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Towards a Green Automotive Industry


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Bill Russo's opening remarks at 3rd annual conference on Green Mobility in Beijing, China on September 13, 2012

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Towards a Green Automotive Industry

  1. 1. Synergistics Ltd. September 2012Booz & CompanyTowards a Green Automotive IndustryOpening RemarksPresented to The 3rd Annual Green Mobility ConferenceBeijing, ChinaSeptember 13, 2012Bill Russo (罗威)President, Synergistics Ltd. and Senior Advisor, Booz & Company
  2. 2. The China Context - speed and intensity (1/2) Shanghai 20 Years Ago Now 2
  3. 3. The China Context - speed and intensity (2/2) Beijing 20 Years Now Ago 3
  4. 4. China has emerged as the world’s largest and fastest-growingautomotive market in recent years Size and Growth of Global Passenger Vehicle* Market (Major Countries) CAGR 40% 2001-2009, % 35% China 30% 25% Argentina 20% Iran Turkey India 15% Saudi Arabia 10% Indonesia Brazil ThailandRussia Germany 5% France Korea Global Average :1.6% 0% Spain UK -5% Italy Japan US -10% 0 1 2 3 4 5 6 7 8 9 10 11 2009 Market Size (Million Units) Bubble size:Note: * includes segment of A, B, C, D, E, F, MPV,SUV 2009 market sizeSource: Global Insight 2010; Booz & Company analysis 4 4
  5. 5. 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 5
  6. 6. 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 6
  7. 7. …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 7
  8. 8. 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 8
  9. 9. 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 9
  10. 10. 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 10
  11. 11. Three key shifts are driving a green revolution and ushering a newera 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 11
  12. 12. 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 ü Mass Reduction via Light- Biofuel 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 12
  13. 13. 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 13
  14. 14. 3 Industry Upgrade and InnovationIn the “12-5” period, China has committed to developing sevenemerging industries including new materials and electric vehicle 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 14
  15. 15. China government has established their medium-term targets forNEVs, and planned around 5~10Mn PARC by 2020 NEVs in 12th five-year plan and Energy Saving Alternative-energy vehicles and New Energy Auto Industry Plan development plan (2011-20) Highlights Highlights §  Number of BEV & HPV1) on the road: 0.5Mn by §  Financials: Chinese central government to provide 2015 and 2-5Mn by 2020. 100Bn RMB for the next 10 years in developing §  Industrialization of BEV and HPV will be the industry alternative-energy electric vehicles prioritization §  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 talents1) BEV: pure battery electric vehicles, HPV: plug-in hybrid power vehiclesSource: Literature research, Booz & Company analysis 15
  16. 16. 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 16
  17. 17. Summary:§  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 autoindustry.§  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 17