16 July 2020 Equity Research Asia Pacific | Japan

Autos & Auto Parts Sector Post COVID-19 global auto sector outlook

Automobiles & Components | Connections Series Connections Series

Summary: The global auto/auto parts sector has sustained a significant impact from The Credit Suisse Connections Series leverages our COVID-19, but we see signs of a gradual recovery. In this connection series, our auto exceptional breadth of macro and micro research to teams located globally have summarized updated views on each region, auto demand deliver incisive cross-sector and cross-border outlook, topics surrounding the sector following COVID-19 impact, and investment thematic insights for our clients. recommendations in each of our respected regional sectors. Research Analysts

Sector overview: While we forecast 2020 global demand to drop significantly due to Masahiro Akita COVID-19, we see room for growth beyond 2021 and opportunities for multiple reratings 81 3 4550 7361 /overall positive performance in the markets. Considering the pace of recovery seen in [email protected] China and the US (two of the largest markets), our regional sector preference at this point Koji Takahashi is China > US, followed by Japan and Korea where names with high exposures to China 81 3 4550 7884 and US seem attractive. On the other hand, recovery from COVID-19 in emerging markets [email protected] has been relatively slow. With this in mind, we think recovery in India and Indonesia is more or less limited over the short term, but our expectations for medium-to-long-term growth in Bin Wang both markets remains unchanged. 852 2101 6702 [email protected] Global auto demand forecasts: Our latest forecast assumes that the 4.2% YoY Dan Levy downturn in global demand in 2019 will be followed by an even steeper 18.9% downturn in 212 325 4617 2020 due to COVID-19, with subsequent recovery of 12.4% growth in 2021. Of the two [email protected] major markets that have started to recover, we estimate for China –7.4% in 2020, +13% in 2021, while for the US –20.6%, +8.8%, respectively. On the other hand, volatility in Michael Sohn emerging markets is high, as we estimate for India –28% in 2020, +37% in 2021 and for 82 2 3707 3739 Indonesia –37.1%, +40.1%, respectively. [email protected] Post-COVID-19 trends in auto: Following a sharp decline in auto consumption around Satyam Thakur the world, authorities in major auto market have come up with additional auto stimulus 91 22 6777 3715 [email protected] policies hoping to revitalize demand/consumption, and we expect this to contribute to better than expected uptake in demand overall and penetration rates for NEVs. In addition, Robert Pranata we see an emerging trend where consumers are starting to prefer private transportation 62 21 2553 7976 given COVID-19. We believe this structural change will support auto demand going forward. [email protected] Our top picks: China (Geely Automobile (0175.HK)), US (Aptiv PLC (APTV); Lear Corporation (LEA); Magna International (MGA); General Motors Company (GM)), Japan (Honda Motor (7267); Aisin Seiki (7259); Stanley Electric (6923)), Korea (Hyundai Motor (005380.KS); Hyundai Mobis (012330.KS)), India (Maruti Suzuki (MRTI.BO)), Indonesia (Astra International (ASII.JK)).

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies 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.

16 July 2020

Sector overview

Taking a step back and looking at stock market performance for CY20, global auto and auto parts sector underperformed in the beginning of April as concerns related to COVID-19 started to peak, but since then, recovered to levels slightly outperforming the benchmark. Looking back at the medium-term trend, both global auto and auto parts sectors have underperformed against the market since 2018 when global auto demand was at its peak. With these historical trends in mind, our current global demand outlook for 2020 assumes a drop of 19% YoY due to unforeseen COVID-19 impact, and room for growth beyond 2021. Our demand trajectory leaves room for possible reratings and positive performance from the auto sector. When we compare stock market performance of the auto sector by region, we notice that China and the US have outperformed. China showed quicker recovery following COVID-19, whereas the US showed trends in gradual recovery following demand bottoming in April. We expect the market to prefer names that have market exposure to these two regions. Given this, our regional sector preference at this point is China > US, followed by regions such as Japan and Korea where we think names with high exposures to China and US look attractive. Meanwhile, we see slower recovery from the pandemic in emerging markets, and thus think that recovery in the near term for India and Indonesia is more or less limited. Despite this, our expectation for medium-long term growth in both markets remains unchanged.

Figure 1: Sector performance recovering to levels above the Figure 2: Medium-term trend shows underperformance versus market on CY20 vintage the market

Source: Refinitiv Datastream, Credit Suisse Source: Refinitiv Datastream, Credit Suisse

Figure 3: Expected demand growth to support performance Figure 4: Preference on China/US sector to continue

Source: Refinitiv Datastream, Credit Suisse Source: Refinitiv Datastream, Credit Suisse

Autos & Auto Parts Sector 2

16 July 2020

Figure 5: China auto sector valuation summary

Share PER (x) PBR (x) ROE (%) EV/EBITDA Performance Target Potential Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M

China OEM 1211.HK BYD OUTPERFORM 79.0 60.0 -24.1% 58.7 83.8 76.7 1.7 3.3 3.2 2.9% 4.0% 4.2% 9.7 15.0 13.7 45.5% 79.7% 64.6% 61.6% 0489.HK Dongfeng Motor Group OUTPERFORM 5.1 10.0 96.1% 4.4 2.5 2.9 0.4 0.3 0.3 10.4% 11.8% 9.5% 29.0 4.8 7.2 -2.1% -0.4% -26.1% -25.2% 0175.HK Geely Automobile Holdings OUTPERFORM 17.7 17.0 -4.0% 15.3 22.5 14.1 2.3 2.4 2.1 16.5% 11.6% 16.0% 8.9 11.4 7.7 49.7% 51.3% 14.0% 44.8% 2333.HK Great Wall Motor OUTPERFORM 6.7 7.0 4.5% 10.4 13.5 10.6 0.9 1.0 0.9 8.4% 7.3% 8.9% 4.0 4.9 4.0 25.7% 34.0% 11.1% 15.5% 2238.HK Guangzhou Automobile Group OUTPERFORM 6.3 10.0 59.5% 13.6 6.8 6.2 1.1 0.7 0.6 8.4% 10.4% 10.6% 47.4 13.4 10.4 -3.4% -4.7% -33.3% -23.7% NIU.OQ NIU Technologies OUTPERFORM 19.1 25.8 35.0% 23.3 46.4 20.1 5.6 9.8 6.6 27.9% 23.7% 39.1% 21.9 34.1 13.3 51.1% 169.9% 110.0% 235.3% NIO.N Nio Inc OUTPERFORM 13.5 12.6 -6.8% -2.6 -14.5 -29.3 -4.6 -7.5 -6.0 -4201% 69.5% 22.6% -3.6 -20.5 -71.4 93.4% 321.2% 189.5% 293.0% 600104.SS SAIC Motor OUTPERFORM 19.2 27.0 40.6% 10.9 9.7 7.2 1.1 0.9 0.8 10.6% 9.0% 11.4% 11.6 11.9 5.6 7.9% 1.1% -22.4% -20.3% 600066.SS Zhengzhou Yutong Bus OUTPERFORM 13.7 16.5 20.9% 16.3 16.5 11.6 1.8 1.8 1.7 11.4% 10.6% 14.9% 9.4 9.2 6.8 15.6% 7.2% -11.2% 0.9% 1958.HK BAIC Motor NEUTRAL 3.8 3.6 -4.5% 7.8 7.6 7.3 0.6 0.5 0.5 8.3% 6.9% 6.9% 0.1 -0.3 -0.9 6.8% 14.6% -16.2% -29.1% 1114.HK Brilliance China Automotive Holdings NEUTRAL 8.1 9.0 11.1% 5.4 5.3 5.3 1.1 0.9 0.8 20.8% 18.8% 16.0% -36.8 -1304.8 10773.3 7.9% 15.4% 4.0% -4.6% 000625.SZ Chongqing Changan Automobile NEUTRAL 11.9 10.0 -15.8% -18.2 9.1 11.9 1.1 1.2 1.1 -5.9% 13.5% 9.5% 15.7 6.8 10.4 2.7% 19.7% 8.9% 66.5% 600418.SS Anhui Jianghuai Automobile Group UNDERPERFORM 10.2 4.4 -56.8% 89.7 364.1 801.1 0.7 1.5 1.5 0.8% 0.4% 0.2% 8.2 12.1 11.4 0.9% 106.3% 96.3% 100.6% 600733.SS Baic Bluepark New Energy Technology UNDERPERFORM 7.5 5.0 -32.9% 221.7 -45.0 -58.2 1.2 1.5 1.6 0.5% -3.4% -2.7% 21.6 29.4 24.9 8.1% 36.2% 4.6% -10.6% 000550.SZ Jiangling Motors UNDERPERFORM 14.7 7.7 -47.4% 80.6 28.6 26.0 1.1 1.2 1.1 1.4% 4.1% 4.4% 2.6 2.6 2.1 15.5% 19.0% -5.1% -21.5% 3808.HK Sinotruk (Hong Kong) Limited OUTPERFORM 22.1 18.9 -14.5% 12.3 11.5 13.2 1.5 1.8 1.7 12.6% 16.8% 13.5% 3.6 4.2 4.2 12.9% 43.9% 33.8% 71.3% China OEM Average 34.3 35.5 57.9 1.1 1.3 1.2 -254.1% 13.4% 11.6% 9.6 -72.9 676.4 21.1% 57.1% 26.4% 47.2% Suppliers 0425.HK Minth Group Limited OUTPERFORM 23.5 27.7 18.1% 16.8 18.4 12.0 2.0 1.6 1.5 12.3% 9.0% 12.9% 10.4 10.1 7.3 10.9% 28.1% -13.9% -4.1% 1316.HK Nexteer Automotive Group Limited OUTPERFORM 5.3 7.4 39.4% 9.8 8.8 6.5 1.3 0.9 0.8 13.3% 10.4% 13.0% 4.2 2.9 2.2 -10.6% 17.7% -22.3% -38.7% 2338.HK Weichai Power OUTPERFORM 17.6 17.5 -0.8% 13.8 12.1 13.0 2.6 2.4 2.1 20.0% 21.4% 17.3% 5.7 5.5 5.1 25.8% 23.5% 11.5% 37.0% 0868.HK Xinyi Glass Holdings Limited OUTPERFORM 9.8 11.7 19.6% 9.3 9.6 8.3 2.0 1.7 1.6 22.7% 18.7% 19.6% 9.7 8.7 7.8 2.5% 9.9% -9.6% 23.8% 600741.SS Huayu Automotive Systems Co., Ltd NEUTRAL 23.5 21.5 -8.4% 12.7 13.1 12.4 1.7 1.4 1.3 13.6% 11.1% 11.0% 6.8 5.6 4.6 13.8% 12.3% -18.0% 1.5% 0179.HK Johnson Electric Holdings Limited NEUTRAL 16.4 16.0 -2.7% 7.5 -2.9 10.1 0.8 0.7 0.9 11.7% -22.9% 10.0% 4.3 2.4 3.6 15.8% 23.1% -11.1% 15.4% 600699.SS Ningbo Joyson Electronic Corporation NEUTRAL 24.6 18.6 -24.2% 24.0 73.8 31.2 1.8 2.5 2.3 7.4% 3.4% 7.6% 6.8 8.1 6.3 4.9% 20.7% 8.3% 53.6% 000581.SZ Weifu High-Technology Group Co., Ltd NEUTRAL 22.4 20.7 -7.7% 8.4 9.5 9.4 1.1 1.2 1.2 13.9% 13.5% 12.8% 14.7 16.5 14.7 3.2% 16.9% 12.2% 19.6% 3606.HK Fuyao Glass Industry Group Co Ltd UNDERPERFORM 21.1 15.1 -28.2% 18.4 17.4 13.8 2.5 2.1 2.0 13.9% 12.5% 15.1% 11.5 9.6 8.0 12.8% 23.7% -17.6% -9.8% 002920.SZ Desay SV OUTPERFORM 69.5 55.0 -20.9% 57.1 63.7 35.6 4.0 7.9 6.5 7.1% 13.3% 20.0% 36.4 51.8 31.3 21.3% 104.7% 97.5% 167.8% 300750.SZ Contemporary Amperex Technology Co UNDERPERFORM 207.0 44.0 -78.7% 51.5 96.6 87.9 6.2 10.8 9.7 12.8% 11.8% 11.6% 21.7 43.4 27.2 29.4% 51.2% 79.9% 183.6% 002074.SZ Guoxuan High-Tech Co Ltd UNDERPERFORM 27.7 8.0 -71.2% 322.7 60.7 65.5 1.9 3.4 3.3 0.6% 5.7% 5.1% 14.6 18.5 17.1 -4.3% 32.9% 47.6% 115.0% China Auto Suppliers Average 46.0 31.8 25.5 2.3 3.1 2.8 12.5% 9.0% 13.0% 12.2 15.3 11.3 10.5% 30.4% 13.7% 47.1% Total Average 39.3 33.9 44.0 1.6 2.1 1.8 -139.9% 11.5% 12.2% 10.7 -35.1 391.4 16.6% 45.7% 21.0% 47.1% Source: Company data, Credit Suisse estimates

