68/70 Butyrsky Val, bld.1 Mobile app: Follow us on: 127055 Moscow, Russia Tel.: +7 (495) 234 27 64 www.aebrus.ru Contents

1. AEB Automotive Components Committee 1.1 What we do 1.2 Committee facts and figures 2. Russia Overview 3. Position Paper 4. Contacts What is the AEB?

• The Association of European Businesses (AEB) is an independent, non-commercial organization which represents foreign investors in Russian and is the biggest of its kind.

• The AEB was founded in 1995 on the initiative of a number of European companies that operated in Russia, Ambassadors of EU member countries and the head of the European Commission’s Representative Office in Russia.

• The AEB is an active community of more than 500 members from the member states of the EU, the European Free Trade Association (EFTA) and other countries, which have business activities with and in Russia.

• The AEB is an advocate of its members’ opinion, generated in over 65 industrial and cross-sectoral committees, subcommittees and working groups.

3 What is the AEB Automotive Components Committee?

Mission: Be one voice that creates and supports a sound investment climate and operating environment for the automotive components and supplier industries

Effective communication with governmental bodies

Consolidate key suppliers to boost cooperation and work out ideas that would benefit the industry

Promote the Committee as the best place to discuss ideas, address concerns and make proposals to support the industry

Member companies: Aptiv, Atlas Copco, Benteler Automotive, Continental Automotive Systems RUS, Dow Europe, Dupont, Faurecia, Gestamp, Johnson Matthey, Robert Bosch, ISG support-GUS GmbH, Russian Automotive Components, SAF-Holland RUS, Segula Technologies Russia, Volvo Vostok

Automotive Consultants members: Deloitte, DLA Piper, EY, KPMG, PwC 4 What do we do

1. Regular committee meetings (sometimes with invited experts)

2. Official communication with government bodies: letters, meetings, participation in working groups.

3. Round tables (i.e. Euro 6 round table)

4. Alignment with other automotive committees (Commercial vehicles, Automobile Manufacturers Committee)

5. Networking

6. Events (IMAF, TIAF, …)

5 Committee Facts and Figures

Around 70% of the value added of the car is created by suppliers Traditions Founded in 2000

Independence The committee is funded by membership fees only

24 € 2 bln 9000

Plants Sales/year People employed

6 Russia Overview – GDP per capita, PPP

7 Russia Overview – Russia getting more stable

sanctions

8 Russia Overview – Export from Russia in 2018 ($450bn)

9 Russia Overview – Russian car fleet needs replacement

Age of cars, in years

10 Russia Overview – Car Ownership Still Low

Number of cars per 1000 people by countries in 2015

11 Russia Overview – Main OEMs in Russia Russia Overview – Foreign Suppliers (Brands)

Source: www.napinfo.ru 13 Russia Overview – Foreign Suppliers (Products)

Source: www.napinfo.ru 14 Sales by Brand, units sold

3 500 000

3 000 000

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0 2011 2012 2013 2014 2015 2016 2017 2018 2019

Avtovaz (Lada) Renault Nissan Hyundai VW Group GM Toyota Ford GAZ PSA Others 15 Russian Market Share Distribution by OEM

100%

90% 18% 18% 20% 20% 19% 18% 18% 17% 18%

80% 4% 3% 4% 3% 3% 4% 3% 3% 3% 7% 7% 70% 7% 8% 7% 5% 6% 6% 7% 2% 1% 4% 2% 2% 12% 60% 13% 13% 9% 8% 11% 12% 10% 11% 11% 50% 9% 11% 11% 10% 10% 11% 13% 13% 6% 8% 40% 7% 6% 10% 6% 10% 10% 10% 10% 6% 7% 7% 30% 5% 5% 5% 5% 4% 6% 6% 7% 8% 6% 8% 8% 9% 8% 20% 6% 8% 8% 8%

10% 22% 20% 21% 18% 17% 16% 17% 19% 20%

0% 2011 2012 2013 2014 2015 2016 2017 2018 2019

Avtovaz (Lada) Renault Nissan Hyundai Kia VW Group GM Toyota Ford GAZ PSA Others 16 Jan-Sep Car Sales Contracted by 13.9%

