New-Energy Vehicles: Unfolding in China J.D

New-Energy Vehicles: Unfolding in China J.D. Power China “Mobility Disruptors” Survey Series

March 2018

1 OVERVIEW

Propelled by growing public concerns Meanwhile, the new-energy vehicle about the environment and incentive market is increasing competitive. Not only policies, the enthusiasm among international brands but also Chinese consumers in China for new-energy domestic brands are racing to roll out vehicles (mainly electric cars) has been NEVs models. Consumers’ high steadily increasing and the NEVs market expectations for new-energy vehicles, is booming. especially battery technology, will likely drive manufacturers to enhance research In 2017 in China, more than 770,000 and development efforts for technology new-energy vehicles were sold, a advancement and breakthroughs. whopping 53% year-over-year increase, representing a compelling growth rate The online survey, which was designed particularly considering that overall and conducted by J.D. Power in January passenger vehicle sales only grew 1.4%. 2018 to understand Chinese customers’ perception and desire for new-energy However, to what extent Chinese vehicles, has a total of 2,212 respondents customer’s enthusiasm and interest in across the country. acquiring new-energy vehicles are solely driven by financial incentives is somewhat challenging to assess.

In 2017, only 4.2% of new cars sales are NEVs, but in 2027, NEVs will be account for about 35.8% of new car sales globally. China and Europe will be the key players, the other regions (including the U.S.) to grow at a much lower rate.

Sales of Hybrid/ EV in China, Europe, US and Other Regions

40,000,000 40.0% 35.8% 35,000,000 32.4% 35.0%

30,000,000 28.5% 30.0% 23.9% 25,000,000 25.0% 20.6% 20,000,000 17.8% 20.0% 14.8% 15,000,000 11.8% 15.0%

10,000,000 8.0% 10.0% 5.3% 4.1% 5,000,000 2.8% 2.9% 3.3% 5.0%

0 0.0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

China US EU Other % of New Car Sales Source: LMC Automotive © 2018 J.D. Power. All Rights Reserved. 3 OEM Strategy Overview BMW Group 15-25% of sales electrified by 2025. Mix of standalone & bespoke BEVs Almost all of the auto giants are engaged in the NEVs game, Daimler Launch more than 10 purely electrically showing their ambitions by unveiling aggressive electrification driven vehicles by 2022, then offer strategies. customers at least one electrified alternative in every Mercedes-Benz model series, over 50 in all. FCA Half of FCA fleet electrified by 2022 Top 10 players by 2024 Ford 13 new electrified vehicles globally in next 5 years 2,500,000 2017 2020 2024 Hyundai-Kia Electrify core models, plus standalone BEVs 2,000,000 JLR New models all hybrid or EV from 2020 1,500,000 PSA Electrify core models, no standalone BEVs 1,000,000 R-N-M New common electrified platforms, 12 hybrid and 8 BEV by 2022 500,000 Toyota Hybrid remains core tech, BEV mass production from 2020 0 Volvo All new models hybrid or EV from 2019, no IC-only by circa 2024 VW At least 1 electrified version of all models by 2030 Source: LMC Automotive Source: News report

© 2018 J.D. Power. All Rights Reserved. 4 Over the past three years, China's new-energy vehicle sales The market share of new-energy passenger vehicles (BEV & have been growing rapidly. In the next decade, a steady PHEV) is less than 2% in 2017, but the introduction of the and robust growth, with an annual rate of 40% on average, double integral policy and more limits on car use in tier 2 is expected. and tier 3 cities will accelerate the development of new energy vehicle market.

New-energy vehicle sales and China market trend forecast Sales volume in China (passenger vehicles vs. new-energy vehicles)

7,000 100% BEV PHEV BEV Growth PHEV Growth China NEVs China PV 90% 40,000 6,000 87.2% 78.2% 80% 35,000 5,000 68.8% 70% 30,000 60.8% 60% 4,000 57.5% 54.6% 51.1% 50% 25,000 3,000 40% 36.7% 31262 32.9% 29.2% 20,000 2,000 28.2% 29.1% 30.1% 29.1% 30%

25.9% 23.9% Thousand Unit: Unit: Thousand Unit: 19.8% 28.7% 20% 15,000 1,000 15.4% 13.8% 24788 25374 10% 10,000 0 0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 5,000 PHEV 57 73 85 128 206 348 416 524 697 900 1115 312 532 5,053 BEV 134 239 446 611 944 1,487 1,919 2,497 3,224 4,149 4,721 0 BEV Growth 78.2% 87.2% 36.7% 54.6% 57.5% 29.1% 30.1% 29.1% 28.7% 13.8% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 PHEV Growth 28.2% 15.4% 51.1% 60.8% 68.8% 19.8% 25.9% 32.9% 29.2% 23.9% Source: LMC Automotive Source: LMC Automotive

Do you agree that "the new energy vehicles will replace IC engine vehicles in the future"? 86.4%

Future Perspective on NEV

Technologies 19.39 67.00 11.08% 2.53 % % %

Nearly 90% of Chinese customers agree that Completely Partially Partially Completely agree agree disagree disagree new energy vehicles will replace internal combustion engine vehicles in the future.

95.2 % of Chinese customers are “very willing” or “slightly willing” to choose a NEV for their next vehicle purchase. However, if there were no subsidies, 29% indicate that they would not select an NEV and 41% would not select an NEV if there were no free license plates.

In other words, the sales of NEVs may drop by 30% or 40% if incentives were no longer offered. There is still a gap between such fervor and real demand.

