Automotive Industry Outlook: Staying Ahead of the Curve in a Rapidly Changing Landscape March 2021

Mike Wall Executive Director, Automotive Analysis +1 248 728 8400 Direct +1 616 446 6885 Mobile [email protected]

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World Economic Growth Global Growth Improved in February; World Real GDP is Projected to Increase 5.1% in 2021

10.0 2018 2019 2020 2021 2022 2023-2028 World Average 8.0 2021 = +5.1% 6.0 4.0 2.0 0.0 -2.0 (in percent) -4.0 -6.0 Annual GrowthAnnual GDP Real -8.0 -10.0 World United Japan Eurozone Brazil Russia India China States (mainland) Source: IHS Markit Data Insight

Introduction to Automotive Semiconductor: From Silicon to Cars

Car

Silicon Ingots and Packaged and Electronics Control Units* • 1,000 – 1,400 Processed wafers chips / car Raw silicon wafers tested chips (ECU) • $427 chip value / car in 2020

Manufacturing cycle time: Months Days Hours Semiconductor Suppliers NXP, Infineon, Renesas, Texas Instruments, Material suppliers: STMicroelectronics, ON Semi, Micron, Samsung... Tier 1: OEMs: Shin-Etsu, Siltronics, Bosch, Continental, Aptiv, Valeo, VW, Toyota, Toyota, Soitec Harman, BorgWarner, Denso… GM, RNM… Foundries (front end): Packaging & Test TSMC, Samsung, (back-end) * Picture from IHS Markit Teardown of GlobalFoundries, UMC, Amkor, ASE, UTAC Harman – Mercedes TTG9 Head-Unit Tower, DB Hitek, SMIC

Global Light Vehicle Sales COVID-19 Impacts the Near-Term Outlook; Aftermath Resets Expectations Longer-Term

100 100 12.0% 94 95 92 94 8.0% 90 88 90 Annual growth growth (%)Annual 85 Average growth 3.6% 84 4.0% 80 77 0.0% 75 -4.0% 70

65 -8.0% 60 -12.0% 55

Annual Annual (millions) light salesvehicle 50 -16.0% 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028

Source: IHS Markit Light Vehicle Sales Forecasts MaaS: Mobility as a Service

Global Light Vehicle Production Overview First Quarter 2021 Outlook Dominated by Semiconductor Shortages; Lost Volume Increases Over Prior Outlook as Severe Weather Effects and Japanese Earthquake Compound Challenges

Global Production ▲ South Asia raised largely on improved Indian outlook; 100 94.2 93.7 25% s 91.7 89.0 89.6 possibly reflecting links to Japanese and South Korea on i

l 90 supply chains – strong local sales are supportive l 84.1 20% ▲ MEA is boosted again on stronger Iranian outlook Mi 80 74.6 15% ▲ Current disruption does nothing to alleviate upside pressure from inventory requirements in H2 70 13% 10% ▼ March update takes 500,000 units from 2021 outlook as 60 disruption intensifies in Europe, China, Americas and 5% Japan/Korea 50 7% ▼ Challenges beyond semiconductors, plastics shortages an 2% 0% 40 2% emerging short-term factor, following bad sever weather impacts in North America -1% -5% 30 ▼ Many regions experiencing secondary waves of COVID- -6% 19 infections and disruptive effects could emerge quickly, 20 -10% lockdown measures tightening again in many markets, ▼ Downside risk remains in the near-term given volatility of 10 -15% the situation and potential for shortages to extend deeper into the second quarter. Expect OEMs will continue to 0 -16% -20% prioritize production of higher margin vehicles at the 2018 2019 2020 2021 2022 2023 2024 expense of less important offerings

Global Production Year over Year Change

Global Light Vehicle Production Semiconductor and Other Supply Chain Pressures Present Near-Term Production Challenges

Global Light Vehicle Production: 1Q 2021 – Mar 2021 vs. Dec 2020 • Globally nearly 1.2M units estimated to be lost from 1Q due to semiconductor shortages 0 • Biggest disruptions: • Mainland China: 350,000 units -100 • Europe: 282,000 units • North America: 264,000 units

Thousands -200 • Semiconductor shortages are not the only influence on Q1 developments: -300 • Upside in China from Lunar New Year • North America and Europe compounded by -400 weather and ongoing public health and lockdown measures -500 • Port congestion/disruptions impacting product flow • Extent of disruption and long lead for -600 semiconductors pointing to more protracted North Europe Mainland Japan South South vehicle production constraints America China America Korea • Recovery opportunities dissipating Net change Semiconductor impact • Risk in North America for trucks and utility Source: IHS Markit © 2021 IHS Markit vehicles amid low inventory levels © 2021 IHS Markit. All Rights Reserved. 8