300 000 1 200 000

250 000 1 000 000

200 000 800 000

150 000 600 000

100 000 400 000

50 000 200 000

0 0 Jan Feb Mar Apr May Jun Jul Aug Sept Jan-Sep

2019 2020

• Total Russian PC + LCV market (sales of cars) in 2019 was 1.8 million vehicles. • 85% of cars are locally produced 17 Russian Automotive Strategy 2025

❑ Increase localization of components

❑ Export 8% of production

❑ Improve emission requirements

❑ harmonize technical requirements and standards with worldwide approach

❑ improve power efficiency

❑ Electric vehicles, 5% by ‘25

❑ Autonomous driving, 2% by ‘25

❑ Smart safety and management systems

❑ Mass reduction (new materials)

❑ Smart and adaptive production technologies, advanced technologies for developing new products

❑ Alternative fuels (CNG), 5% by ‘25

❑ Recycling

18 Russia Overview – Emission and Future Mobility

❑ LV market is dominated by foreign brands, CV by local ones. Historically Russia was following Europe in terms of emission legislation (as a signer of the Geneva Agreement) but with a lag of about 5 years. We expect this to continue. ❑ Customers are more and more concerned about air quality. Low emission zones are legally introduced, first LEZ will be in place in 2021 in several regions across the country, mostly in resorts and cities like Moscow and St Petersburg. ❑ As of today no plan to ban ICE completely. KAMAZ and GAZ are developing diesel engines for Euro 6 with Liebherr and AVL. ❑ No hybrids. ❑ CNG strongly supported by the government. CV > 5% by 2025 - we are confident this will be reached. ❑ Hydrogen under discussion – may well be the dark horse. OEMs like GAZ and KAMAZ are researching this technology. ❑ Electric share of 5% by 2025. Today’s problem: limited infrastructure in place, high price and competition with CNG. Electric buses are produced in hundreds locally (by GAZ, KAMAZ and Volgabus). ❑ We are confident Russia will invest into emission reduction. We think all three (CNG, Electric and Hydrogen) will have their share as in most parts of the world. Due to the usual lag of about 5 years vs the EU a long term strategy similar to the EU one might come up in the next years.

19 Russia Overview – Emission legislation

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Euro 4 Euro 5 (LV + LCV) Euro 6*

Euro IV Euro V (CV) Euro VI*

* The exact target date for new emission regulation not set yet

• Euro 5 is in place in Russia for all type of vehicles (LV & CV) • Euro 6 implementation date in Russia not defined yet. Russia pushes for it, needs to align with members of the Customs Union (Belarus, Armenia, Kazakhstan, Kyrgyzstan). • Decree 832 legally introduced Low Emission zone in cities, they will be applied from 2021 in resorts and cities (Moscow, St Petersburg, Crimea…)

20 Russia Overview – Electric, Hydrogen or Methane?

Russia is choosing between electric, hydrogen or CNG/LNG (methane), the latter being now the biggest favourite.

Electric – Electric passenger car sales are extremely low (around 353 new vehicles in 2019). No local production. – Electric buses are bought in hundreds by cities, most are produced by local OEMs (GAZ, KAMAZ and Volgabus).

Hydrogen – Russia used to be a pioneer in Hydrogen field with cars, space ships and airplanes powered by hydrogen. Non- automotive hydrogen applications (drones) are in serial production. Domestic research teams/labs have all technologies available from fuel cells to membranes and tanks. – Technical regulation is in place and is synchronized with global standards (Russia teams up with ISO/TC 197 and IEC/TC 105). – In 2019 the Ministry of Industry and Trade for the first time expressed its interest in Hydrogen vehicles.

CNG – Russia has the biggest methane reserves in the world (about 25% of world’s reserves). – CNG offers better emissions and lower costs. (CNG is 3 times cheaper v gasoline in Russia) – Several vehicles are already in serial production. Total fleet today around 150K veh., 700k planned by 2030. – Biggest problem is insufficient number of CNG stations on the roads (380 today, 2400 planned by 2030). – Russia has a Government Strategy to develop CNG. First step was in 2014, second one started in 2019.

21 How used the Government to support the car industry?

In the early years of 00’s Russia was recovering from the fall of the Soviet Union. Many industries were completely wiped out, some were on life support. The government decided to pick several high-tech industries, among them the automotive industry, to give them a boost.