Figure 6: US auto sector valuation summary

Share Target Potential PER (x) PBR (x) ROE (%) EV/EBITDA Performance Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M US OEM F.N Ford Motor Company NEUTRAL 7 6 -11.0% 7.8 -3.7 240.7 2.0 2.6 2.6 23.8% -49.0% 1.1% 3.4 94.5 4.5 2.9% 31.6% -26.4% -34.8% GM.N General Motors Company OUTPERFORM 27 33 22.8% 7.6 49.9 7.7 1.6 1.2 1.1 21.8% 2.4% 14.7% 3.6 4.8 2.4 -3.2% 19.6% -24.5% -31.4% TSLA Tesla Inc NEUTRAL 1546 700 -54.7% 2358.7 306.0 83.0 11.2 28.5 21.1 0.7% 11.2% 29.3% 27.2 70.1 40.0 57.4% 105.1% 202.8% 506.6% US OEM Average 791.4 117.4 110.5 4.9 10.8 8.3 15.4% -11.8% 15.0% 11.4 56.4 15.6 19.0% 52.1% 50.6% 146.8% Suppliers ADNT.N Adient PLC OUTPERFORM 18 22 20.6% 14.1 17.6 7.9 1.2 0.8 0.8 7.2% 4.9% 10.1% 6.3 5.7 4.6 1.0% 63.0% -16.5% -15.6% AXL.N American Axle & Manufacturing Holdings, Inc.NEUTRAL 7 6 -19.4% 6.7 -4.5 10.2 1.3 24.1 1.8 15.2% -37.8% 32.5% 4.5 8.5 4.7 -4.1% 98.9% -22.7% -36.1% APTV.N Aptiv PLC OUTPERFORM 82 80 -2.2% 19.8 109.6 23.8 6.4 4.2 3.7 34.0% 4.3% 16.4% 12.6 19.4 11.7 7.4% 27.9% -10.7% 4.4% BWA.N BorgWarner, Inc. NEUTRAL 38 33 -12.1% 10.5 18.6 10.7 1.9 1.6 1.5 19.2% 8.8% 14.5% 6.0 8.1 5.8 11.8% 39.2% -9.6% -4.9% DAN.N Dana, Inc. OUTPERFORM 13 15 14.9% 5.9 -87.4 7.1 1.4 1.2 1.0 27.6% -1.2% 15.4% 4.4 8.3 4.7 3.5% 44.8% -22.7% -28.9% DLPH.N Delphi Technologies PLC NEUTRAL 15 11 -28.5% 5.3 -51.2 13.5 3.6 13.4 12.1 69.9% -12.5% 94.6% 4.6 10.1 6.8 15.0% 78.1% 37.0% -11.9% LEA.N Lear Corporation OUTPERFORM 113 127 12.4% 9.8 77.5 10.7 1.9 1.7 1.5 19.9% 2.1% 14.6% 5.1 8.9 4.7 1.8% 29.4% -19.7% -11.1% MGA.N Magna International Inc. OUTPERFORM 47 54 14.0% 9.1 46.1 10.0 1.6 1.4 1.3 17.8% 3.0% 13.5% 4.9 8.0 4.9 6.0% 30.6% -13.6% -1.0% VNE.N Veoneer, Inc NEUTRAL 11 9 -21.1% -3.2 -2.2 -3.3 0.9 1.1 1.7 -28.1% -39.4% -39.9% -2.6 -2.7 -5.1 -0.3% 40.7% -16.7% -29.2% US Auto Suppliers Average 8.7 13.8 10.1 2.2 5.5 2.8 20.3% -7.5% 19.1% 5.1 8.3 4.8 4.7% 50.3% -10.6% -14.9% US Average 204.3 39.7 35.2 2.9 6.8 4.2 19.1% -8.6% 18.1% 6.7 20.3 7.5 8.3% 50.8% 4.7% 25.5% Source: Company data, Credit Suisse estimates

Autos & Auto Parts Sector 3

16 July 2020

Figure 7: Japan auto sector valuation summary

Share Target Potential PER (x) PBR (x) ROE (%) EV/EBITDA Performance Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M Japan OEM 7201 Nissan Motor NEUTRAL 419 400 -4.4% -2.1 -6.1 11.0 0.3 0.4 0.4 -14.3% -6.8% 3.9% 23.8 73.0 22.0 -5.1% 14.8% -34.1% -45.5% 7202 Isuzu Motors NEUTRAL 994 1000 0.6% 6.5 16.3 10.6 0.6 0.7 0.7 8.6% 4.6% 6.9% 2.5 5.4 3.9 -3.0% 30.7% -18.2% -18.1% 7203 Toyota Motor NEUTRAL 6835 7000 2.4% 8.8 18.5 11.1 0.9 0.9 0.9 10.5% 5.1% 8.4% 9.2 16.3 11.6 -2.6% 1.2% -11.2% -2.7% 7205 Hino Motors NEUTRAL 753 750 -0.4% 10.6 108.1 14.9 0.6 0.8 0.8 5.8% 0.7% 5.3% 4.5 9.1 6.0 -2.8% 26.3% -32.8% -12.2% 7211 Mitsubishi Motors NEUTRAL 283 300 6.0% 105.3 14.0 11.4 0.5 0.5 0.5 0.5% 3.6% 4.4% 1.9 1.9 1.7 -13.2% -5.7% -38.1% -43.3% 7261 Mazda Motor UNDERPERFORM 705 550 -22.0% 29.7 -10.6 17.1 0.3 0.4 0.4 1.0% -3.7% 2.3% 3.0 15.9 5.5 -10.0% 22.6% -30.1% -36.5% 7267 Honda Motor OUTPERFORM 2846 3600 26.5% 9.3 12.7 8.0 0.5 0.6 0.6 5.6% 4.9% 7.4% 8.7 11.6 9.0 -3.6% 15.2% -7.0% 1.4% 7269 Suzuki Motor OUTPERFORM 3950 4700 19.0% 9.0 20.8 12.3 0.8 1.3 1.2 9.3% 5.9% 9.5% 2.6 5.5 4.0 2.0% 25.0% -21.4% -12.9% 7270 Subaru Corporation OUTPERFORM 2276 2900 27.4% 10.4 15.3 9.7 0.9 1.0 1.0 9.0% 6.6% 10.3% 1.8 4.2 3.5 -8.7% 9.0% -20.4% -15.1% 7272 Yamaha Motor NEUTRAL 1737 1450 -16.5% 10.2 7.9 7.1 1.1 0.8 0.8 11.1% 10.6% 11.1% 6.1 5.1 4.5 0.6% 38.7% -20.6% -7.3% Japan OEM Average 19.8 19.7 11.3 0.7 0.7 0.7 4.7% 3.2% 6.9% 6.4 14.8 7.2 -4.6% 17.8% -23.4% -19.2% Suppliers 3116 Toyota Boshoku NEUTRAL 1464 1400 -4.4% 9.7 18.2 13.0 0.8 0.9 0.9 8.5% 5.1% 7.0% 2.4 3.9 3.2 -0.3% 14.2% -15.0% 3.0% 4246 DaikyoNishikawa NEUTRAL 507 530 4.5% 7.1 23.9 5.6 0.5 0.5 0.4 6.5% 1.9% 8.0% 1.5 2.6 1.6 -7.3% 2.2% -37.4% -43.1% 5108 Bridgestone NEUTRAL 3528 3750 6.3% 12.2 19.6 12.5 1.2 1.0 1.0 10.2% 5.2% 7.7% 5.8 6.6 5.4 -3.1% 7.5% -12.1% -16.5% 5110 Sumitomo Rubber Industries NEUTRAL 991 1100 11.0% 29.1 14.5 10.0 0.8 0.6 0.5 2.6% 3.9% 5.5% 7.3 5.7 4.8 -13.4% -1.8% -23.8% -19.6% 5333 NGK Insulators OUTPERFORM 1456 1900 30.5% 16.7 23.7 10.8 1.0 1.0 0.9 5.7% 4.1% 8.6% 6.4 7.5 5.2 -9.0% 12.3% -25.4% -6.2% 5802 Sumitomo Electric Industries NEUTRAL 1298 1300 0.2% 12.2 24.7 13.7 0.6 0.7 0.6 4.7% 2.7% 4.7% 4.3 5.6 4.5 -2.3% 20.9% -19.8% -6.7% 5949 Unipres UNDERPERFORM 950 850 -10.5% -11.1 -144.8 6.6 0.3 0.3 0.3 -2.8% -0.2% 4.9% 2.9 4.0 2.3 -8.1% 1.7% -37.9% -46.2% 5975 Topre OUTPERFORM 1187 1500 26.4% 7.5 9.6 4.8 0.4 0.4 0.4 5.7% 4.4% 8.3% 2.7 2.7 1.6 -12.1% 0.9% -31.7% -29.6% 6201 Toyota Industries NEUTRAL 5920 5700 -3.7% 11.0 17.4 14.7 0.7 0.7 0.7 5.9% 4.3% 5.0% 12.6 17.6 15.1 -0.5% 11.3% -7.9% -0.2% 6674 GS Yuasa Corp NEUTRAL 1846 2500 35.4% 11.7 10.4 9.4 0.8 0.8 0.7 7.1% 7.6% 8.0% 4.7 4.5 4.7 -0.3% 28.2% -23.0% -11.8% 6902 Denso OUTPERFORM 4296 5000 16.4% 39.7 25.6 14.0 0.8 1.0 0.9 1.9% 3.8% 6.8% 6.9 6.8 5.1 3.9% 14.0% -14.1% -7.0% 6923 Stanley Electric OUTPERFORM 2713 3200 18.0% 18.7 16.8 12.7 1.0 1.2 1.1 5.1% 7.1% 9.0% 4.0 4.7 3.7 0.5% 11.7% -12.8% 3.8% 6995 Tokai Rika NEUTRAL 1546 1500 -3.0% 8.2 28.2 10.9 0.5 0.6 0.6 6.6% 2.2% 5.6% 1.3 2.6 1.9 -8.5% 16.0% -25.3% -13.0% 7220 Musashi Seimitsu Industry OUTPERFORM 897 1700 89.5% 5.1 4.6 4.2 0.6 0.5 0.5 11.7% 12.0% 12.0% 3.2 2.7 2.2 -15.6% 4.9% -36.8% -35.1% 7244 Ichikoh Industries OUTPERFORM 510 700 37.3% 14.0 13.2 7.8 1.6 1.1 1.0 12.6% 8.2% 12.9% 5.3 4.7 3.3 -6.9% 14.6% -29.2% -28.3% 7251 Keihin NEUTRAL 2541 2600 2.3% 31.3 18.8 14.6 0.9 0.9 0.8 3.0% 4.8% 5.8% 4.3 3.9 3.3 -0.3% 0.4% -1.5% 71.7% 7259 Aisin Seiki OUTPERFORM 3210 4250 32.4% 29.8 37.6 9.4 0.6 0.7 0.7 1.8% 1.8% 7.1% 3.5 5.5 3.9 -7.6% 9.3% -18.6% -12.3% 7276 Koito Manufacturing NEUTRAL 4640 4800 3.4% 10.1 20.8 13.6 1.2 1.4 1.3 12.3% 7.2% 10.2% 2.9 5.3 3.8 1.3% 14.4% -9.4% -18.9% 7278 Exedy OUTPERFORM 1553 2750 77.1% 5.1 4.5 4.2 0.4 0.3 0.3 7.2% 7.7% 7.8% 1.8 1.6 1.4 -9.8% -3.8% -35.5% -30.1% 7282 Toyoda Gosei NEUTRAL 2207 2200 -0.3% 21.4 28.6 13.6 0.7 0.8 0.8 3.2% 2.9% 5.9% 4.9 5.4 4.3 -5.1% 18.4% -20.1% 6.6% 7283 Aisan Industry OUTPERFORM 536 1050 95.9% 6.1 4.7 4.2 0.4 0.3 0.3 6.0% 7.4% 7.9% 2.1 3.3 2.6 -9.3% -4.3% -28.3% -20.0% 7988 Nifco NEUTRAL 2359 2400 1.7% 10.9 26.4 12.6 1.2 1.4 1.3 11.3% 5.5% 10.8% 3.9 7.8 4.8 -1.5% 20.8% -19.8% -11.6% Japan Auto Suppliers Average 13.9 11.2 10.1 0.8 0.8 0.7 6.2% 5.0% 7.7% 4.3 5.2 4.0 -5.3% 9.7% -22.1% -12.3% Japan Average 15.8 13.9 10.5 0.7 0.8 0.7 5.8% 4.4% 7.5% 5.0 8.2 5.0 -5.1% 12.2% -22.5% -14.5% Source: Company data, Credit Suisse estimates

