MSA Part of a metropolitan statistical area, but outside the exact city limits 20 40 Remaining urban In urban area not associated with a major city 5 10 Rural A non-urban area 0 0 Ride-sharing adoption rate by 2030 (%)

17. 17 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Autonomous mobility varies by region and can have a range of outcomes China Japan EU USA Global 12 5 20 15 10 5 0 30252015 1 4 9 4 20 15 10 5 0 30252015 2 6 2 14 6 20 15 10 5 0 30252015 10 4 19 5 0 30252015 10 15 20 7 8 20 10 0 30252015 15 5 4 3 1 Autonomous mobility veh. as a % of vehicles sold Autonomous mobility veh. as a % of vehicles sold Autonomous mobility veh. as a % of vehicles sold Autonomous mobility veh. as a % of vehicles sold Autonomous mobility veh. as a % of vehicles sold Note: Growth based on 2005-2017 adoption rate of smartphones (used from 2022 onwards) Source: BCG analysis High end of band Low end of band

18. 18 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. BCG market forecast to 2030 (global view) 100 80 0 90 110 60 70 64% 8% 10% 1% 2016 90 2015 87 13% 3% 7% 2025 105 67% 9% 8% 8% 2% 6% 2024 104 70% 10% 8% 7% 2% 4% 2023 104 2022 102 2021 100 2020 98 78% 14% 2% 3% 1% 1% 2019 96 2018 93 2017 91 76% Volume (M) 1% 2% 1% 2030 109 47% 5% 15% 13% 6% 14% 2029 108 53% 6% 12% 5% 12% 9% 2028 107 57% 6% 12% 11% 4% 10% 2027 106 61% 7% 11% 10% 3% 8% 2026 105 19% DieselMHEVHEVPHEVBEV Gasoline Source: BCG analysis Regulation-driven Consumer-driven Mobility impact

19. 19 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. US market will see increased growth in MHEVs beginning in 2021; EUR market growth in BEVs will occur between 2023 and 2025 Source: BCG analysis US projections EU projections 15 10 0 20 32% 12% 16% 3% 48% 13% 2024 19 20232022 202520212020 2026 19 58% 2027 36% 1% 2028 2% 1% 2029 Volume (M) 8% 22% 2030 19 6% 21% 7% 11% 2019201820172016 19 2015 18 20 15 10 0 17 2020 2021 2022 2023 2024 8% 1% 10% 16% 3% 63% 17 2025 2026 2027 2029 20% 2% 12% 16% 3% 48% 17 20302028 Volume (M) 4% 91% 0% 3% 1% 1% 2019201820172016 17 2015 17 MHEV DieselHEVPHEVBEV Gasoline

20. 20 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Volume in China will be driven by BEVs and PHEVs; in Japan, by HEVs and MHEVs owing to different driving patterns and OEM focus Source: BCG analysis China projections Japan projections 6 0 4 202720262025 5 51% 3% 18% 20% 3% 4% 202420232015 20212020 5 64% 6% 12% 14% 2% 2019 5 Volume (M) 2016 5 2017 2018 2030 5 34% 2% 23% 24% 6% 12% 202920282022 0 35 25 30 20262025 32 81% 1% 5% 4% 6% 202420232022 3% 28 Volume (M) 2030 35 55% 1% 2020 11% 7% 10% 17% 20292021 20282027 92% 2% 1% 1% 2% 2019201820172016 25 2015 22 GasolineDieselMHEVHEVPHEVBEV

21. 21 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Incentives and lower battery costs could increase the share of BEVs Source: BCG analysis Impact on powertrain technologies Δ to base case (% of global market 2030) Base case Sensitivity ICE Diesel MHEV HEV PHEV BEV High oil price Oil at $60/barrel Oil at $90/barrel (3.4) 0.6 1.0 0.4 0.6 0.9 Low battery costs Costs for TAR cost curve: $90 per cell cost in 2030 Costs follow BCG cost curve: $70 per cell cost in 2030 (1.5) 0.0 (1.4) 0.0 0.7 2.2 Government incentives No subsidies used, pure economics forecasted With current subsidies for each region sustained to 2030 (6.0) 0.0 (1.4) 0.0 2.5 4.8 Regulatory rollback Current CAFE regulations remain in place in US US administration reduces CAFE/GHG regulations 3.4 0.0 (2.7) 0.0 0.0 (0.6)

22. 22 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Devise a pricing strategy to incentivize customers to buy xEVs to meet regulations Make or buy new powertrain modules and components Manage differentiation in a BEV environment Invest in a charging network Identify the highest areas of value and key OEMs to partner with Manage the profitability of manufacturing ICE components Adjust the level and timing of investment Support the development of a charging infrastructure in urban centers Determine the level of incentives to sustain momentum until a breakeven TCO Manage the shift in energy source and the associated shift in tax revenues OEMs Suppliers Government Key implications

23. 23 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Author team and regional experts Selected publications and research Xavier Mosquet Senior partner BCG Detroit Hadi Zablit Senior partner BCG Paris Aakash Arora Principal BCG Detroit Andreas Dinger Senior partner BCG Munich Gabe Rodriguez-Garriga Project leader BCG Detroit Gang Xu Partner BCG Shanghai Chris LaChance Project leader BCG Detroit Michelle Andersen Partner BCG Detroit Eric Gruskin Associate BCG Detroit Kazutoshi Tominaga Partner BCG Tokyo Making Autonomous Vehicles a Reality: Lessons from Boston and Beyond A report by BCG and the World Economic Forum October 2017 Self-Driving Vehicles, Robo-Taxis, and the Urban Mobility Revolution A report by BCG and the World Economic Forum July 2016 Revolution in the Driver’s Seat: The Road to Autonomous Vehicles A report by BCG April 2015 To request more information on this research, please contact BCG-Info@bcg.com. To request a media interview, please contact Eric Gregoire at gregoire.eric@bcg.com. To discuss the findings with a BCG expert, please contact Irene Perzylo at perzylo.irene@bcg.com. Revolution Versus Regulation: The Make- or-Break Questions About Autonomous Vehicles A report by BCG and the World Economic Forum September 2015