Mainland China Production Overview Despite Strong Q1, Full-year Outlook is Reduced on Payback Particularly with Light Commercial Vehicles and Semiconductor Concerns Yearly Production Monthly Production Evolution 28.23 3,000 500% 30 26.98 8.0% 407% s 26.61 26.01 ds 24.42 24.66 6.0% on an 2,500 400% i 23.35 l

l 25 5.5% 4.0% us Mi 5.6% 4.7% 2,000 300% 20 2.0% ho 3.7% T 0.0% 1,500 200% 15 -2.0% 58% 1,000 100% 10 -4.0% 31% 4% -4.0% -4.4% -6.0% 500 0% 5 -7%-10% - -5% -5% -9%-4% -8.0% -1% 0 -100% 0 -8.2% -10.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2021 2022 2023 2024 YoY Evolution 2020 2021 Estimates Mainland China Production Year over Year Change 2021 Forecast 2022 Forecast

▲ The economic development has been upgraded again by increasing GDP ▼ The semiconductor shortage brings risks of plant shutdowns could further growth prediction to 7.8% in 2021. deteriorate in Q2 2021. The impact started to expand from JV brands to ▲ Strong demand in Q1 2021 ahead of Lunar New Year holiday. Chinese domestic brands. ▲ Additional incentives have been released during National Congresses in ▼ The polyamide (PA66) shortage owing to the snowstorm in US, would be March, further motivating the output and sales in following months. another interruption in H1 2021. ▲ Commercial vehicle sector responds to infrastructure investment ▼ Some fluctuations in the stock market could bring uncertainties to potential demand.

Europe* (excluding CIS) Production Overview Lockdowns Still Hammering Demand, Semiconductor Shortage Limiting Inventory Rebuild

Yearly Production Monthly Production Evolution 25 20.0% s 14.5% 2022% 15.0% 2,000 2500%

on 20.08 i

l 19.20 ds l 18.23 18.53 18.55 20 17.00 10.0% 2000% an Mi 14.85 1,500

5.0% us 15 7.3% 1500% 0.0% ho 1.7% T 1,000 1000% 0.1% -5.0% 26% 10 -2.5% -4.3% -10.0% 42% 108% 500% 500 3% -2% 4% 5 -15.0% 0% -20.0% -18%-18% -2% -1%-6% -22.7% 0 -500% 0 -25.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2021 2022 2023 2024 YoY Evolution 2020 2021 Estimates EU (excluding CIS) Year over Year Change 2021 Forecast 2022 Forecast

▲ CY 2022 production revised up, catching-up for 2021 production losses ▼ 1H 2021 production revised down over 140,000 units, with marginal ▲ Inventories remain at very low level as we enter Q2 2021. recovery through 2H 2021. ▲ Government incentives support LEV sales in Western Europe ▼ Semiconductor shortage impacting virtually all operations while ▲ Ongoing demand recovery in Turkey and in key export markets lockdown measures still impact vehicle retail in parts of Europe ▼ Other supply shortages potentially disrupting production (plastics, steel) ▼ CAFE compliance remains an important challenge with risks of OEM forcing overall volume reductions Note: *Europe = EU27 + UK, Turkey and Serbia. Not including Commonwealth of Independent States Source: IHS Markit © 2021 IHS Markit. All Rights Reserved. 10

US: Light Vehicle Sales Outlook Shifting from a COVID Contraction to a Post-COVID Recovery

US Light Vehicle Sales Economic issues • US consumer outlook to improve, though 20.0 20% recovery skewed 18.0 15% • Risk for additional COVID-19 related 16.0 10%

Millions lockdowns diminishing 14.0 5% • Longer term pressure on OEM profitability 12.0 0% • Opportunities to find right customer based 10.0 -5% on vehicle age and scrappage 8.0 -10% • Launches to accelerate, mix increasingly 6.0 attractive 4.0 -15% • Vehicle development costs rising 2.0 -20% • Regulatory compliance 0.0 -25% • Consumer contenting 2000 2005 2010 2015 2020 2025 • Market attractive from consumer %∆ Y/Y Base (50%) Optimistic (25%) Pessimistic (25%) perspective, risk shifting to lenders • Low interest rate environment Source: IHS Markit © 2021 IHS Markit