Figure 8: Korea auto sector valuation summary

Share Target Potential PER (x) PBR (x) ROE (%) EV/EBITDA Performance Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M Korea OEM 005380.KS Hyundai Motor Company OUTPERFORM 109000 140000 28.4% 11.2 11.7 6.9 0.5 0.4 0.4 4.3% 3.7% 6.1% 2.8 2.9 1.9 7.4% 8.5% -8.0% -18.4% 000270.KS Kia Motors OUTPERFORM 35200 45000 27.8% 9.8 12.7 6.9 0.6 0.5 0.5 6.5% 3.9% 6.8% 3.7 3.5 2.8 2.8% 17.7% -15.0% -17.5% Korea OEM Average 10.5 12.2 6.9 0.5 0.5 0.4 5.4% 3.8% 6.5% 3.3 3.2 2.3 5.1% 13.1% -11.5% -17.9% Suppliers 161390.KS Hankook Tire & Technology NEUTRAL 24900 23000 -7.6% 9.9 12.2 7.2 0.6 0.4 0.4 6.0% 3.5% 5.6% 4.0 4.3 2.9 1.8% 16.4% -19.7% -22.7% 018880.KS Hanon Systems OUTPERFORM 9510 11000 15.7% 18.7 34.0 17.4 2.7 2.3 2.2 15.0% 6.8% 12.8% 9.0 12.1 8.4 -5.4% 4.3% -14.3% -21.4% 012330.KS Hyundai Mobis OUTPERFORM 215500 250000 16.0% 10.7 13.0 8.3 0.8 0.6 0.6 7.3% 4.9% 7.3% 5.0 5.5 4.0 10.5% 20.1% -13.1% -8.1% 011210.KS Hyundai Wia NEUTRAL 40900 31000 -24.2% 24.7 12.8 10.1 0.4 0.4 0.3 1.8% 2.8% 3.4% 6.1 4.1 2.4 10.8% 16.4% -15.4% -17.9% 204320.KS Mando Corp OUTPERFORM 24200 32000 32.2% 15.0 269.2 8.7 1.1 0.8 0.7 7.6% 0.3% 8.6% 5.7 9.5 5.4 -1.6% -4.3% -31.0% -16.6% 002350.KS Nexen Tire NEUTRAL 5340 6000 12.4% 8.0 9.5 5.5 0.6 0.3 0.4 7.9% 3.7% 6.5% 5.4 5.1 4.2 -5.7% -11.9% -38.2% -40.7% Korea Auto Suppliers Average 14.5 58.5 9.5 1.0 0.8 0.8 7.6% 3.6% 7.4% 5.9 6.8 4.5 1.8% 6.8% -21.9% -21.2% Korea Average 13.5 46.9 8.9 0.9 0.7 0.7 7.0% 3.7% 7.2% 5.2 5.9 4.0 2.6% 8.4% -19.3% -20.4% Source: Company data, Credit Suisse estimates

Figure 9: India auto sector valuation summary

Share Target Potential PER (x) PBR (x) ROE (%) EV/EBITDA Performance Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M

India OEM ASOK.BO Ashok Leyland Ltd NEUTRAL 49 50 1.4% 51.9 -35.2 20.9 1.7 2.4 2.5 3.1% -6.2% 11.7% 12.1 44.0 9.5 -3.0% 0.8% -41.3% -42.3% BAJA.BO Bajaj Auto Limited NEUTRAL 2941 3030 3.0% 11.2 20.2 16.2 2.9 4.0 3.6 24.2% 20.4% 23.4% 8.1 16.4 12.1 8.3% 23.6% -5.6% 9.1% EICH.BO Eicher Motors OUTPERFORM 18549 22280 20.1% 19.5 36.1 22.0 3.6 4.7 4.1 19.3% 13.6% 20.1% 14.0 23.9 15.2 11.2% 25.6% -12.9% 0.6% ESCO.BO Escorts Ltd OUTPERFORM 1107 1250 12.9% 12.1 20.9 15.6 1.7 2.3 2.0 14.9% 12.8% 13.8% 7.4 13.1 9.9 15.5% 48.6% 56.9% 105.4% HROM.BO Hero Motocorp Ltd UNDERPERFORM 2647 2320 -12.3% 10.8 22.7 17.6 2.3 3.5 3.3 21.9% 16.0% 19.3% 6.3 14.4 10.9 10.7% 44.1% 7.9% 4.9% MAHM.BO Mahindra & Mahindra OUTPERFORM 550 630 14.6% 10.2 22.7 16.5 1.0 1.8 1.6 9.7% 8.1% 10.2% 5.3 12.7 9.2 8.6% 51.4% -3.3% -11.0% MRTI.BO Maruti Suzuki India Ltd OUTPERFORM 5799 6900 19.0% 22.9 50.8 22.4 2.7 3.7 3.5 11.9% 7.2% 15.9% 12.9 26.0 12.7 5.5% 5.3% -22.9% -4.5% TAMO.BO Tata Motors Ltd. NEUTRAL 103 108 4.7% -2.1 -4.5 20.8 0.4 0.7 0.6 -19.6% -14.6% 3.2% 3.8 4.9 2.7 8.9% 34.3% -47.7% -38.5% TVSM.BO TVS Motors NEUTRAL 389 380 -2.4% 22.6 52.5 27.3 3.9 4.9 4.3 17.9% 9.5% 16.9% 11.5 18.8 12.8 10.0% 29.2% -19.7% -8.0% India Average 17.7 20.7 19.9 2.2 3.1 2.8 11.5% 7.4% 14.9% 9.0 19.4 10.6 8.4% 29.2% -9.9% 1.7% Source: Company data, Credit Suisse estimates

Figure 10: Indonesia auto sector valuation summary

Share Target Potential PER (x) PBR (x) ROE (%) EV/EBITDA Performance Sector Ticker Company Rating Price (LC) Price (LC) Return 7/15/2020 FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E 1M 3M 6M 12M Indonesia OEM ASII.JK Astra International NEUTRAL 5150 4200 -18.4% 12.9 17.8 11.3 1.9 1.4 1.3 15.6% 7.8% 11.7% 8.8 7.5 6.5 3.6% 35.5% -27.2% -27.5% Source: Company data, Credit Suisse estimates

Autos & Auto Parts Sector 4

16 July 2020

Global auto demand forecast summary China & US to drive global demand recovery Our latest forecast assumes that the 4.2% YoY downturn in global demand in 2019 will be followed by an even steeper 18.9% downturn in 2020 due to COVID-19, with subsequent recovery of 12.4% YoY growth in 2021. Monthly auto sales in China, the world’s largest market, seems positioned to continue growth, as distributors move to fully restock their inventory. With this in mind, we thus expect a modest 7.4% YoY decline in Chinese auto demand in 2020. We also expect the market to recover sharply in 2021 (+13% YoY). In the US, we forecast that SAAR (seasonally adjusted annual rate) will fall to 13.5mn vehicles in 2020 (–20.6% YoY), with slow and incremental recovery beginning in 2H. We expect the US market to grow 8.8% YoY in 2021. On the other hand, the outlook for emerging markets remains unclear. While we think the Indian market continues to offer strong longer-term growth potential, it is difficult to forecast the pace and acceleration rate of recovery. We expect the Indian market, which has been impacted more than other markets in 2020 (–28% YoY), to return to its growth phase in 2021, rising 37%. Similarly, auto demand in Indonesia has been slow to recover in the wake of COVID-19, and we forecast YoY growth of –37.1% in 2020 and 40.1% in 2021. As a review, the global auto market peaked in 2017 and had downtrends in 2018–19, and slowing demand in China and the US had left little prospect of particularly strong growth beyond 2020. That said, we expect a sustained uptrend for at least several years from 2021 following the sharp drop in auto demand in 2020. As global demand shifts from a downcycle to an upcycle, we think the market view of the auto sector could change considerably.

Figure 11: CS global auto demand forecast summary 2017-22E Unit: Million 2017 2018 2019 2020E 2021E 2022E 2017 2018 2019 2020E 2021E 2022E CAGR

China 28.88 28.08 25.75 23.85 26.95 28.24 3.9% (2.8%) (8.3%) (7.4%) 13.0% 4.8% (0.4%) India 3.23 3.39 2.96 2.13 2.92 3.16 8.9% 8.0% (12.0%) (28.0%) 37.0% 8.0% (0.5%) Indonesia 1.08 1.15 1.03 0.65 0.91 1.04 1.9% 6.5% (10.4%) (37.1%) 40.1% 15.0% (0.7%) Japan 5.23 5.27 5.19 4.34 4.67 4.79 5.3% 0.7% (1.5%) (16.5%) 7.6% 2.7% (1.7%) Korea 1.78 1.81 1.82 1.78 1.79 1.79 (1.7%) 1.0% 0.5% (2.0%) 0.2% 0.5% 0.1% Thailand 0.87 1.04 1.01 0.70 0.81 0.87 13.4% 19.5% (3.3%) (30.7%) 16.0% 7.8% 0.0% Core Asia 41.08 40.75 37.76 33.44 38.04 39.90 19.3% (0.8%) (7.3%) (11.4%) 13.7% 4.9% (0.6%)

Canada 2.03 1.98 1.92 1.41 1.59 1.69 5.3% (2.6%) (3.1%) (26.5%) 12.3% 6.7% (3.6%) US 17.13 17.21 17.04 13.52 14.71 15.91 (1.9%) 0.4% (1.0%) (20.6%) 8.8% 8.2% (1.5%) Mexico 1.53 1.43 1.32 0.96 1.05 1.15 (4.3%) (7.0%) (7.7%) (27.3%) 10.2% 9.4% (5.6%) N. America 20.70 20.62 20.27 15.89 17.35 18.75 (1.4%) (0.4%) (1.7%) (21.6%) 9.2% 8.1% (2.0%)

Brazil 2.18 2.47 2.66 1.86 2.29 2.58 9.4% 13.3% 7.9% (29.9%) 22.9% 12.6% 3.5% Argentina 0.86 0.79 0.43 0.26 0.30 0.36 27.2% (8.5%) (45.0%) (39.9%) 15.3% 18.5% (16.2%) Core LatAm 3.04 3.25 3.09 2.12 2.59 2.94 13.9% 7.1% (4.9%) (31.3%) 22.0% 13.3% (0.7%)

Russia 1.60 1.81 1.76 1.26 1.30 1.49 11.9% 13.1% (2.5%) (28.5%) 3.3% 14.5% (1.4%) Other E. Europe 2.69 2.52 2.50 2.07 2.39 2.66 6.4% (6.5%) (0.8%) (17.1%) 15.6% 11.2% (0.2%)

France 2.55 2.63 2.67 1.93 2.15 2.31 5.1% 3.3% 1.4% (27.7%) 11.3% 7.6% (1.9%) Germany 3.72 3.73 3.89 3.12 3.38 3.42 2.8% 0.3% 4.2% (19.8%) 8.5% 1.3% (1.6%) Italy 2.17 2.09 2.08 1.36 1.69 1.83 6.9% (3.4%) (0.5%) (34.5%) 23.7% 8.3% (3.4%) Spain 1.44 1.54 1.48 1.01 1.20 1.36 8.7% 7.1% (4.0%) (31.9%) 19.4% 13.1% (1.1%) UK 2.91 2.73 2.67 2.07 2.35 2.56 (5.4%) (6.1%) (2.2%) (22.5%) 13.2% 8.9% (2.6%) Other W.Europe 3.50 3.50 3.45 2.73 3.00 3.16 3.2% (0.1%) (1.5%) (20.9%) 9.8% 5.5% (2.0%) W. Europe (EU15+EFTA) 16.29 16.23 16.24 12.22 13.76 14.64 2.7% (0.4%) 0.1% (24.8%) 12.6% 6.4% (2.1%) Europe TOTAL 20.58 20.56 20.50 15.55 17.46 18.80 3.8% (0.1%) (0.3%) (24.1%) 12.3% 7.7% (1.8%)

Africa 1.28 1.27 1.23 0.95 1.06 1.27 (2.0%) (1.0%) (2.8%) (23.2%) 12.1% 19.5% (0.2%) Middle East 3.09 2.92 2.77 1.73 1.87 2.03 (38.0%) (5.4%) (5.1%) (37.6%) 8.0% 8.8% (8.0%) Middle East / Africa 4.37 4.19 4.01 2.68 2.93 3.30 (2.1%) (4.1%) (4.4%) (33.1%) 9.5% 12.6% (5.5%)

Others 4.09 4.32 4.08 3.04 3.40 3.60 (16.5%) 5.6% (5.5%) (25.4%) 11.7% 6.0% (2.5%) GRAND TOTAL 94.31 93.68 89.71 72.73 81.77 87.29 2.3% (0.7%) (4.2%) (18.9%) 12.4% 6.8% (1.5%) Source: Marklines, IHS, Credit Suisse estimates

Autos & Auto Parts Sector 5

16 July 2020

Post COVID-19 trends in the auto space Auto demand stimulus policies Following a sharp decline in auto consumption around the world, authorities in major auto market have come up with additional auto stimulus policies hoping to revitalize demand/consumption. Stimulus measures vary among region, though they are mainly focused on low emission and electrified vehicles, mostly adding on previously placed policies that aimed to ramp up purchases of low emission vehicles. These measures will most likely support auto sales during the recovery phase post COVID-19. In China, the authorities intend to stabilize big-ticket discretionary consumption and have encouraged regions with auto purchase quota control to increase quota levels since early February 2020. Local stimulus policies followed suit and they implemented scrap incentives to accelerate the switchover to China6 emission certified vehicles and introduced subsidies for locally made NEV related products. In addition, aside from post COVID-19 policies, Chinese authorities decided to classify HEVs as a low emission vehicle pertaining to their NEV policy. This was a big move since HEVs were previously treated the same as ICE vehicles and were not eligible for NEV credits. We view the change in the policy as positive for global manufacturers producing/selling HEVs in China. In Japan, no additional stimulus policies were introduced following the pandemic, but existing subsidies for clean energy vehicles are still intact until March 2021. In the EU, a wide range of purchase subsidies centered around low emission vehicles were announced. Germany and France introduced purchase subsidies for BEVs and PHEVs, as part of their post COVID-19 stimulus package of 130bn / 8bn EUR, respectively. In addition, Spain and Italy extended their scrap incentives for replacing old certified vehicles with ages of 10+ years. We expect these subsidy policies to support global auto demand recovery and, given that the scope of these policies is centered around electrified vehicles, we expect escalated penetration of xEVs in the longer term. As many of the policies are scheduled to extend beyond 2020, we may see unprecedented trends related to electrified vehicles that are not yet expected by the market.