The government with the help of BCG created a strategy – the so-called industrial assembly regime (Decree 166) – which basically meant OEMs paid reduced or zero import duties for components in exchange for localization.

2005 - First wave of 166 Decree, passenger cars only. To comply with the rules one had to establish capacities for 25K volumes/year and 30% localization. Ford, Renault and other OEMs launched first plants. First suppliers of bulky parts localized.

2011 - Second wave: 166 Decree 2.0. Rules were restricted and international OEMs (VW, Ford, Renault-Nissan) agreed to them: capacity of 350K units/year, 60% local content (Decree 166). Similar support was introduced for suppliers (Decree 566). The agreements were set to expire in 2019-2020.

Apart from low import duties the government supported the industry with special programmes to support demand, with subsidies to compensate different types of costs and to support introduction of new technologies. At some point in time the automotive industry used to be the must subsidized in Russia. This highest level of support is supposed to phase out slowly.

In early 2019 as the industry was facing the expiration of previous agreements and as the overall economic conditions have changed the government decided to go for step 3 – a points system (Special Investment Contracts+ Decree 661/719).

22 Four Aims of the Ministry of Industry & Trade of Russia

1 Increase local added value of cars and components

‘Technological safety’ for key components = independence if relations with the West 2 deteriorate further

Development of technologies of the future (connected and driverless cars, 3 electromobility…)

4 Export (the logic is simple: if goods are exported it means they meet global standards)

23 Tools to achieve the 4 aims of the Ministry of Industry

• SPIC is a contract entered into by investor and government authorities under which the investor commits to implement an investment project to create and/or introduce technologies for mastering industrial production in Russia, on a continental shelf or in an exclusive economic zone. The public partner, in turn, commits to ensure a stable environment in which the investor can operate, as well as provide support in the form of incentives. Most of the OEMs signed SPICs. Currently new version of SPIC 2.0 is under discussion

• Decrees 719 and 661 – Decrees that introduced a points system to measure localization and to get access to subsidies. Points requirements get tougher over time.

• CICP (Competitiveness Increase Corporate Program) – Export support

No localization = No government subsidies = No competitiveness = No business in Russia

24 Special Investment Contract (SPIC) 2.0

On July 2020, the Government of the Russian Federation has approved rules for the conclusion, amendment and termination of SPIC 2.0, including:

• Regulations on the procedure for forming and operating commissions to conclude, amend and terminate SPICs;

• The methodology for evaluating applications to take part in the competitive selection process for the right to conclude a SPIC;

• Requirements for the presentation and content of documents being filed as part of the application of a participant in the competitive selection process for the right to conclude a SPIC and for filings that are part of the SPIC conclusion procedure by decision of the President of the Russian Federation;

• The methodology for calculating the total volume of expenditures and revenues lost in the budgets of the Russian Federation’s budgetary system, formed as a result of the application to use incentive measures in the industry in which the SPIC investment project is to be implemented.

In addition, the Government of the Russian Federation also approved rules for monitoring the implementation of commitments made by investors under SPIC 2.0, as well as reports on their implementation.

25 CICP (Competitiveness Increase Corporate Programme)

CICP Agreement (КППК): Company commitment to increase Production & Export Volumes. CICP Agreement (КППК): Russian Government commitment to provide: – Bank subsidies to lower interest rates for loans – R&D and special software subsidies – Subsides to implement digital technologies – Subsidies to increase labor efficiency measured by the quantity highly technically trained professionals – Starting from 2020 CICP is a prerequisite to qualify to #496Decree logistics subsidy (refund of transportation from the plant to the boarder. Legal Framework: Russian Government Decree #191 dated 23-Feb-2019 CICP Agreement Validity: 2019-2024 #719 Compliance shall be obtained from Ministry of Industry and Trade Qualifications ➔ Rankings ➔ CICP Agreement Remark: CICP Agreement is Export Framework. Commitments occur through signing of Subsidy and/or Loan Agreements.

26 Government Support Summary

According to SPIC + 719 Decree rules, OEMs have to increase local content up to 70% by 2025 to get access to subsidies. Depending on the level of localization OEMs can receive subsidies from Russian Government (the main being the so called "scraping fee“ – basically a tax that helps protect the market. Everybody pays it, if one meets localization criteria the Government pays this money back) . For example, lorry makers today are subject to receive subsidies from Government in the amount of up to 11k$ per lorry (depending on type of vehicle.