Semiconductor Shortages Short-Term Issue with Lasting Implications

North America Light Vehicle Production: 2021 Impact and issues:

1.8 200 • Short lead time notice 2H: +349K • Who and when remains a question 150 1.6 • Downtime 100 • Reduced work schedules Millions 1.4 50 • Cancelled overtime 1.2 Thousands 0 • Production rationalization efforts 1.0 -50 • First-half 2021: 0.8 • Semiconductor shortage impact -400K -100 0.6 • End of legacy models -150 • Slower ramp-ups 15.8M 0.4 -200 • Annual comparisons masks issue 1H: -754K 0.2 -250 • Second-half 2021: 0.0 -300 • Volume recovery beginning to look grim bolstering outlook for 2022 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Summer shutdowns are a wild card Y/Y ∆ Mar-21 Dec-20

North American Light Vehicle Production Deep COVID-Related Cut for 2020 but a Quicker Snapback than the Great Recession*

North American Light Vehicle Production Short-term 20.0 ▪ COVID-19 implications ▪ -3.3M units or -20% in 2020 18.0 ▪ Program delays or timing slippage 17.8 Millions 16.0 17.1 17.0 16.8 16.8 16.3 16.6 16.5 16.5 16.5 16.6 ▪ Component shortages, labor availability, 15.8 * 14.0 raw material pricing, etc. result in near- term downside risk 13.0 12.0 ▪ Inventory depletion and restocking 10.0 Long-term 8.0 ▪ Capacity: How to get to 17M units? 6.0 ▪ Expansion and maximization ▪ BEV implications; demand, redundancy, policy 4.0 actions ▪ Growth in regionalization 2.0 ▪ Phase two Mexico developments 0.0 ▪ Life-cycle pressures 2016 2018 2020 2022 2024 2026 2028 ▪ USMCA and trade implications Source: IHS Markit © 2021 IHS Markit

North America Light Vehicle Production 2021 vs. 2020

2021F 2020F ∆ Units • Production growth as demand OEM % ∆ (000s) (000s) (000s) recovers from COVID-19 impact GM 2,764 2,388 15.7% 376 and inventories are restocked Ford 2,562 1.985 29.1% 577 • GM – Hummer EV, Bolt EUV, Stellantis 2,232 1,808 23.5% 424 BrightDrop EV600 Detroit 3 7,558 6,181 22.3% 1,377 Toyota 1,968 1,600 23.0% 368 • Ford – Bronco and Maverick Honda 1,582 1,451 9.0% 131 • Stellantis – Grand Cherokee and Renault/Nissan 1,238 953 29.9% 285 Wagoneer/Grand Wagoneer Hyundai 878 698 25.8% 180 Asian 4 5,666 4,702 20.5% 964 • Key New Domestic launches VW 680 551 23.4% 129 include BMW 2-Series, Honda BMW 476 417 14.1% 59 Civic; Hyundai Tucson; Lordstown Daimler 352 334 5.4% 18 Endurance; Lucid Air; Nissan German 3 1,508 1,302 15.8% 206 Frontier & Pathfinder; Rivian R1S Others 1,030 839 22.8% 191 & R1T; Tesla Cybertruck, Model S & X; Toyota Corolla Cross & Total 15,762 13,024 21.0% 2,738 Tundra; Audi Q5 Sportback, etc. Source: IHS Markit Light Vehicle Production Forecast

Production Outlook North American Light Vehicle Production by Country

20 Mexico Canada US Change 50% 2019 – 2028

18 17.0 16.8 40% 16.3 16.5 16.8 16.2 15.8 16 15.4 3.6 30% 3.9 3.8 3.5 3.9 76,000 2.9 Y 14 2.9 3.9 13.0 - 12.6 20% O CAGR = 0.2% 11.9 - 12 2.4 2.0 1.6 1.3 1.5 YChange % 2.1 1.9 3.0 1.5 2.2 2.4 10% 10 2.0 1.4 2.1 0% 8 -449,000 CAGR = -3.0% 11.6 11.4 -10%

Output (millions) Output 11.1 10.8 11.3 6 10.9 10.6 10.1 8.6 -20% 4 8.5 7.6 2 -30% +851,000 0 -40% CAGR = 0.9%

Source: IHS Markit Light Vehicle Production Forecast

North American Light Vehicle Production COVID-19 Impacts Everyone, yet Customer Mix Continues to Shift