Autos & Auto Parts Sector 6

16 July 2020

Figure 12: Auto demand stimulus policies around the world

Country Vehicle type Condition Subsidy per car Duration Total budget BEV ¥400,000 PHEV ¥200,000 Japan N/A 4/1/2016 - 3/31/2021 ￥13 bn FCV ¥2,250,000 Clean Diesel ¥150,000 BEV

locally produced vehicles with a list price of up to 300,000 yuan + range of 300km and China CNY 25,000 12/31/2022 250 billion CNY PHEV over

BEV $2,500 Massachusetts If list price of a maximum of $50,000 and an electric range more than 25 miles. ~ 12/31/2021 $27 million per year PHEV $1,500 BEV $2,500 Delaware Up to a list price of $60,000 ~ 12/31/2020 - PHEV $1,000 BEV Up to a list price of $60,000 $2,000 PHEV Up to a list price of $60,000 + range longer than 35 miles $1,000

California FCV Up to a list price of $60,000 $4,500 2010 ~ $238 million (For FY19-20) US BEV $4,500 PHEV For low- to moderate-income buyers $3,500 FCV $7,000 If 200 miles or greater range. $2,000 BEV If 120–199 miles range. $1,500 If less than 120 miles range. $500 Conneticut 2015 ~ Few million USD If 45 miles or greater range. $1,000 PHEV If less than 45 miles range. $500 FCV - $5,000

Subsidies would amount to 10,000 rupees for each kilowatt hour (kWh) of battery India NEV approx. 200,000 INR 4/1/2019 ~ part of 100 billion INR capacity in a vehicle, amounting to about 50 percent of the battery cost.

If net list price is <40,000€ 9,000 € BEV If net list price is 40,000 ~ 65,000€ 7,500 € If used car 5,000 € Part of Post-COVID-19 stimulus Germany 7/1/2020 - 12/31/2021 If net list price is <40,000€ 6,750 € package of €130 billion PHEV If net list price is 40,000 ~ 65,000€ 5,625 € If used car 3,760 € If net list price is <45,000€ 7,000 € BEV First 200,000 purchases If fleet or business purchase 5,000 € France 6/1/2020 - 12/31/2020 (Part of €8 billion auto stimulus PHEV If price <50,000€ + electric range of at least 50km 2,000 € plan)

BEV First scrap a car that is more than 10 years old 4,000 €

FCV First scrap a car that is more than 10 years old 4,000 € €230 million Spain Other PV First scrap a car that is more than 10 years old + If CO2 g/km is <120 g/km 1,000 € (Part of €3.75 billion auto stimulus plan)

Other LCV First scrap a car that is more than 10 years old + If CO2 g/km is <155 g/km 1,000 €

Euro 6 If vehicle is Euro 6 + scrap cars are 10 years old or more + price lower than 40,000€ 3,500 € 8/1/2020 - 12/31/2020 €250 million

Italy If M1 Category + CO2 emission rating of up to 70g/km 4,000 € €60 million in 2019, €70 million in NEV 2019 - 12/31/2021 2020/2021 If CO2 emission rating of 21 - 70g/km 1,500 €

If new car + EV must have an original value of €12,000 to €45,000 + minimum range of 4,000 € 120 km Netherlands BEV 7/1/2020 - 7/1/2025 €17.2 million

If used car + EV must have an original value of €12,000 to €45,000 + minimum range of 2,000 € 120 km

Source: Company data, Credit Suisse

Autos & Auto Parts Sector 7

16 July 2020

Changes in consumer behavior and needs Structural changes in consumer behavior and needs related to private transportation may support recovery in auto demand. According to data provided by Apple Mobility, while transportation around the world declined significantly given the pandemic/subsequent lock- downs, certain regions exhibited an uptick in car mobility against public transit. While the trend was exceptionally visible in countries like the US where passenger car ownership is generally high, similar trends were observed in other developed markets as well. We infer that people want to avoid public transportation during the pandemic. While data for mobility trends in China was not available, our research conducted on car dealers found out that some buyers have started to expedite the purchase of cars ahead of plans to prevent public transport. A similar trend was observed in the past with SARS, where we saw auto demand spiking during the recovery phase in China. While the spike demand in China was followed by lower growth in the following year, changes in consumer behavior and needs may provide positive tailwind for demand recovery around the globe, especially as each market continues to cautiously monitor/anticipate the second wave of the pandemic especially toward the latter part of the year. Given that we observe consumer preference impacted significantly even at current levels, we may continue to see higher demand continuing in the longer term.

Figure 13: Car mobility usage trend (estimate based on Figure 14: Public transportation lagging in recovery destination search)

180 Jan.13 = 100 180 Jan.13 = 100

160 160

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0 0

6-Jul 6-Jul

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Japan US France UK Germany France Germany Japan United Kingdom United States

Source: Apple Mobility, Credit Suisse Source: Apple Mobility, Credit Suisse

Autos & Auto Parts Sector 8

16 July 2020

China sector outlook Market overview China passenger vehicle sales have enjoyed sequential improvement—from –82% YoY in February to –48% / 2% in March / April, followed by 7% / 2% YoY increase in May / June. This “V-shape” recovery in sales growth was driven by fast recovery in dealer level retail demand as different local governments started to allow people to leave their homes (communities) freely for shopping after the virus outbreak was under control in mainland China. Looking ahead, we expect demand growth to stay at low-single-digits for the rest of 2020 due to a combination of three factors: Favorable auto stimulus policies. Chinese authorities have expressed their willingness to stabilize big-ticket discretionary consumption amid the COVID-19 outbreak and encouraged regions with purchase quota controls to increase some quota levels since early February 2020. This implies that the Chinese government plans to boost economic growth by stimulating consumption, given the importance of the auto sector. The auto industry is a significant contributor to China’s GDP (>4%), employment (~4.7mn workers), taxation (~4.5%) and national retail sales (~25%). As a result, many local governments have launched stimulus polices to boost local auto consumption. Structural change in car buyers’ preference toward private transportation. According to our dealers’ ground check, we found that quite a few car buyers have expedited their plans of purchasing a vehicle following the virus outbreak. On one hand, car buyers are expediting the purchase of cars to prevent their families from taking public transport, like bus, subway, taxi, etc. On the other hand, some public facilities, like schools and hospitals, require visitors to take private transportation as an obligation. This kind of situation was observed during the 2003 SARS period. In 2003, passenger vehicles sales jumped up 77% YoY as car buyers expedited their car purchases to prevent their families from taking public transport; that eventually resulted in a much lower growth in 2004 (+23% for full-2004—only +7%/+8% in 3Q04/4Q04). As we anticipate the likelihood of a second or third wave regarding the COVID-19 outbreak in winter of this year or later, potential car buyers’ change in preference could support auto demand. Car buyers’ capabilities of affording cars are falling amid the weak macro- economy backdrop. Historically, the rising wealth of customers had supported big-ticket discretionary spending, such as cars in China. Due to the COVID-19 outbreak and worsening China-US relations (or trade war), Chinese auto buyers’ willingness to spend have declined notability due to uncertain future income growth outlook. Meanwhile, the seasonally adjusted annual rate (SAAR) wholesale volume is stabilizing. May / June 2020 wholesales volume was at 1.63mn / 1.73mn units; implied SAAR was 21.55mn / 22.38mn units (up 2.5% / 6.4% YoY), which are in line with our low-single-digit growth YoY forecast for the rest of 2020. As we forecast low-single-digit growth YoY for 2H 2020, we estimate that full-2020 passenger vehicle volume will go down 9.7% YoY to 19mn units. However, we maintain our 2021 and 2022 volume forecast unchanged at 22.5mn units / 23.7mn units, up 17.4% / 5.3% YoY.

Autos & Auto Parts Sector 9

16 July 2020

Figure 15: China monthly passenger vehicle wholesale growth Figure 16: China passenger vehicle SAAR trend

2,500 20% 25,500,000 unit 000 Unit 10%

2,000 0% 20,500,000 -10% -20% 1,500 15,500,000 -30% -40% 1,000 -50% 10,500,000 -60% 500 -70% 5,500,000 -80% 0 -90% Jan- Feb- Mar- Apr- May-Jun- Jul- Aug-Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May-Jun- 500,000 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Total Passenger Vehicle Sales Sales growth YoY 18 18 18 18 18 18 19 19 19 19 19 19 20 20 20

Source: Thinkercar, Credit Suisse Source: Thinkercar, Credit Suisse

Figure 17: Local-level stimulus polices to boost auto consumption Date Province/city Stimulus measures 3-Feb Zhongshan City Provide cash subsidies for purchasing China 6 emission standard vehicles; Rmb2k /Rmb3k /Rmb5k per unit for first-time car buyers/replacement car buyers/fleet purchase of bus & trucks. 21-Feb Guangdong Province Encourage Shenzhen and Guangzhou to offer more quotas for ICE vehicles and local governments to provide cash subsidies for vehicle replacement demand. 1-Mar Xiangtan City Provide Rmb3k per unit subsidy for locally made Geely brand cars. 3-Mar Guangzhou City Provide Rmb3k per unit cash subsidy for purchasing China 6 emission standard vehicles, if car buyers sell or scrap their existing used cars; provide Rmb10k per unit subsidy for private new NEV buyers. 14-Mar Changsha City Provide Rmb3k per unit subsidy for locally made cars. 25-Mar Hangzhou City Add 20,000 units additional quota for ICE engine cars. 25-Mar Nanchang City Provide Rmb1k per unit subsidy for locally made vehicles. 28-Mar Ningbo City Provide Rmb5k per unit subsidy for locally made vehicles. 29-Mar Changchun City Provide Rmb4k per unit subsidy for locally made vehicles. 9-Apr Sichuan Province Provide Rmb1k per unit subsidy for locally made vehicles in that province when car maker implements rural residence auto purchase promotion. 9-Apr Shanxi Province Provide Rmb8k / Rmb6k / 4k per unit subsidy for locally made buses and middle & heavy trucks / passenger vehicles / mini bus and other commercial vehicles. Source: Government websites (http://drc.gd.gov.cn/ywtz/content/post_2973948.html; http://www.bjnews.com.cn/auto/2020/04/09/714813.html), Credit Suisse research

Besides the above-mentioned local governments’ measure for boosting auto consumption, the central government has also launched stimulus measures.

Figure 18: Central-level stimulus polices to boost auto consumption Date The authorities Stimulus measures 20-Feb Ministry of Commerce Ministry of Commerce declared that it was working with other ministries to study measures to stabilize auto consumption amid the negative impact from the coronavirus outbreak. 31-Mar State Council (1) To extend the 10% vehicle purchase tax break for NEVs along with cash subsidy from central government for purchasing NEVs in the next two years until end-2022; (2) cash subsidy from central government to scrap heavy polluting China 3, China 2 and China 1 diesel engine truck in Beijing, Tianjin and Hebei province; (3) to reduce used-car dealer’s VAT rate from current 2% to 0.5% from May 2020 to end-2023. 9-Apr Ministry of Ecology To slightly postpone the China 6 emission standard (likely for several months), allowing auto makers to clear their China 5 emission and Environment standard vehicles. Source: Government websites, Credit Suisse research

Looking ahead, the central government might take more powerful measures later if the overall macro-economy faces much bigger downside risk. Key potential measures are adding more quota in some regions, phasing out heavily polluting passenger vehicles, reducing the vehicle purchase tax for small engine vehicles, etc. These potential new measure could bring upside risk to our low-single-digit growth YoY forecast for the rest of 2020.

Autos & Auto Parts Sector 10

16 July 2020

Stock recommendation Regarding some investors' concerns over production volume reduction caused by the COVID- 19 outbreak, we believe auto stock prices will see different phases of movements—weak in the beginning, followed by a strong rally, and then normalization. Initially, share prices are likely to decline on the low visibility regarding the duration of the impact from COVID-19 and concerns over production volume. Investors seem to mainly focus on the impact's expansion (from Hubei province and overall China, from China to overseas) and value-chain penetration (from parts suppliers to car makers and auto dealers). This first phase could last several months until the number of COVID-19 related patients peaks. In the second phase, we might see auto makers' production gradually recover to normal levels with a declining number of COVID-19 patients. During the second phase, we believe auto stock prices will likely start to recover, as investors are generally forward-looking and would likely regard the volume reduction in the first phase as one-off. The share price rally in the second phase is likely to be driven by a combination of upward revisions of earnings and valuation multiples due to improving sentiment. In the third phase. we expect auto-makers' production and wholesales to exceed their normal pace, as some of them might try to make up for the supply reduction in 1Q20 in order to meet their full-2020 volume targets. Due to the likely higher-than-planned volume in the third phase, operating leverage and potentially better-than-expected ex-factory pricing might trigger further upward earnings revisions (which could exceed the street consensus' upward earnings revision). Share prices are likely to rise further in the third phase. As a result of the likely supply recovery, dealer level inventory could also increase. In the last phase, we expect investors to see a rise in dealer-level inventory along with better visibility of normalized demand levels, and share prices to see slight correction due to falling sentiment. We think we are sitting at the beginning of the third phase, as China passenger vehicle sales YoY growth just returned to the positive zone. During the volume recovery phase, we believe forward-looking investors likely regard the volume reduction as one-off in 1Q20, and plan to play on the upcoming 2021 demand rebound (off a low-base in 1H 2020). We think Chinese auto stock prices are likely to increase, and regard Geely Automotive (0175.HK) as our top pick, which is considered the sector proxy and absolute leader among Chinese local brand auto makers.

