05 August 2021

Our Perspective on the Automotive Industry … Cyclical versus Secular Tug of War

John Murphy, CFA Research Analyst BofAS [email protected] +1 646 855 2025

This research report provides general information only. No part of this report may be used or reproduced or quoted in any manner whatsoever in Taiwan by the press or other persons without the express written consent of BofA Securities. >> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Refer to important disclosures on page 26-30. Price Objective Basis/Risk on page 24. Sales forecast still portends material upside 22 2020-2025E 20 2009-2016 +23% 1982-1988 +68% 18 1975-1978 1991-2000 +39% +49% +41% 16 14 12 2016-2020 1958-1973 1988-1991 -17% 10 +172% -20% 2000-2009 Gulf War -40% 8 1973-1975 1978-1982 -23% -31% 6 OPEC I OPEC II 4

US Light Vehicle Sales (millions of units) of (millions Sales Vehicle USLight 1955-1958 2 -35% 0 1972 1974 1978 1976 1970 2012 1982 1992 1962 1952 2014 2018 2016 2010 1984 1994 1964 1954 1988 1998 1968 1986 1996 1958 1966 1956 1980 1990 1960 1950 2020 2002 2004 2008 2006 2000 2022E 2024E 2028E 2026E 2030E Catalyzed by the COVID-19 pandemic, what had been a multi-year fade in the US automotive cycle reached a trough in 2020, declining 15% YoY. Since mid-2020 US sales have been on a remarkable V-shaped recovery, which we forecast to continue to a 17-18mm peak around 2025. Additionally, the ongoing semiconductor shortage could perversely be the best dynamic for the industry, in creating true pent-up demand to be more naturally released over a multi-year cyclical recovery. Source: WardsAuto, BofA Global Research US/Global Auto industry dynamics 2 Inventory falls off the map 4.5

4.0 Due to ongoing supply chain shortages (semiconductors, petrochemicals, etc.) 3.5 and production stoppages, US inventory 3.0 levels have declined materially in recent 2.5 months to reach a low (1.4mm units) not seen since 2009 2.0 AbsoluteInventory Level (mm) 1.5

1.0 Jun-11 Jun-17 Jun-21 Jun-13 Jun-91 Jun-19 Jun-15 Jun-01 Jun-87 Jun-97 Jun-07 Jun-93 Jun-89 Jun-99 Jun-95 Jun-03 Jun-09 Jun-05 80 On a days’ supply basis, supply shortage 20% appears even more severe with current 70 10% 0% days’ supply of 26DS over 50% below 60 average levels in June -10% 50 -20% This inventory environment will likely % Above/Below 5-yr Avg Total (DS) prove a constraining factor for sales in 40 -30% -40% months ahead and potentially not 30 alleviated until 2022 -50% 20 -60% Jun-17 Jun-21 Jun-18 Jun-19 Jun-16 Sep-17 Mar-17 Dec-17 Jun-20 Sep-18 Sep-19 Sep-16 Mar-21 Mar-18 Mar-19 Dec-18 Dec-19 Dec-16 Sep-20 Mar-20 Dec-20 Source: WardsAuto InfoBank, BofA Global Research US/Global Auto industry dynamics 3 Vehicle affordability near all-time best $800 RMAC - 12 month avg $750 Our BofA Real Monthly Auto Cost (RMAC) Real Monthly Auto Cost ex. Gas estimate indicates that affordability $700 dynamics for new vehicles are still near $650 the most favorable levels, but flattening $600 out more recently on a MoM basis with used vehicle values $550 $500

$450 Jun-11 Jun-17 Jun-12 Jun-21 Jun-14 Jun-13 Jun-18 Jun-19 Jun-16 Jun-15 Jun-10 Jun-07 Jun-20 Jun-04 Jun-03 Jun-08 Jun-09 Jun-06 Jun-05 12% 40% LTM US SAAR YoY % RMAC YoY % DPI YoY % 10% 30% This affordability dynamic is even more 8% 6% 20% pronounced when comparing RMAC to 4% 10%

disposable personal income (DPI), which 2% US SAAR - has been supported by stimulus programs 0% 0% -2% for consumers, and this divergence has Real Monthly Auto Cost & DPI -10% - -4% clearly driven recent sales strength -6% -20% YoY % growth -8% -30%

YoY % Growth -10% -12% -40% Jun-11 Jun-17 Jun-12 Jun-21 Jun-14 Jun-13 Jun-18 Jun-19 Jun-16 Jun-15 Jun-10 Jun-07 Jun-20 Jun-04 Jun-03 Jun-08 Jun-09 Jun-06 Jun-05 Source: BofA Global Research, WardsAuto InfoBank, Bureau of Economic Analysis, Bloomberg US/Global Auto industry dynamics 4 Tail risks remain abound AutoTech is the new BioTech Global macroeconomic volatility Electric vehicle revolution Uncertainty in emerging markets

Geopolitical events

COVID/post-COVID Currency rate volatility global developments Blue Wave agenda Global central activity Policy developments in First versus fiscal stimulus 100-200+ days Global interest rate bifurcation

Inflation/deflation $2.5trillion+ EV/AV capital raise to come Source: BofA Global Research US/Global Auto industry dynamics 5 Core to Future transition framework

Companies’ optimization of Core segments enhances the yield and output of their total Core business, which can then be used to the develop Future technologies and businesses, and ultimately expand companies’ market and financial opportunity. Source: BofA Global Research Core to Future transition 6 Other Important Disclosures