North America Light Vehicle Production Divergent trajectories – 2019 to 2028 20.0 ▪ Domestics 18.0 ▪ -107K units or -2.7% 8.5 ▪ Offshoring to China 16.0 8.4 8.1 8.1 7.9 8.2 8.3 Millions 8.1 8.1 8.2 8.0 7.7 ▪ Increasing shift to trucks 14.0 ▪ More closely tied to US sales 12.0 6.5 ▪ Build where you sell 10.0 ▪ Transplants 9.2 8.0 8.6 8.6 ▪ +300K units or +3.1% 8.0 8.0 6.0 7.6 7.9 7.7 7.7 7.6 7.8 7.9 ▪ Localization 6.2 4.0 ▪ Capacity expansion ▪ Global sourcing and increasing exports 2.0 ▪ Start-ups 0.0 2016 2018 2020 2022 2024 2026 2028 ▪ +286K units or +73.6% ▪ Tesla largest component, although Detroit 3 Start-ups Transplants offshoring is slowing growth

North America Production • Arrival • Bus and van markets 140 • Low volume micro-factories 120 • Canoo • Subscription based business model 100 Thousands • MPV, sedan, pickup, van 80 • Lordstown Motors

60 • Pickup and van with commercial focus • Lucid Motors 40 • Luxury, performance focus 20 • Expansive product plans to 2020 • Rivian 0 2016 2018 2020 2022 2024 2026 2028 • Premium, off-road focus • Partnerships: Amazon, Ford Rivian Lucid Canoo Lordstown Arrival Zoox • Zoox Source: IHS Markit © 2021 IHS Markit • Company ecosystem with L5 EV/AV © 2021 IHS Markit. All Rights Reserved. 17

North America Light Vehicle Production Launches by Vehicle Type Capital Needs Intensify with New Launch Activity; Timing Delays Due to COVID-19 North America Light Vehicle Production Launches Volatility Extends to Launch Timings ▪ Launches in late 2021, 2022 and 2023 can be 45 Watch for delays, restructuring or cancellation subject to further delay, reprioritization, rescoping 40 of future programs or even cancellation 36 35 34 ▪ If possible, OEMs will review portfolios to extend 31 current vehicles – potentially integrating new 29 29 30 28 minor/moderate facelifts to extend the lifecycles 26 25 25 23 23 ▪ Utility vehicle expansion continues 22 25 14 ▪ Competition weighs on leaders 15 20 25 20 14 18 ▪ Splintering segmentation with pricing/margin/ 12 15 18 volume pressure 15 3 18 4 ▪ BEV activity 10 5 4 7 6 3 6 ▪ 55 all-new nameplates 1 12 5 9 4 ▪ 13% or 2.2 million units of North American 7 6 6 7 2 4 5 3 3 5 production by 2028 0 ▪ Product redundancy: ICE to BEV 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 ▪ Over 100 more BEVs as import or part of multi-energy nameplates Car Pickup Utility Source: IHS Markit © 2021 IHS Markit ▪ Legacy programs as a hedge

Battery Electric Vehicle Production and Model Count BEV Share of Production and Volume per Nameplate

2,500 90 70 14%

80 60 12% 2,000 70 BEVModel Count Thousands Thousands 50 10% 60 1,500 50 40 8%

40 30 6% 1,000 30 20 4% 500 20 10 2% 10 7 9 18 32 49 61 70 76 80 81 0 0 0 0% 2019 2021 2023 2025 2027 2019 2021 2023 2025 2027

# of BEV models BEV volume % BEV production in NA Vol. per BEV nameplate

North America Europe Greater China 3% 9% 5% 3% 4% 7% 18% 3% 19% 3% 8% 4% 8% 35% 32% 9% CY20 CY25 CY20 11% CY25 14% CY20 CY25 11% 41% 62% 50% 12% 4% 16% 29% 49% 39% 70% 22% 17% 31% 14% 11% 28% 12% 3% 11% 53% CY30 CY30 CY30

36% 16% 36% 6% 12% 14%

• SAFE rule = 1.5% stringency rate increase/yr • Propulsion forecast largely unchanged as little • Extended NEV subsidies/exemptions weaken vs. ~5%/yr for CAFE; Biden changes coming. relief expected for CO2 compliance. pre-buy in 2020 & boost demand in 2021-22. • PHEV and HEV production mix reduced post • Target reduction of 15%/37.5% in 2025/2030 • NEV subsidies will come under increasing 2022, improved outlook for BEV. from 2021 level, potential for tougher targets. pressure; China to focus on tightening regs.

Thank You!