Figure 19: The four-phase share price movements on Covid-19 Figure 20: China passenger vehicle demand outlook 30 Unit mn 25% 17.6% 18.4% 20% 25 phase # 1 phase # 2 phase # 3 phase # 4 15% Dealer level destocking Dealer level restocking 12.7% 20 10% 15 9.1% 5% 5.3% 0% 10 2.6% -3.8% -5% 5 -10% -9.5% -9.7% 0 -15% 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e

China passenger vehicle wholesales volume YoY Source: Thinkercar, Credit Suisse estimates Source: Thinkercar, Credit Suisse estimates

Autos & Auto Parts Sector 11

16 July 2020

US sector outlook Market overview Initial phase of recovery complete… The US auto industry has come a long way from its depths in early April in a number of ways: At the height of COVID concerns for US auto, April auto sales were expected to be down 80%. We never saw anywhere near those depths (April sales down 47%), and sales in June were down only 26%, with retail sales in recent weeks not far off pre-virus expectations. Whereas North America auto production was shut down from late March through mid-May, production is now largely at pre-virus levels…albeit with some bumps along the way in re- ramping the supply chain. Whereas the used car market was largely dormant in the early part of April, retail and wholesale volumes are now above pre-virus levels, with wholesale prices also above pre- virus levels. Figure 21: US light vehicle SAAR – total

mn units 2016 2017 2018 2019 2020 20.0

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Source: Wards, National Bureau of Economic Research, Haver Analytics, Bureau of Economic Analysis, Motor Intelligence Figure 22: Retail vs. Fleet YoY unit growth

Fleet Retail Total 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% -90%

Source: J.D. Power, Wards Infobank, Credit Suisse

Autos & Auto Parts Sector 12

16 July 2020

Figure 23: US auto retail sales vs pre-virus forecast – total industry weekly progression Retail Sales: Actual % over / (under) JD Power Pre-Virus Forecast

0% -1% -10% -4%-5%-4%-3% -10% -20% -14% -14%

-30% -23%-24%-24% -30% -40% -36% -38% -50% -43% -50% -60% -55% -59% -70%

Source: JD Power …now time to battle through plateaued recovery While the US auto market has seen clear improvement, we would argue we have passed the more certain phase of recovery…now comes the ‘harder’ part. We forecast 2020 US light vehicle sales of 13.5mn, and with 1H20 SAAR of ~13.1mn, it implies 2H20 SAAR of ~13.8mn: After a sharp run in recovery of retail sales through mid-June (with retail sales only modestly below pre-virus expectations), we have seen plateaued sales in recent weeks. We see several factors impacting the pace of sales looking ahead: While so far the average new car buyer has likely not felt as much labor shock as the broader market, we wonder to what extent labor shock could limit retail sales from fully recovering in 2H. Plateaued retail sales in recent weeks have likely been a function of pullback in incentives by automakers, reflecting tight inventory in key segments. Tight inventory might limit automakers in key segments for at least the next few months. Fleet sales were challenged again in June, down ~70% – an improvement from May (−80%), but still extremely weak, and primarily driven by daily rental sales down 90%+. It is unclear to us at what point fleet sales will show more meaningful recovery; recall, fleet accounts for ~15% of the new car market. Lease penetration has seen some recovery, but at ~27% it is still well below the pre-virus level of 30%+. While we believe stability in the used car market may support lease penetration, it is nevertheless unclear to us when lease penetration will fully recover. Inventory remains tight but manageable While we ultimately expect industry volumes to be dictated by demand trends, supply remains tight, and may remain tight for at least the next few months – especially in large pickups. June- end US industry gross stock was 2.6mn units (down ~55k units m/m), the lowest monthly gross stock in over eight years. While we expect positive revisions to production schedules (especially as OEMs work through summer shutdowns), there will likely be inefficiencies along the way, especially given continued reports of infections at different plants.

Autos & Auto Parts Sector 13

16 July 2020

Figure 24: Industry end of month gross stock

Gross Stock, mn units 2015 2016 2017 4.3 2018 2019 2020 4.1

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Note: Monthly average reading for Jan = the average of all prior Januaries Source: Wards, Motor Intelligence Three reasons to expect a return to more normalized SAAR in 2021 We forecast 2021 US auto sales of 14.7mn, representing a 9% increase off our 2020 estimate, but a 14% decline vs. the robust 17mn level we saw from 2015–19. We recognize that the obvious unknown and the most important factor in forecasting 2021 SAAR is the status of the US consumer – if unemployment lingers, or if coronavirus re- emergence limits consumer recovery, that would clearly limit auto sales. That said, we see three reasons to expect some recovery in US sales: Financing intact: unlike the financial crisis of 2008–09, auto financing availability today seems to be largely intact, crucial as ~85% of new car sales are financed Scrappage: In recent years ~13mn vehicles went out of operation annually…this may provide some floor to normalized demand Opportunity for uptick in miles driven: We expect miles driven to increase once normalcy emerges – cheap gas, plus less reliance on public transit supports the case for more miles driven. While used vehicles are likely to be the primary beneficiary of higher miles driven, it could also support the case for better new car sales (see our report Post coronavirus auto trends). Figure 25: US light vehicle sales forecast

US LV SAAR (mm units) Y/Y% Delta

20% 17.5 17.6 17.2 17.3 16.5 17.1 15% 15.6 15.9 14.5 14.7 10% 13.5 12.8 11.6 5% 0% -5% -10% -15% -20% -25% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E

Source: IHS Markit, Credit Suisse estimates

Autos & Auto Parts Sector 14

16 July 2020

Figure 26: US light vehicle SAAR with recessionary overlay

mn units U.S. Light Vehicle SAAR 22

20

18

16

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6 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Source: Wards, National Bureau of Economic Research, Haver Analytics, Bureau of Economic Analysis, Motor Intelligence

Three examples of healthier industry dynamics today vs. 2008 As we noted in our report last month (Autos crisis comparison: 2020 vs. 2008), we believe the auto industry is fundamentally better today than it was into the GFC (global financial crisis) of 2008–09, keeping us positive on the shape of recovery for the industry. We see three key examples of healthier industry dynamics today vs. GFC: Richer mix, lower incentives: The US auto industry is expected to have richer mix (pickups, CUVs) post the coronavirus crisis vs. GFC, with lower incentives as % of ATP; Healthier auto finance landscape: Amid a healthier banking industry today, US auto finance availability is expected to be greater today, supporting faster volume recovery; Healthier consumer profile: The US consumer has a much stronger balance sheet today than 2008, and so far the average new car buyer has seen better unemployment than the national average. Stock recommendation Positive outlook on US auto stocks amid renewed cycle As discussed in our recent report (Autos best owned early in cycle: now is that time; using factor research to find winners), we see reason to be positive on US auto stocks over the next 12+ months, supported by: Positive revisions amid renewed cycle: With the trajectory of volume and financials likely positive moving forward, it is a much easier environment to own auto stocks. Autos are best owned in an early part of the cycle, and now is that time. Rotation to value from growth supports auto: Amid rotation from value to growth in recent years, auto stocks were pressured. To the extent prospects for economic recovery continue improving, it would support value stocks, and thus autos. Case for multiple re-rating amid healthier industry: The silver lining of the coronavirus crisis is that auto companies proved themselves as much more resilient and healthier than they previously perceived, supporting the case for a multiple re-rating.

Autos & Auto Parts Sector 15

16 July 2020

Figure 27: FY1 EPS Revisions vs. US Auto Index – US auto stock prices correlated with earnings revisions

U.S. Autos Index Price ($) U.S. Autos Index EPS ($)

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FY1 Consensus EPS U.S. Autos Index Price

Note: US Auto Index includes F, FCA, GM, AXL, ADNT, APTV, ALV, BWA, DAN, DLPH, LEA, GTX, MGA, VNE, VC, TEN Source: FactSet, Credit Suisse Research

Figure 28: Global light vehicle production; upward volume trajectory expected in 2021 onward

Global Light Vehicle Production 100 30% 90 20% 80 70 10% 60 50 0%

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Source: IHS Markit

Three stocks that easily capture the recovery are GM, LEA, and MGA; APTV remains top pick as secular winner To be clear, to the extent there is a rotation to auto stocks, we’d expect most of our stocks to work, assuming improvements in operating performance. Yet for those looking for auto stocks that can more easily capture the recovery, we recommend GM, LEA, and MGA. While APTV holds a premium multiple, we reaffirm it as our Top Pick as it offers one of the best narratives in our coverage.

Autos & Auto Parts Sector 16

16 July 2020

LEA and MGA are arguably easier names to own than GM in a recovery. In the prior cycle both stocks performed well amid the cycle run-up, and they are currently well positioned today – reasonable valuation with upside, strong balance sheets, leading and stable share positions, healthy FCF gen, and product sets largely agnostic to future auto disruption. Of the two, we prefer LEA over MGA. For more, see our report: Pivot to more defensive suppliers. GM: We could see some characterize GM as a tougher stock to own. In the last cycle it failed to outperform amid the run-up of the cycle, largely due to a series of company- specific issues (i.e. Europe overhang, ignition switch recall, etc.). And when operating performance finally improved, it failed to gain investor attention given concerns over cycle risks. All of this would be reason to believe why GM would not be an easy stock to own in a cycle recovery. However, we believe GM is a materially different company today. It has much sharper product focus, and is well positioned for the future…a good balance of the ‘near’ and the ‘far’ in our Two Clocks framework. It has no EU exposure (we see Europe as the weak link in global auto recovery), and is overweight NA trucks (an outperformer in auto recovery). Moreover, given currently tight inventory, it could benefit given a need to build extra to replenish its stock levels. Lastly, valuation is very reasonable. Accordingly, we see GM as a winner in a pivot to autos. APTV: Despite its premium multiple vs. other auto stocks, APTV remains our Top Pick, as it holds one of the best narratives in our coverage. Exposure to the right products and trends provide APTV with one of the best outgrowth outlooks in the space, driven by product lines such as Active Safety and High Voltage Electrification. And if the auto cycle continues to work, and APTV continues posting datapoints validating its narrative, we expect the stock will continue to work – hence why we maintain an Outperform rating despite a much higher multiple than other auto companies.

Autos & Auto Parts Sector 17

16 July 2020

Japan sector outlook Market overview Japan’s auto market has been sluggish from the outset following the consumption tax hike in October 2019, but the slump deepened to –28.9% YoY in April. The market then leveled off at –44.9% YoY in May, when the government declared a state of emergency in major cities nationwide, and recovered to –22.9% YoY in June, when the state of emergency was lifted. We expect continued recovery in 2H, with demand likely to normalize from October due to a lower YoY hurdle. As a result, while a slump in Japanese auto demand (–16.5% YoY) is probably unavoidable in 2020, we expect demand to rebound (+7.6%) in 2021. The sector will inevitably see damage to sales and earnings from COVID-19, but we look for a steady recovery followed by a bottom in 1Q. At the moment, China is steadily headed towards normalcy and demand in the US is recovering week over week. We recommend names that have high exposure to these two major markets. In the medium term, we expect expansion in the EV market to accelerate and will focus on model launches by automakers and expansion of EV product portfolios at auto parts suppliers. We have long seen 2020 as a turning point for the EV market, partly due to tightening of regulations surrounding emissions in Europe. On top of this, measures implemented by various governments to stimulate NEV demand could add further impetus. The Chinese government has decided to extend the availability of NEV (new energy vehicle) subsidies and European governments including Germany, France, the UK, and Spain have announced subsidies mainly for EVs, in order to stimulate auto demand amid COVID-19. Japanese auto makers, which lead the field in HEV technology, have plans to launch a succession of new electrified models; we expect the market to pay close attention to how sales of these vehicles will go. On the assumption that April marked the bottom for global auto production volume, we think auto parts suppliers will be unable to avoid a temporary falloff in earnings in Apr–Jun. However, the scale of exposure to the Chinese market, where recovery has started earliest, could drive disparity in the progress of earnings at individual parts makers. Therefore, for the near-term we recommend stocks that stand to benefit the most from recovery in China. In the medium-term, we expect the market to refocus its attention on the expansion in auto parts suppliers’ xEV- related product portfolios amid growth in the electrified vehicle market. Moreover, with parts suppliers focused on how to respond to demand regarding electrification and other auto megatrends, we think investors may well continue to watch for supply chain reorganization, including the elimination and consolidation of businesses and inter-company alliances.