% of Unwilling and Slightly Unwilling to buy NEVs under three premises Top four reasons of considering to buy a NEV

Environmentally-friendly 75.90% technology/concept

63.30% 4.7% 29.1% 40.9% Fuel economy

60.50% State subsidies In General No Free No Subsidies 42.40% License Plate Free license plate

7 Which type of new energy vehicle are you willing to buy? Sales of PHEV vs. BEV in China

Other (e.g. Fuel cell 12,000,000 battery electric vehicles), 4.2% 10,000,000

8,000,000

6,000,000 Battery Electric Vehicles, 24.77% 4,000,000

Plug-in hybrid 2,000,000 electric vehicles, 70.98% 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

BEV PHEV Others

Source: LMC Automotive

Chinese Customers Prefer PHEVs

Although BEVs are expected to be the dominant NEV type in China, the survey shows that customers in China prefer PHEVs. Concern about limited driving range might be the fundamental reason of customer’s choice.

© 2018 J.D. Power. All Rights Reserved. 8 NEVs with the following driving ranges on one charge, which are you Consumers Expect A Shorter Charging willing to buy? Time And A Longer Driving Range More than 400KM 15.87%

Between 300KM to 400KM 22.56% More than three-fourths (77%) of Chinese consumers prefer Between 200KM to 300KM new-energy vehicles with a driving range on a full charge of 38.29% more than 200 kilometers, while 38% prefer a range of more than 300 kilometers. Between 100KM to 200KM 20.89%

About one-third (30%) indicate they prefer a charging time of Less than 100KM 2.40% less than 6 hours and 12% prefer battery changing, which NEVs with the following charging time ranges, which are you willing to takes only a few minutes. buy?

Replaceable battery / Battery 11.62% High Expectations Drives changing (usually a few minitues…

Technology Advancement Less than 6 hour 29.25%

Between 6 hours to 8 hours 27.85% 38% 41% Between 8 hours to 10 hours 22.42% > 300 KM < 6 HOURS More than 10 hours 8.86%

Consumers in China prefer NEVs made by Chinese Chinese enthusiasm for domestic brands is reflected in domestic brands, followed by European brands and sales data. In 2017, Chinese brands account for 78% of Japanese ones. the NEVs market share.

Market share by brands in China - Top 10 Brand choice by customers in China Domestic Brands: 78% 54.16%

Others, 21.8% 25.59% BYD, 23.3% Foton, 2.6% 13.38% GAC Trumpchi, 2.7% 5.06% JMC, 4.9% BJEV, 10.4% 1.31% 0.50% Changan, Zhidou Chinese European Japanese Korean U.S. Other 5.4% Kandi, , 7.8% brands brands brands brands brands 6.0% Roewe, Zotye, 7.5% 7.6%

Source: LMC Automotive

Three Barriers To The Popularity Of NEVs.

Range anxiety, power performance and the distrust of new energy technologies.

Chinese Customers Concerns About NEVs Limited driving range 75.63% Not convenient to use 34.99% High prices 39.78% Reliability of product quality 42.77% Power performance 47.69% Maturity of new energy technologies 46.61% High ownership costs 19.44% Driving safety 21.47% Insufficient/inconvenient after-sales services… 39.10% Driving performance 12.70% Other 1.04% Have no concern and would like to purchase… 0.86%

The majority of consumers are Chinese Customers Concerns About Battery concerned about dependability

and high maintenance costs due Mileage driven on one charge will decrease over time 68.31% to the constraints of current Vehicle breakdown caused by battery troubles battery technology. 49.41% High charging frequency 65.33%

How to achieve a longer driving Long charging time 60.22% range with a lower battery Insufficient battery warranty services 40.96% charging frequency, how to further reduce battery costs and High battery replacement/ maintenance cost 58.59% how to address its recycling—all Used car price falls as battery performance reduces 29.29%

these are pressing challenges Lack of clarity about the usage and maintenance of… 22.24% that need to be addressed Uncertainty about how to dispose of a worn-out battery 20.84% before we can really embrace the era of new-energy vehicles. Battery may be harmful to the environment 26.90% I have no concern at all 0.50%

41% prefer online car shopping and 30% prefer to visit the branded service stores directly owned by the manufacturers for after-sales service and maintenance.

45% 24% 17% 14%

Offline shopping PURCHASE Online shopping and Online shopping and All of above look home delivery self pick-up good to me

53% 30% 5% 12%

SERVICE AND Authorized Service stores directly Non-authorized All of above look dealerships MAINTENANCE dealerships owned by manufacturers good to me © 2018 J.D. Power. All Rights Reserved. 13 5 Level Of Trust In Automakers

Level of Trust with the Companies for NEV Technology Consumers Trust Conventional Probably would Definitely would New entrants Automakers More Than New Market 62.97% 18.35% Entrants To Develop NEV Technologies (e.g., Tesla, NIO) Conventional automakers (e.g., GM, Ford, Toyota, VW) 66.23% 26.54%

Customers trust conventional automakers Level of Trust with the Companies for Self-driving Automation Technology more because of their high brand awareness, Probably would Definitely would mature technologies and reliable product US Auto company (e.g. 72% 16% quality. GM, Ford, Chrysler) US tech company (e.g. 60% 22% Google) Customers trust new automakers less due to US Auto new company 60% 19% their low brand awareness, untested product (e.g. Tesla) quality and less advanced technologies; China tech company (e.g. 55% 16% however, they have more faith in new players Baidu, Alibaba) China Auto company 57% 12% when it comes to innovation capabilities. (e.g. Beijing Hyundai,… New Energy China Auto 57% 9% company (e.g. NIO) Source: Chinese Customers View Towards Autonomous Vehicles, Sep 2017

© 2018 J.D. Power. All Rights Reserved. 14 J.D. Power is a global leader in consumer insights, advisory services and data and analytics. Those capabilities enable J.D. Power to help its clients drive customer satisfaction, growth and profitability. For more information, please visit china.jdpower.com or stay connected with us on J.D. Power WeChat and Weibo.