Mike Wall Executive Director, Automotive Analysis [email protected] +1 248 728 8400 Direct +1 616 446 6885 Mobile

IHS Markit Customer Care [email protected] Americas: +1 800 IHS CARE (+1 800 447 2273) Europe, Middle East, and Africa: +44 (0) 1344 328 300 Asia and the Pacific Rim: +604 291 3600

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• Understand the basics of contract formation.

• Understand what is the “Battle of the Forms”.

• Learn the basics of how to engage in the “Battle of the Forms”

• Understand the contract terms that are not in either side’s form

Law School, Contracts, Day 1: “Mirror Image Rule”

•“Offer” → “I Accept Your Offer.” → CONTRACT •If Acceptance ≠ Offer, no Contract (Counter-offer). Real World

•Form language exchanged without ever resolving, or even paying attention to, the differences •Ignores reality to say “no contract” when parties are doing business and think there is a contract. “Battle of the Forms”

Legal rules for (trying to) sorting out the mess

§ 2-204. Formation in General. • (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. • (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. • (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

“There is no language that a lawyer can put on a form that will always assure his client of forming a contract on his client's own terms. . . . If one must have a term, that party should bargain with the other party for that term; a client should not get it by his lawyer's sleight of hand. If a seller must have the term to reduce liability but cannot strike a bargain for it, his only answer may be to raise his price, buy insurance, or—as a last resort—have an extra martini every evening and do not capitalize the corporation too heavily.”

“Everything in war is very simple. But the simplest thing is difficult.”

Carl von Clausewitz

• Battle of the Form rules are different for Goods and Services.

• Goods if you are buying raw parts and then selling the finished parts

• Services if you are paid a fee for finishing your customer’s parts

• If mix, “predominant purpose” of the transaction.

• Fundamental to contract formation and battle of the forms analysis, but application is slippery

• “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” [R2k 24]

• “Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.” [R2k 50]

• Is an RFP or ITB an offer or nothing? Is Bid or Proposal an offer, an acceptance, a counter-offer or nothing? Is PO issued after Bid or Proposal an offer, an acceptance, a counter-offer or nothing?

• Designate it as an “offer.” • Have Terms and Conditions of Sale • Incorporate them in your Offer, your Acceptances and your Invoices. • Always use clear and precise language. • Do not refer to a RFQ or other external documents in general but only to the necessary specific provisions (e.g., Buyer’s technical specifications). • Object to any additional or different terms in prior or subsequent documents. • Get in the last word.

Possible Language for Quotation forms

This is an offer. This quotation and any resulting contract are subject to the Seller’s General Terms and Conditions of Sale placed on the reverse side, elsewhere in this quotation or Seller’s website, and available by written request. Notice is hereby given of objection to any additional or different terms in any acceptance or other response.

• Some of the documents that could constitute the “Theatre of the Battle” are: • RFQs and Quotations • Sourcing Letter • Purchase Order • Buyer’s and Seller’s Standard Terms and Conditions • Documents incorporated in the contract by reference (e.g., drawings, specifications, standards, and quality manuals.) • Invoice • Correspondence and E-mails

• The law can supply “gap fillers” for missing terms (especially for Goods): • Price (reasonable); • Number of Deliveries (one delivery); • Place of Delivery (Seller’s place of business); • Time of Delivery (reasonable); • Length of Contract (reasonable); • Time of Payment (due at the time and place of the Buyer’s receipt of the goods); and • Risk of Loss (passes on the Buyer’s receipt of the goods). • Warranties (implied good title, non-infringement, marketability, and possibly fitness for particular purpose).

• The course of dealing between the parties in other contracts. • The course of performance by the parties in the same contract. • Industry Standards (“Usage of Trade”). • Documents referenced in the contract (e.g., quality manuals). • So where do we look for contract terms: • Mutually agreed. • GAP fillers. • Four sources above. • Winners in the Battle of the Forms.

• The Battle of the Forms is a last • You cannot control the terms if you resort. Whenever possible, don’t have them. Have and use negotiate a written agreement that well-written Terms of Sale includes your “must haves.” • Do not blame the law. You • However, this is not always possible. volunteer for battle by beginning Therefore, it is important for you, performance without a clear, and your people in the trenches, to acceptable agreement. understand the “rules of engagement.” “The events which can not be • Well written agreements are a cost- prevented, must be directed.” effective risk management tool. Klemens von Metternich

These materials and presentations are intended and designed for informational purposes only – they do not provide legal advice and no attorney-client relationship is created. No liability is assumed in connection with the use of these materials. Legal counsel should be consulted regarding how applicable law impacts specific situations.