Figure 29: Japan auto sales volume Figure 30: Japanese OEM EV model pipeline FY20E FY21E FY22E Automaker Vehicle Region Vehicle Region Vehicle Region C-HR (EV) China Lexus UX300e (EV) Japan Lexus UX (EV) China 700 Thousand Units 20% Izoa (EV) China SUBARU Co-Dev. SUV (EV) Japan Toyota RAV4 Prime (PHEV) Japan 600 0% Ultra Small EV (EV) Japan Lexus UX300e (EV) China 500 Lexus UX300e (EV) Europe (20%) Clarity (PHEV) China Pilot (PHEV) US Medium-sized EV (EV) Japan Clarity (PHEV) US 400 Honda CR-V (PHEV) China (40%) Honda e Europe Honda e Japan 300 X-Trail (PHEV) US Qashqai (PHEV) Europe Infiniti (EV) US (60%) Leaf (EV) US Leaf (EV) India Infiniti (EV) China 200 Nissan Ariya (EV) Japan Dayz (EV) Japan Ariya (EV) US Ariya (EV) Europe Ariya (EV) China (80%) 100 MX-30 (EV) Japan MX-30 (EV) UK MX-30 (EV) Europe MX-30 (PHEV) Japan Mazda MX-30 (PHEV) Europe 0 (100%) MAZDA2/Demio (EV) Japan Outlander (PHEV) Japan Outlander (PHEV) Indonesia Outlander (PHEV) US Outlander (PHEV) Thailand Outlander (PHEV) Europe MMC Japan Sales Volume (LHS) YoY (RHS) Eclipse Cross (PHEV) US Eclipse Cross (PHEV) Japan Eclipse Cross (PHEV) Europe Subaru Toyota Co-Dev. SUV (EV) Japan Crosstreck (PHEV) US Source: JAMA, Marklines, Credit Suisse Source: Marklines, Credit Suisse estimates

Autos & Auto Parts Sector 18

16 July 2020

Stock recommendation Among our auto coverage, Honda (7267) is our top auto sector pick based on our near-term view for sales recovering in the Chinese and US markets where the company has high exposure, and, on our medium-term view for substantial improvement in its model pipeline and the expected benefits from auto production reorganization. While it is likely to suffer from pandemic- related damage in FY3/21, we look for a V-shaped earnings recovery in FY3/22 and think the medium-term earnings outlook is likely to strengthen even further. Valuations still look too low in comparison with the long-term game, suggesting there is ample scope for revaluation. Demand in US and Chinese is improving week by week, and this should boost Honda’s earnings given its high exposure to these markets. Having already rolled out its next-generation Fit, Honda still has a sizable launch pipeline including the Civic, Vezel/HR-V, and other models based on the new platform. The model refreshment rate is likely to step up sharply starting FY3/21. We also anticipate improvement in earnings per vehicle as the company optimizes its auto production capacity. Related reports: Near-term recovery in China, US sales; focus on improvement in model pipeline, auto production streamlining (26 June 2020)

Figure 31: Honda’s sales in China have recovered early on Figure 32: Honda’s model pipeline will improve from this FY

200 Thousand Units 60% 35%

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Source: Company data, Marklines, Credit Suisse Source: Company data, Credit Suisse estimates

Among the auto parts suppliers, Aisin Seiki (7259) is our top pick in the auto parts sector on the strength of (1) its high exposure to the Chinese market, where demand is recovering earliest, (2) the rising contribution to earnings improvement from restructuring progress and (3) the expected boost to EPS from the acquisition of Toyota’s (7203) shares in Aisin AW. We expect Aisin Seiki’s share price and earnings to be among the first in the sector to recover owing to its mainstay automatic transmissions (AT) business, given that it has the largest exposure to this market within the sector. Following the story of relative strength in momentum recovery in China and from Honda, Stanley Electric (6923) is positioned as a near-term beneficiary as well. We expect to see visible earnings recovery from Stanley Electric driven by both regional and model pipeline perspectives, as well as its self-driven improvement in spending cost. Related reports: Focus on earnings recovery as “harvest period” for new orders over, seeds beginning to blossom (25 June 2020)

Autos & Auto Parts Sector 19

16 July 2020

Figure 33: Aisin Seiki: Decline from operations will be partly Figure 34: Acquisition of Aisin AW stock is likely to have large offset by fixed cost cuts positive impact on EPS

200 Billion Yen 140 Billion Yen 100% 90% 120 150 141 80% 100 70% 60% 100 80 50% 60 56.1 40% 50 35 40 30% 20% 20 0 10% 0 0% FY18 FY19 FY20E FY21E FY22E

Income attributable to owners of the parent (LHS) % of net profit (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 35: Stanley Electric: Costs have cycled out; expect Figure 36: Trends in LED penetration rates and ASP growth better profitability from improvement in operations rates; cycle has reversed in FY20/3

60 bn JPY 0.0 50 7.9 8.6 11.7 40 17.2

30 16.4 45.5 20 13.9 0.4 33.0 24.8 10 13.5 7.5 0

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Autos & Auto Parts Sector 20

16 July 2020

Korea sector outlook Market overview Despite the COVID-19 outbreak, Korea auto sales have posted four consecutive months of solid sales growth trend in Mar–Jun 2020. March auto demand was up 10% YoY followed by +5% YoY in April, +11% in May and 41% in June. We attribute Korea’s better-than-expected auto sales and resilient auto demand outlook (mere –2% YoY in 2020E) for the following reasons. Consumption tax cut is extended to the year end. After Korea auto sales growth posted –18% YoY in February caused by COVID-19, the government immediately announced a 70% consumption tax cut effective from 1 March to end-June 2020, implying that customers could save 3.5% on a vehicle or up to W1.4mn. To support domestic auto demand for a longer period of time, the government has extended 30% consumption tax cut until the year end. Preference of using personal vehicles. People appear to believe that personal vehicles are safer than public transportation, while inexpensive oil price, along with various stimulus plans, incentivize people to purchase vehicles. Major new product cycle. Starting in 2019, Hyundai Motor (HMC) and Kia Motors have set refreshment rate targets of 26%/37% of global sales by the end 2020. Unlike the previous cycle, which focused on shrinking passenger sedan segments, OEMs have focused mostly on growing SUV and luxury segments. As such, HMC’s GV80 (mid-luxury SUV, 1Q20), G80 (mid-luxury sedan, 2Q20), and Kia’s Seltos (entry SUV 3Q19), and Sorento (compact SUV 1Q20) all posted strong sales growth led by domestic sales growth.

Figure 37: Resilient domestic auto demand growth continued… Figure 38: HMC and Kia’s new products led solid domestic sales growth (%) (%) 50 150 41 136 40 120 30

20 90 83 10 58 0 60 45 42 -10 30 -20 17

-30 0 Jan-19 May-19 Sep-19 Jan-20 May-20 Elantra Grandeur G80 K5 K7 Sorento Korea industry sales YoY growth HMC/Kia's new models' 1H20 YoY sales growth

Source: KAIDA, Company data, Credit Suisse Source: Company data, Credit Suisse

Stock recommendation We prefer OEMs over auto parts and Hyundai Motor (HMC) remains our sector top-pick. (1) Sluggish 2Q20E OP is widely expected. Mainly due to the COVID-19 outbreak, HMC’s 2Q20 global plants utilization came in at a mere 53% (down 34 pp YoY), resulting in an ex- factory sales volume of 682k units (down 39% YoY). Nonetheless, solid domestic sales (up 13% YoY), led by strong sales of the new Genesis models (up 121% YoY) with 16% product mix portion (up 8 pp YoY), and 80% Korea plants utilization, should partially minimize overseas plants’ production disruption. As such, we forecast HMC will post 2Q20E OP of W179bn (down 85% YoY) with positive OPM, while most global peers are likely to turn to negative OPM. With resumption of operations, HMC’s plants utilization posted a MoM recovery (April 45%, May 50%, June 62%). Autos & Auto Parts Sector 21

16 July 2020

(2) Focus on its sequential sales and OP recovery. Despite sluggish 2Q20E earnings are widely expected, we continue to recommend investors to focus on HMC’s sequential MoM sales and QoQ OP recovery. As global auto demand is rebounding post COVID-19 lockdown and HMC increases global plants' productions, we forecast HMC's 3Q20E sales volume at 0.91mn units (up 34% QoQ), and 1.1mn units (up 22% QoQ) in 4Q20E, resulting QoQ OP recovery. (3) Expansion in Genesis brand line-up, the key growth catalyst. By adding two Genesis SUVs — 'GV80' (mid-luxury SUV 1Q20) and 'GV70' (near luxury SUV, 4Q20E) — and launching the next generation 'G80' (mid-luxury sedan 1Q20), we forecast HMC's Genesis sales will reach 122k units (up 58% YoY), accounting for 3.4% (vs 1.7% in 2019) of 2020E global sales volume, accounting for 22% (vs. 5% in 2019) of auto division OP contribution (Premium brand ‘Genesis’ likely to shine). Among the auto parts suppliers, Hyundai Mobis remains our most preferred stock. Mobis' module division has 97% sales correlation with HMG’s production units. Considering HMG’s 2Q20E production volume growth of -39% YoY, due to COVID-19, we forecast its module division OP of –W209bn (turn to loss). Yet, solid after-sales parts (A/S) OP (W340bn) should partially defend overall earnings (W130bn). We recommend investors to focus on Mobis’ sequential sales and OP recovery. As auto demand has been rebounding post COVID-19 lockdowns in key regions, HMG has been increasing its global plants' production; we estimate a QoQ recovery in 2H20E.

Figure 39: HMC: resumption of global plants operation to lead Figure 40: HMC: Genesis sales mix improvement continues… sequential sales and OPM recovery… ('000 units) (%) (%) 1,300 6 20

16 1,100 4 15 GV80 launched in Jan 2020 G80 launched in Feb 2020 900

2 10 700

500 0 5 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 HMC sales volume (LHS) HMC OP margin (RHS) HMC's Genesis domestic sales portion

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse

Autos & Auto Parts Sector 22

16 July 2020

India sector outlook Market overview Where were we in the cycle before COVID-19 hit: Before COVID-19 hit, Indian Passenger Vehicle industry was already in the midst of its longest and steepest downcycle ever, but had started the climb out of the pit. Indian PV sales went into a downcycle with sales declining YoY from 2Q19 onwards. By 4Q20, we had seen seven consecutive quarters of YoY decline in sales, making this the longest downcycle in the last three decades. Not only was this downcycle the longest, it was the steepest too, with PV sales down 18%YoY in FY20, the deepest decline in the lasts three decades and almost two standard deviations below the mean demand growth of 10% seen over this period. The bottom of the cycle had been seen in Aug–Sep 2019, when PV SAAR had touched 2.5mn, a level seen last in 2014 and seen first in 2010. The downcycle had been mirroring a slowdown in economic growth in India and had commenced in 2Q19 triggered by the liquidity crisis facing the NBFC sector, which are key lenders for auto loans. Post 2Q20, SAAR had started recovering from the lows, touching ~3.0mn by Jan–Feb 2020. However, SAAR continued to decline YoY even in 4Q20. Thereafter, with the spread of COVID-19 and the ensuing lockdown, the downcycle has continued into 1Q21.

Figure 41: PV volume growth has strong correlation with Figure 42: SAAR volumes had fallen to 2014 levels in Aug-19; economic growth and has fallen ~2SD below its long term after it hit bottom, volumes have started the climb up mean levels in FY20; steepest decline in the last three decades

Real GDP %YoY PV Volumes %YoY (RHS) Annualized Volumes (Mn) 12% 40% 4.0

30% 9% 3.5 20% Recovered 6% 10% 3.0 to ~3mn SAAR by 0% Feb -20 3% 2.5 -10% Aug-19 SAAR of ~ 2.5mn at 2014 levels

0% -20% 2.0

Oct-10 Oct-12 Oct-14 Oct-16 Oct-18

Feb-10 Jun-11 Feb-12 Jun-13 Jun-15 Feb-16 Jun-17 Feb-18 Jun-19 Feb-20 Feb-14

FY1987

FY1989

FY1991

FY1993

FY1995

FY1997

FY1999

FY2001

FY2003

FY2005

FY2007

FY2009

FY2011

FY2013

FY2015

FY2017 FY2019

FY2021E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse

Where are we in the post pandemic ramp-up: Our channel checks suggest that retail PV sales in June were at ~65% of pre-COVID-19 levels indicating a V-shaped recovery as seen in other economies. Further, Maruti Suzuki online interest levels have normalized to pre-COVID-19 levels, indicating that Maruti retail sales (80% correlation with interest levels) could catch up to outgoing seasonality adjusted monthly sales run rate pre-COVID-19 by Sep 2020, just ahead of the festive season in India.