Prices are indicative and for information purposes only. Except as otherwise stated in the report, for the purpose of any recommendation in relation to: 1) an equity security, the price referenced is the publicly traded price of the security as of close of business on the day prior to the date of the report or, if the report is published during intraday trading, the price referenced is indicative of the traded price as of the date and time of the report; or 2) a debt security (including equity preferred and CDS), prices are indicative as of the date and time of the report and are from various sources including BofA Securities trading desks. Officers of BofAS or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments. Refer to BofA Global Research policies relating to conflicts of interest. "BofA Securities" includes BofA Securities, Inc. ("BofAS") and its affiliates. Investors should contact their BofA Securities representative or Global financial advisor if they have questions concerning this report or concerning the appropriateness of any investment idea described herein for such investor. "BofA Securities" is a global brand for BofA Global Research. Information relating to Non-US affiliates of BofA Securities and Distribution of Affiliate Research Reports: BofAS and/or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") may in the future distribute, information of the following non-US affiliates in the US (short name: legal name, regulator): Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd., regulated by The Financial Service Board; MLI (UK): Merrill Lynch International, regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA); BofASE (France): BofA Securities Europe SA is authorized by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) and regulated by the ACPR and the Autorité des Marchés Financiers (AMF); BofA Europe (Milan): Europe Designated Activity Company, Milan Branch, regulated by the Bank of Italy, the European Central Bank (ECB) and the Central Bank of Ireland (CBI); BofA Europe (Frankfurt): Bank of America Europe Designated Activity Company, Frankfurt Branch regulated by BaFin, the ECB and the CBI; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited, regulated by the Australian Securities and Investments Commission; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited, regulated by the Hong Kong Securities and Futures Commission (HKSFC); Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd, regulated by the Monetary Authority of Singapore (MAS); Merrill Lynch (Canada): Merrill Lynch Canada Inc, regulated by the Investment Industry Regulatory Organization of Canada; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa, regulated by the Comisión Nacional Bancaria y de Valores; Merrill Lynch (Argentina): Merrill Lynch Argentina SA, regulated by Comisión Nacional de Valores; BofAS Japan: BofA Securities Japan Co., Ltd., regulated by the Agency; Merrill Lynch (Seoul): Merrill Lynch International, LLC Seoul Branch, regulated by the Financial Supervisory Service; Merrill Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd., regulated by the Securities and Futures Bureau; BofAS India: BofA Securities India Limited, regulated by the Securities and Exchange Board of India (SEBI); Merrill Lynch (Indonesia): PT Merrill Lynch Sekuritas Indonesia, regulated by Otoritas Jasa Keuangan (OJK); Merrill Lynch (Israel): Merrill Lynch Israel Limited, regulated by Israel Securities Authority; Merrill Lynch (Russia): OOO Merrill Lynch Securities, Moscow, regulated by the Central Bank of the Russian Federation; Merrill Lynch (DIFC): Merrill Lynch International (DIFC Branch), regulated by the Dubai Financial Services Authority (DFSA); Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V., regulated by Comisión Nacional del Mercado De Valores; Merrill Lynch (Brazil): Merrill Lynch S.A. Corretora de Títulos e Valores Mobiliários, regulated by Comissão de Valores Mobiliários; Merrill Lynch KSA Company: Merrill Lynch Kingdom of Saudi Arabia Company, regulated by the Capital Market Authority. This information: has been approved for publication and is distributed in the United Kingdom (UK) to professional clients and eligible counterparties (as each is defined in the rules of the FCA and the PRA) by MLI (UK), which is authorized by the PRA and regulated by the FCA and the PRA - details about the extent of our regulation by the FCA and PRA are available from us on request; has been approved for publication and is distributed in the European Economic Area (EEA) by BofASE (France), which is authorized by the ACPR and regulated by the ACPR and the AMF; has been considered and distributed in Japan by BofAS Japan, a registered securities dealer under the Financial Instruments and Exchange Act in Japan, or its permitted affiliates; is issued and distributed in Hong Kong by Merrill Lynch (Hong Kong) which is regulated by HKSFC; is issued and distributed in Taiwan by Merrill Lynch (Taiwan); is issued and distributed in India by BofAS India; and is issued and distributed in Singapore to institutional investors and/or accredited investors (each as defined under the Financial Advisers Regulations) by Merrill Lynch (Singapore) (Company Registration No 198602883D). Merrill Lynch (Singapore) is regulated by MAS. Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), AFS License 235132 (MLEA) distributes this information in Australia only to 'Wholesale' clients as defined by s.761G of the Corporations Act 2001. With the exception of Bank of America N.A., Australia Branch, neither MLEA nor any of its affiliates involved in preparing this information is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this information in Brazil and its local distribution is by Merrill Lynch (Brazil) in accordance with applicable regulations. Merrill Lynch (DIFC) is authorized and regulated by the DFSA. Information prepared and issued by Merrill Lynch (DIFC) is done so in accordance with the requirements of the DFSA conduct of business rules. BofA Europe (Frankfurt) distributes this information in Germany and is regulated by BaFin, the ECB and the CBI. BofA Securities entities, including BofA Europe and BofASE (France), may outsource/delegate the marketing and/or provision of certain research services or aspects of research services to other branches or members of the BofA Securities group. You may be contacted by a different BofA Securities entity acting for and on behalf of your service provider where permitted by applicable law. This does not change your service provider. Please refer to the Electronic Communications Disclaimers for further information. 7 ​This information has been prepared and issued by BofAS and/or one or more of its non-US affiliates. The author(s) of this information may not be licensed to carry on regulated activities in your jurisdiction and, if not li d d t h ld th l t b i bl t d B fAS d/ MLPF&S i th ditibt f thi if ti i th US d t fll ibilit f if ti ditibtd t B fAS d/ MLPF&S li t i