In case the localization level is not reached, the amount of subsidies will be reduced proportionally. Should the OEM fail to reach the 50% localization rate hurdle, it is stripped of any subsidies from Government. The failure to reach the required localization level means that the OEM cannot participate in tenders for government and municipal needs (which makes up a significant market for CV business)

Although local suppliers are not subject to receiving government money, their benefit is that OEMs would clearly prefer local production over importing goods because of subsidies.

R&D subsidies are being introduced by the government. They will cover suppliers as well.

27 Position Paper 2020

The position paper the Automotive Components Committee can be found here

https://aebrus.ru/en/aeb-publications/position_paper_2020/ (p.18)

28 Autocomponents Session at IMAF 2019

29 29 Contacts

• Alexey BELYAEV (Беляев Алексей Александрович) – Chairman of the Committee + 7 967 489 23 54. [email protected]

• Andrey KOSSOV (Коссов Андрей Дмитриевич) – vice Chairman of the Committee + 7 985 643 70 91 [email protected]

• Asker NAKHUSHEV (Нахушев Аскер Ахмадович) – Committee coordinator +7 965 216 43 76 [email protected]

www.aebrus.ru 30 Back up

31 Localization

Manufacturer Start of production Capacity Model range Localization level

Nissan 50 000 Nissan X-Trail 2009 34% (St. Petersburg) 2015-100 000 Nissan Qashqai Nissan Murano Nissan Nissan Terrano (Renault plant in Moscow) Datsun Datsun on-DO 2014 Up to 100 000 (Togliatti) Datsun mi-DO Renault Logan – 75% Renault Sandero – CKD Renault New Duster Renault 1999 190 000 Renault Fluence – CKD Renault Kaptur (Moscow) Renault Duster-CKD Renault Arkana Renault Kaptur – CKD, localizes steel, engine, interior components Renault Renault New Logan 2014 B0 line – 350 000 Renault Logan – 75% (Togliatti) Renault New Sandero Hyundai Solaris Hyundai Solaris, – 47% Hyundai-KIA Kia Rio Hyundai Creta : 2016 – 30%, 2011 220 000 (St. Petersburg) Hyundai Creta Crossover 2017 – 50% Engine, gear box localization

KIA Sorento, KIA Cee’d, KIA Mohave, , , KIA Hyundai-, KIA K900, , , , Hyundai CKD – November 2013 1997 100 000 (Kaliningrad) i40, Hyundai Elantra, Hyundai Tucson, Hyundai Santa Fe, Hyundai KIA Cerato CKD – November 2014 Sonata, , , Volkswagen Polo GP 270 000, including Volkswagen Volkswagen Tiguan NF Volkswagen Polo – 40% 2007 CKD: 225 000 (Kaluga) Skoda Rapid Volkswagen Tiguan – 22% SKD 45 000 vehicles Q7 Skoda Octavia PA Volkswagen Skoda KODIAQ November 2011 132 000 Skoda KODIAQ - CKD (Nizhniy Novgorod) Skoda Karoq – 2019, 2 half Volkswagen Tharu – 2020 - crossover 32 Source: Russian Automotive Market Research Localization

Manufacturer Start of production Capacity Model range Localization level GM (Togliatti) 2002 100 000 Chevrolet Niva 95% Peugeot 408 CKD, localization level- 35% Peugeot 408 Citroen C4 - CKD, localization level- 35% Peugeot Expert PSA Peugeot Citroen Citroen C4 , Peugeot Travaller (PSMA RUS) 2010 125 000 – for PSA and Planned localization level – 50% Citroen C4 (Kaluga) MMC, PSA – 85 000 Peugeot Expert – CKD, 50% Citroen Jumpy Citroen SpaceTourer , Peugeot Travaller - Citroen SpaceTourer CKD Mitsubishi Motor Corporation 125 000 – for PSA and MMC Mitsubishi Outlander Mitsubishi Outlander- CKD 2010 (PSMA RUS) (Kaluga) MMC – 40 000 Sport 36%

Ford-Sollers Elabuga - 2012 15 000 Ford Transit Ford Transit – CKD April 2015 (Tatarstan Republic)