Autos & Auto Parts Sector 23

16 July 2020

Figure 43: Our channel checks suggest that PV retail sales Figure 44: Maruti website interest levels vs sales volumes – an were at ~65% of pre-COVID-19 levels 80% correlation

Interest Levels Maruti Volumes %YoY (RHS) May-20 Jun-20 50 70% 140% 125% 45 50% 120% 30% 100% 40 100% 10% 85% 35 80% -10% 65% 30 -30% 60% 25 -50% 20 40% -70% 20% 20% 20% 15 -90% 10 -110% 0%

Tractors 2Ws PVs

Jun-16

Mar-17

Jun-17

Mar-18

Jun-18

Mar-19

Jun-19

Mar-20

Jun-20

Sep-16

Dec-16

Sep-17

Dec-17

Sep-18

Dec-18

Sep-19 Dec-19

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

How do we see PV sales growing in the medium-long term in India: We believe that medium-long term drivers for industry growth remain intact and expect the PV industry to grow at a CAGR of 6.2% between FY20–23 driven by the following factors: a) Weak trailing sales: PV volume growth in India has only been a 1.3% CAGR over FY15– 20, thus making this the weakest rolling five year CAGR in the last three decades. In fact the growth in PV sales in India in the last decade has been 3.6% CAGR, lower than that of US (5.1% CAGR) and China (7.6%) despite much lower PV penetration. b) Low car penetration: On PV penetration, at ~30 cars per 1000 pax, the PV penetration in India is materially below the EM average of ~250 cars per 1000 people and is at the same PV penetration at which US was at a century ago. c) China’s car penetration took off at around the same income level we are at now: There is a meaningful correlation of GDP per capita to PV penetration, and when we contrast with the evolution of PV penetration in China, we find that China was at the same GDP per capita level in 2006 as India was in 2019. Interestingly, this is close to the income level by which there was an upward inflection in China’s PV penetration growth trajectory. This makes sense as theoretically, once income levels go beyond a certain threshold, people start spending more on discretionary consumer goods. Hence, a low starting point of PV penetration, weak base of car sales over the last five years and likely gradual uptick in disposable income ahead from the lows of 1Q21, will drive strong volume growth in FY22–23, in our view, and we forecast 6.2% CAGR over FY20–23. Figure 45: India’s PV penetration is low even when adjusted for Figure 46: Car ownership in India is now at levels China was at GDP levels in 2006, a level after which car ownership growth and other discretionary consumption, inflected up

900 China - PV ownership vs GDP per capita 180 800 US 160 700 France 140 600 Germany Japan 120 UK DM Avg: 610 500 100

400 Brazil Russia 80 Mexico India in 300Thailand 60 2019

PVs per 1000 populationper 1000 PVs EM Avg: 256 China 40 200 S.Africa 100 population Number1000 per PVs of 20 China in Egypt 2006 India 0 0 0 10000 20000 30000 40000 50000 60000 70000 0 2,000 4,000 6,000 8,000 10,000 GDP/capita (USD)

GDP Per Capita (USD)

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Autos & Auto Parts Sector 24

16 July 2020

Stock recommendation Maruti – our top pick: Maruti Suzuki is our top pick given positive medium-long term industry demand outlook, strong market share gain opportunities and expectations for margin levels to revert sharply back to the mean. We remain positive on the medium-long term outlook for PV industry given low penetration levels and possible inflection in demand as GDP per capita levels rise. Maruti holds a dominant position amongst first time buyers and in entry level cars and hence is well poised to gain market share from the mix downtrading in FY21. A weakened competition will help, as well. We also expect Maruti’s EBIT margins to revert back to 9–10% levels in FY23 driven by sharp operating leverage, lower royalties, lower discounts and further localization of vendors. We value Maruti at 25x June 2022 earnings, 5% premium to five-year mean P/E, to arrive at our target price of Rs6,900 and rating of Outperform.

Figure 47: Maruti has been gaining market share consistently Figure 48: Maruti has historically gained market share in years since FY2012 with weak industry growth 55% Maruti PV Market Share Maruti Share Gain Maruti Share Loss 51% 52% 50% 100% 50% 14% 20% 47% 47% 80% 45% 45% 60% 42% 60% 39% 40% 38% 40% 86% 80%

35% 20% 40%

30% 0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Low growth years (<5%) Medium growth (5-10%) High growth years (>10%)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 49: Maruti EBIT margins in FY21 will be the lowest in Figure 50: Maruti could see a sharp reversal to ~10% EBIT many years margin levels Maruti EBIT Margins 14% 10% +1SD - 11.8% 2.6% 9.7% 12% 9% Avg. Margin for Global 10% Mass Market OEMs - 9% Suzuki 8% 8% Mean-8.9% Guidance- 7% 7% 6% 0.4% 1.1% -1SD - 6.0% 6% 4% 0.6% 2% 5% 5.0% 0% 4%

FY20 EBIT Royalty Discounts Vendor Operating FY23E EBIT

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18 FY19

FY20 Reduction Localization leverage

FY21E FY22E FY23E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Autos & Auto Parts Sector 25

16 July 2020

Indonesia sector outlook Market overview Indonesia 4W volume as of 5M20 declined by 40% on the retail level and 41% on the wholesale level, primarily due to social distancing measures (PSBB) that were implemented in May and June. In order to reduce the number of COVID-19 infections, some regional governments decided to close non-essential businesses and activities. As such, car dealerships were not allowed to operate in some provinces, which impacted demand and prompted the automakers to stop production. As of June 2020, the government is gradually easing its social distancing measures and many businesses have started to re-open but with reduced capacity (mostly at 50%). Assuming that no additional strict social distancing measures will be taken by the government, we expect May to be the bottom for 4W volume in Indonesia, with June to see MoM recovery. However, we expect the recovery to be gradual partly due to capacity limits on businesses and also reduced income resulting from COVID-19. Overall, we expect 4W volume to decline by 37% this year to 649k units (from 1.03mn in 2019), before recovering by 40% in 2021E to 909k units, still below 2019’s level. We recently hosted a conference call with Indonesia 4W association (Gaikindo), which expect this year’s volume to decline by 42% to 600k units, slightly below our expectation. The association is asking regional governments to lower their auto taxes in order to boost demand, however, it has been difficult as auto tax makes up a significant chunk (30–40%) of regional government revenue. In the next few months, we will likely see new models introduced by automakers. A good venue for model launches is normally the Gaikindo Indonesia International Motorshow (GIIAS), which has been postponed to 22 Oct – 21 Nov (from originally in Aug). For 2021, one factor to keep an eye on is the implementation of the new luxury tax (PPnBM) scheme. Issued back in late 2019, the regulation (to be effective starting Oct 2021) stipulates that the calculation of luxury sales tax will be changed from vehicle body type, engine size and fuel input to the ones based on emissions and fuel consumptions. Stock recommendation Given our expectation on gradual demand recovery, we rate Astra International (ASII IJ) Neutral with our target price of Rp4,200. In addition to the 4W decline, we expect the drop in 2W volume to be steeper (–42%) this year as we think the impact from COVID-19 will affect the lower end of the consumer segment more. On a positive note, Astra’s balance sheet is strong enough to weather this downturn, especially so as the company recently sold its 44.5% stake in Bank Permata (BNLI.JK) for US$1.1bn. Related reports: Astra International: A bumpy road ahead (16 April 2020)

Autos & Auto Parts Sector 26

16 July 2020 16 July 2020

Companies Mentioned (Price as of 15-Jul-2020) Adient PLC (ADNT.N, $18.24) Aisan Industry (7283.T, ¥536) Aisin AW (Unlisted)

Aisin Seiki (7259.T, ¥3,210, OUTPERFORM[V], TP ¥4,250) American Axle & Manufacturing Holdings, Inc. (AXL.N, $7.44) Anhui Jianghuai Automobile Group Co Ltd (600418.SS, Rmb10.19) Aptiv PLC (APTV.N, $81.78, OUTPERFORM, TP $80.0) Ashok Leyland Ltd (ASOK.BO, Rs49.3) Astra International (ASII.JK, Rp5,150, NEUTRAL, TP Rp4,200) Autoliv (ALV.N, $67.73) BAIC Motor Corporation Limited (1958.HK, HK$3.77) BYD Co Ltd (1211.HK, HK$79.0) BYD Co Ltd (002594.SZ, Rmb94.5) Baic Bluepark New Energy Technology Co.,Ltd (600733.SS, Rmb7.45) Bajaj Auto Limited (BAJA.BO, Rs2940.8) Bank Permata (BNLI.JK, Rp1,280) BorgWarner, Inc. (BWA.N, $37.56) Bridgestone (5108.T, ¥3,528) Brilliance China Automotive Holdings Limited (1114.HK, HK$8.1) Chongqing Changan Automobile Company Limited (000625.SZ, Rmb11.87) Contemporary Amperex Technology Co., Limited (300750.SZ, Rmb207.03) DaikyoNishikawa (4246.T, ¥507) Dana, Inc. (DAN.N, $13.06) Delphi Technologies PLC (DLPH.N, $15.39) Denso (6902.T, ¥4,296) Desay SV (002920.SZ, Rmb69.52) Dongfeng Motor Group Company Limited (0489.HK, HK$5.1) Eicher Motors (EICH.BO, Rs18548.55) Escorts Ltd (ESCO.BO, Rs1107.35) Exedy (7278.T, ¥1,553) Fiat Chrysler Automobiles N.V. (FCHA.MI, €9.07) Ford Motor Company (F.N, $6.74) Fuyao Glass Industry Group Co Ltd (3606.HK, HK$21.1) Fuyao Glass Industry Group Co Ltd (600660.SS, Rmb23.47) GS Yuasa Corp (6674.T, ¥1,846) Garrett Motion (GTX.N, $6.46) Geely Automobile Holdings Ltd (0175.HK, HK$17.7, OUTPERFORM[V], TP HK$17.0) General Motors Company (GM.N, $26.88, OUTPERFORM, TP $33.0) Great Wall Motor (2333.HK, HK$6.7) Great Wall Motor (601633.SS, Rmb10.46) Guangzhou Automobile Group (2238.HK, HK$6.27) Guangzhou Automobile Group (601238.SS, Rmb9.59) Guoxuan High-Tech Co Ltd (002074.SZ, Rmb27.74) Hankook Tire & Technology (161390.KS, W24,900) Hanon Systems (018880.KS, W9,510) Hero Motocorp Ltd (HROM.BO, Rs2646.55) Hino Motors (7205.T, ¥753) Honda Motor (7267.T, ¥2,846, OUTPERFORM, TP ¥3,600) Huayu Automotive Systems Co., Ltd (600741.SS, Rmb23.47) Hyundai Mobis (012330.KS, W215,500, OUTPERFORM, TP W250,000) Hyundai Motor Company (005380.KS, W109,000, OUTPERFORM, TP W140,000) Hyundai Wia (011210.KS, W40,900) Ichikoh Industries (7244.T, ¥510) Isuzu Motors (7202.T, ¥994) Jiangling Motors Corp., Ltd. (000550.SZ, Rmb14.65) Johnson Electric Holdings Limited (0179.HK, HK$16.44) Keihin (7251.T, ¥2,541) Kia Motors (000270.KS, W35,200) Koito Manufacturing (7276.T, ¥4,640) Lear Corporation (LEA.N, $113.0, OUTPERFORM[V], TP $127.0) Magna International Inc. (MGA.N, $47.36, OUTPERFORM, TP $54.0) Mahindra & Mahindra (MAHM.BO, Rs549.95) Mando Corp (204320.KS, W24,200) Maruti Suzuki India Ltd (MRTI.BO, Rs5799.35, OUTPERFORM, TP Rs6900.0) Mazda Motor (7261.T, ¥705)

Minth Group Limited (0425.HK, HK$23.45) Mitsubishi Motors (7211.T, ¥283) Musashi Seimitsu Industry (7220.T, ¥897) NGK Insulators (5333.T, ¥1,456) NIU Technologies (NIU.OQ, $19.11) Nexen Tire (002350.KS, W5,340) Nexteer Automotive Group Limited (1316.HK, HK$5.31) Nifco (7988.T, ¥2,359) Ningbo Joyson Electronic Corporation (600699.SS, Rmb24.57) Nio Inc (NIO.N, $13.52) Nissan Motor (7201.T, ¥419) SAIC Motor Corp Ltd (600104.SS, Rmb19.21) Sinotruk (Hong Kong) Limited (3808.HK, HK$22.1) Stanley Electric (6923.T, ¥2,713, OUTPERFORM, TP ¥3,200) Subaru Corporation (7270.T, ¥2,276) Sumitomo Electric Industries (5802.T, ¥1,298) Sumitomo Rubber Industries (5110.T, ¥991) Suzuki Motor (7269.T, ¥3,950) TVS Motors (TVSM.BO, Rs389.4) Tata Motors Ltd. (TAMO.BO, Rs103.2) Tenneco Inc. (TEN.N, $7.66) Tesla Inc (TSLA.OQ, $1546.01) Autos & Auto Parts Sector 27

16 July 2020 16 July 2020

Tokai Rika (6995.T, ¥1,546) Topre (5975.T, ¥1,187) Toyoda Gosei (7282.T, ¥2,207) Toyota Boshoku (3116.T, ¥1,464) Toyota Industries (6201.T, ¥5,920) Toyota Motor (7203.T, ¥6,835) Unipres (5949.T, ¥950) Veoneer, Inc (VNE.N, $11.4) Visteon (VC.N^C09) Weichai Power (2338.HK, HK$17.64) Weichai Power (000338.SZ, Rmb16.23) Weifu High-Technology Group Co., Ltd (000581.SZ, Rmb22.43) Xinyi Glass Holdings Limited (0868.HK, HK$9.78) Yamaha Motor (7272.T, ¥1,737) Zhengzhou Yutong Bus Co., Ltd (600066.SS, Rmb13.65)

Disclosure Appendix Analyst Certification Masahiro Akita, Koji Takahashi, Bin Wang, Dan Levy, Michael Sohn, Robert Pranata and Robert Pranata each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Aisin Seiki (7259.T)

7259.T Closing Price Target Price Date (¥) (¥) Rating 19-Jul-17 6,070 7,300 O 12-Sep-17 5,500 7,100 29-Nov-17 6,060 7,150 10-Apr-18 5,870 7,100 12-Jul-18 4,985 7,200 06-Sep-18 5,010 7,100 06-Dec-18 4,350 5,700 26-Feb-19 4,410 5,250

11-Jun-19 3,765 4,600 OUTPERFORM 03-Sep-19 3,220 3,800 19-Dec-19 4,150 4,950 18-Jun-20 3,290 4,250 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Aptiv PLC (APTV.N)

APTV.N Closing Price Target Price Date (US$) (US$) Rating 26-Jun-19 78.92 90.00 O * 01-Aug-19 83.63 96.00 11-Oct-19 86.26 95.00 27-Jan-20 88.60 98.00 31-Jan-20 84.79 96.00 27-Apr-20 65.51 75.00 06-May-20 65.18 80.00 * Asterisk signifies initiation or assumption of coverage.