CKD - 15% Toyota Camry 2014 - 30% Toyota (St. Petersburg) 2007 100 000 Toyota RAV 4 SPIK – airbag, fuel , exhaust system, electric window regulator Mazda CX-5 1 stage – 50 000 Mazda (Far East) October 2012 Mazda 6 SKD 2 stage – 70 000 Mazda CX-9 CKD F7, Haval H9, Haval F7x, Planned stamping, welding, painting, 1 stage – 80 000 Havak H2 - 2020 assembling Great Wall (Tula region) 2019, June 2 stage – 150 000 Suppliers park Localization level - 30% Planned localization level – 50% Chery (Kaliningrad region) 2019 10 000-20 000 Chery Tiggo 4, Chery Tiggo 5,Chery Tiggo 7 Mercedes-Benz (Moscow region) 2019, April 20 000 E-class, GLE, GLC, GLS CKD BMW 3 series (F 30), BMW 5 series, BMW 7 BMW (, Kaliningrad) 1999 40 000 series, BMW X5, BMW X6, BMWX7, BMW Х1 welding, painting ,BMW Х3 (F 25), BMW Х4 FAW 25 000 FAW X80 April 2017 Planned CKD (Kaliningrad region) 50 000 – 2 stage Second model - 2018 Ravon (Derways, Karachay-Cherkessia 2019 Ravon R2 Republic) 33 Source: Russian Automotive Market Research Localization

Manufacturer Start of production Capacity Model range Localization level Components to localize IVECO-AMT 1994 1 000 TRAKKER, EUROCARGO, STRALIS – - (Chelyabinsk region) Plans: different types of bodies, tyres, springs, chassis VOLVO TRUCKS components, gear box components 19, January, 2009 10 000 (by 2015) Volvo FH-13, FM-11, FM-13 Projected level - 33% (Kaluga region) Possible assembly of axles, gear boxes in 2020 Localized cabin 28% Plans: cable harnesses, fuel tanks, tyres, wheels, leaf 5 000 Scania P380 CB 6x4 SCANIA Chassis assembly + body and parabolic springs, frames, plastics and rubber, 2010 Increase up to Scania P380 CB 8x4 (St. Petersburg) structure castings, forgings, machining, batteries, air surge tanks, 7 500 in 2 shifts New generation from July 2018 New generation - CKD torque rods, pressed parts, including surface treatment MERCEDES-BENZ Mercedes-Benz Actros (Euro V) 2013 - 4 500 KAMAZ is the main Partner (Tatarstan Republic) 2010 Mercedes-Benz Arocs – 2018 -10 000 Cabins, engines, axles, tires, fuel filter separator Mercedes-Benz Antos FUSO KAMAZ is the main Partner April, 2010 7 000 Mitsubishi Fuso Canter – (Tatarstan Republic) Batteries, tires MAN MAN TGS Different body types 2013 6 000 – (St. Petersburg) MAN TGX ZF Gearbox (KAMAZ JV -ZF KAMA) ISUZU Chassis Isuzu CYZ52, FSR34, FVR34, (Ulyanovsk region) NMR85, NMS85, NPR75, NPS 30-50% CKD - April 2014 Isuzu NR82, 2 half 2018 2006 6 000 Different body types, possible or gearbox Bus Isuzu ELF 9,5, small class – 2018 Chassis Isuzu NQR90 Chassis Isuzu EXZ 52 New project – engine, gear box, frame, engine electronic 2021 7 000 New project control, casting localization 2019. 4th Opel Zafira Life – minibus Opel (Kaluga region) Quarter/2020 Opel Vivaro - HD 78 from September 2012, HD 120 from 2013 HD 35 HD 78 – CKD, November 2017 2015 – 10 000 HYUNDAI H350 – from the 2 Half of 2017 HD 35 – CKD, June 2018 September 2012 2018 – 16 000 (Kaliningrad region) Hyundai County - from the 2 Half of 2017 HD 35 City - CKD HD 65 – June 2018 HD 65 - CKD Hyundai Xcient – end of 2018 Hyundai New Mighty - 2019 Ford Cargo FORD (Kaliningrad region) 2013 Ford F-MAX – May,2019 34 Hino (Moscow region) 2019 2 000 Hino 300, Hino 500, GVW – 3,5t, 7,5t, 12t, 18t Source: Russian Automotive Market Research