Autos & Auto Parts Sector 28

16 July 2020 16 July 2020

3-Year Price and Rating History for Astra International (ASII.JK)

ASII.JK Closing Price Target Price

Date (Rp) (Rp) Rating 19-Mar-18 7,275 9,150 O 24-Apr-18 7,325 9,400 24-Oct-18 7,300 NC 07-Dec-18 8,225 10,800 O * 12-Feb-19 7,650 10,600 19-Feb-19 7,775 8,900 28-Feb-19 7,150 8,800 20-May-19 6,900 8,100

17-Jul-19 7,100 7,200 N OUTPERFORM 31-Jul-19 7,000 6,800 NOT COVERED NEUTRAL 02-Sep-19 6,550 6,500 01-Nov-19 6,800 7,500 28-Feb-20 5,525 6,300 16-Apr-20 3,620 4,200 * * Asterisk signifies initiation or assumption of coverage. Effective July 3, 2016, NC denotes termination of coverage.

3-Year Price and Rating History for Geely Automobile Holdings Ltd (0175.HK)

0175.HK Closing Price Target Price Date (HK$) (HK$) Rating 24-Jul-17 18.62 17.00 N 17-Aug-17 18.98 18.90 28-Nov-17 28.00 28.00 07-May-18 21.80 28.00 O 06-Jun-18 23.25 29.00 07-Jan-19 11.52 11.00 N 17-Jan-19 11.60 14.00 O 22-Mar-19 15.24 16.60

08-Aug-19 11.22 14.00 NEUTRAL 10-Oct-19 13.86 14.00 N OUTPERFORM 06-Jan-20 15.44 15.30 11-Feb-20 14.48 18.00 O 30-Mar-20 11.28 17.00 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for General Motors Company (GM.N)

GM.N Closing Price Target Price

Date (US$) (US$) Rating 26-Jun-19 38.13 48.00 O * 02-Aug-19 39.78 50.00 11-Oct-19 35.57 46.00 30-Oct-19 37.91 47.00 20-Apr-20 22.38 33.00 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

Autos & Auto Parts Sector 29

16 July 2020 16 July 2020

3-Year Price and Rating History for Hankook Tire & Technology (161390.KS)

161390.KS Closing Price Target Price

Date (W) (W) Rating 08-Aug-17 63,000 60,000 N 12-Sep-17 58,500 69,000 O 08-Feb-18 53,500 65,000 30-Apr-18 49,450 62,000 02-Aug-18 43,900 54,000 29-Oct-18 43,850 53,000 10-Jan-19 37,000 45,000 27-Jun-19 35,700 42,000

13-Feb-20 29,100 32,000 N NEUTRAL 20-Apr-20 21,500 24,000 OUTPERFORM 07-May-20 20,700 23,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Hanon Systems (018880.KS)

018880.KS Closing Price Target Price Date (W) (W) Rating 25-Sep-17 12,850 15,000 O 22-Jan-18 12,350 15,500 11-May-18 11,150 14,500 13-Nov-18 10,800 15,000 25-Jun-19 12,250 14,500 06-Nov-19 11,600 14,000 13-May-20 8,980 11,000 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

3-Year Price and Rating History for Honda Motor (7267.T)

7267.T Closing Price Target Price Date (¥) (¥) Rating 01-Aug-17 3,127 3,500 N 24-Nov-17 3,688 3,800 20-Feb-18 3,785 4,800 O 11-Jul-18 3,238 4,200 15-Aug-18 3,286 4,100 20-Nov-18 3,166 4,000 19-Feb-19 3,014 3,900 11-Jun-19 2,788 3,700

21-Aug-19 2,480 3,350 NEUTRAL 10-Dec-19 3,135 3,800 OUTPERFORM 26-Jun-20 2,776 3,600 * Asterisk signifies initiation or assumption of coverage.

Autos & Auto Parts Sector 30

16 July 2020 16 July 2020

3-Year Price and Rating History for Hyundai Mobis (012330.KS)

012330.KS Closing Price Target Price

Date (W) (W) Rating 17-Jul-17 249,500 285,000 O 30-Oct-17 254,000 310,000 26-Jan-18 246,000 220,000 U 21-Feb-18 222,500 220,000 N 29-Mar-18 254,000 340,000 O 27-Apr-18 246,500 320,000 11-Jul-18 202,000 270,000 29-Oct-18 189,000 240,000

26-Jan-19 208,500 270,000 OUTPERFORM 26-Apr-19 226,000 280,000 UNDERPERFORM NEUTRAL 21-Jun-19 226,000 265,000 24-Jul-19 232,500 295,000 23-Mar-20 133,500 190,000 24-Apr-20 169,000 210,000 18-Jun-20 188,000 250,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Hyundai Motor Company (005380.KS)

005380.KS Closing Price Target Price Date (W) (W) Rating 27-Jul-17 146,500 145,000 N 06-Sep-17 136,000 140,000 27-Oct-17 158,500 160,000 04-Jan-18 146,500 150,000 26-Jan-18 152,500 140,000 27-Apr-18 158,000 138,000 04-Jul-18 119,500 129,000 26-Jul-18 130,000 120,000

10-Oct-18 120,000 160,000 O NEUTRAL 26-Oct-18 108,000 150,000 OUTPERFORM 24-Apr-19 138,500 165,000 04-Oct-19 126,500 160,000 14-Oct-19 122,000 145,000 20-Jan-20 118,000 155,000 22-Jan-20 127,000 165,000 12-Mar-20 95,000 125,000 06-Apr-20 88,800 110,000 23-Apr-20 92,400 120,000

10-Jun-20 111,500 140,000

* Asterisk signifies initiation or assumption of coverage.

Autos & Auto Parts Sector 31

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3-Year Price and Rating History for Hyundai Wia (011210.KS)

011210.KS Closing Price Target Price

Date (W) (W) Rating 17-Oct-17 64,200 58,000 N 09-Apr-18 55,000 51,000 27-Aug-18 42,750 40,000 16-Jul-19 49,650 49,000 26-Jul-19 47,950 43,000 25-Oct-19 47,650 51,000 29-Jan-20 48,950 48,000 27-Apr-20 32,000 31,000

* Asterisk signifies initiation or assumption of coverage. NEUTRAL

3-Year Price and Rating History for Kia Motors (000270.KS)

000270.KS Closing Price Target Price Date (W) (W) Rating 27-Jul-17 37,000 35,000 N 31-Aug-17 35,450 33,000 30-Oct-17 34,550 38,000 29-Nov-17 33,350 36,000 26-Jan-18 33,500 35,000 27-Jun-18 31,000 33,000 26-Oct-18 27,850 32,000 16-Jan-19 34,850 36,000

09-Apr-19 38,950 48,000 O NEUTRAL 25-Apr-19 42,450 52,000 OUTPERFORM 10-Sep-19 43,200 53,000 14-Oct-19 40,800 49,000 25-Oct-19 41,650 52,000 13-Dec-19 44,450 57,000 22-Jan-20 42,600 54,000 12-Mar-20 30,500 40,000 06-Apr-20 26,800 33,000 24-Apr-20 27,700 35,000 05-Jun-20 36,550 45,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Lear Corporation (LEA.N)

LEA.N Closing Price Target Price Date (US$) (US$) Rating

26-Jun-19 139.29 155.00 N * 29-Jul-19 129.00 130.00 24-Jan-20 133.75 135.00 29-Jan-20 126.12 130.00 27-Apr-20 94.76 120.00 O 11-May-20 103.80 127.00 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL OUTPERFORM

Autos & Auto Parts Sector 32

16 July 2020 16 July 2020

3-Year Price and Rating History for Magna International Inc. (MGA.N)

MGA.N Closing Price Target Price

Date (US$) (US$) Rating 26-Jun-19 48.97 55.00 N * 27-Jan-20 51.63 56.00 24-Feb-20 49.68 55.00 27-Apr-20 35.97 50.00 O 11-May-20 38.90 54.00 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL OUTPERFORM

3-Year Price and Rating History for Mando Corp (204320.KS)

204320.KS Closing Price Target Price Date (W) (W) Rating 27-Jul-17 50,100 58,000 O 23-Oct-17 62,500 70,000 28-Oct-17 62,200 74,000 08-Jan-18 58,500 72,000 07-Feb-18 46,800 64,000 13-Mar-18 46,000 58,000 27-Apr-18 44,700 53,000 14-Jun-18 37,750 49,000

11-Sep-18 34,700 45,000 OUTPERFORM 29-Oct-18 27,550 39,000 NEUTRAL 21-Jan-19 32,600 41,000 31-Jan-19 33,950 39,000 25-Apr-19 34,650 31,000 N 17-Jun-19 28,950 29,000 25-Jul-19 31,800 39,000 O 19-Sep-19 35,300 43,000 15-Nov-19 37,500 47,000 06-Feb-20 35,500 42,000 01-Apr-20 21,100 26,000 08-May-20 24,700 32,000

* Asterisk signifies initiation or assumption of coverage.

Autos & Auto Parts Sector 33

16 July 2020 16 July 2020

3-Year Price and Rating History for Maruti Suzuki India Ltd (MRTI.BO)

MRTI.BO Closing Price Target Price

Date (Rs) (Rs) Rating 27-Jul-17 7592.30 6800.00 N 27-Oct-17 8114.80 7300.00 23-Jan-18 9397.00 9400.00 25-Jan-18 9277.20 9800.00 26-Jul-18 9396.65 10300.00 25-Oct-18 6724.70 7000.00 28-Jan-19 6508.55 6800.00 21-Mar-19 6680.80 6100.00

25-Apr-19 6902.95 6300.00 NEUTRAL 29-Jul-19 5558.05 5700.00 OUTPERFORM 02-Sep-19 6121.60 5600.00 23-Sep-19 6899.20 6000.00 24-Oct-19 7390.40 6300.00 08-Nov-19 7201.00 * 29-Jan-20 7011.90 6400.00 N 01-Apr-20 4243.60 5200.00 O * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Nexen Tire (002350.KS)

002350.KS Closing Price Target Price Date (W) (W) Rating 25-Jul-17 13,800 15,000 N 24-Jan-18 12,500 12,000 16-Jul-18 10,900 10,000 02-Jul-19 9,590 9,000 09-Dec-19 8,660 9,500 18-May-20 5,750 6,000 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL

3-Year Price and Rating History for Stanley Electric (6923.T)

6923.T Closing Price Target Price Date (¥) (¥) Rating 31-Jul-17 3,650 3,300 N 30-Nov-17 4,485 4,200 23-Jul-18 3,755 4,000

17-Apr-19 3,340 3,700 30-May-19 2,585 3,000 16-Dec-19 3,175 3,650 O 25-Jun-20 2,549 3,200 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL OUTPERFORM

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europea n (excluding Turkey) ratings are

Autos & Auto Parts Sector 34

16 July 2020 16 July 2020 based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the anal yst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average to tal return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analys t’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 49% (32% banking clients) Neutral/Hold* 37% (28% banking clients) Underperform/Sell* 12% (21% banking clients) Restricted 1% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit- suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf . The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

Target Price and Rating Valuation Methodology and Risks: (12 months) for Aisin Seiki (7259.T)

Method: Our ¥4,250 target price for Aisin Seiki is based on FY3/22E BPS of ¥4,883 and a P/B of 0.87x. Our fair P/B of 0.87x is derived from a theoretical P/E of 12.2x and our FY3/22 ROE estimate of 7.1%. Our theoretical P/E of 12.2x is derived from a cost of equity of 7.8% based on beta of 1.08, ERP of 7.23%, RFR of −0.02% and a valuation discount of 5% based on the stock’s TOPIX-relative P/E over the past two years. We expect earnings to expand due to organic growth, particularly in automatic transmissions (AT) and

Autos & Auto Parts Sector 35

16 July 2020 16 July 2020 improved supply-chain efficiency as operations are reorganized. Our Outperform rating is based on a comparison of the company's 12- month-forward estimated total return versus our coverage universe. Risk: Risks to our ¥4,250 target price and Outperform rating for Aisin Seiki include a rise in quality control costs, earnings improvement in North America taking longer than expected, faster-than-expected increase in AT capacity expansion costs, and further yen appreciation. Target Price and Rating Valuation Methodology and Risks: (12 months) for Aptiv PLC (APTV.N) Method: Our OUTPERFORM rating and $80 target price are derived using an 11.5x multiple on $2.06bn of FY'21E EBITDA, driven by key exposure to high-tech industry megatrends (i.e. active safety). We view the multiple expansion as reasonable given APTV’s expected mix shift to high-tech active safety, autonomous mobility, and advanced vehicle architecture revenue streams, which we expect will generate strong long term growth rates.

Risk: Program launch difficulties, tariffs, slow penetration rates in key technologies (i.e. L2+ & L3 autonomous vehicles), prolonged production shutdowns, and a slower than anticipated economic recovery post Covid-19 all pose risks to our $80 price target and OUTPERFORM rating on ATPV. Target Price and Rating Valuation Methodology and Risks: (12 months) for Astra International (ASII.JK) Method: Our NEUTRAL rating and Rp4,200/share target price for Astra International is derived from our sum-of-the-parts (SOTP) valuation method. At our target price, overall implied group P/E (price-to-earnings) is 9.2x 2021E EPS (earnings per share), or at -1SD from its 13-year historical average forward P/E. While the decline in stock price has priced in some 4W/2W volume softness, we rate the company NEUTRAL as we expect weaker 4W/2W volume numbers in the next couple of months. In addition, we also expect a more gradual instead of V-shape recovery for 2H20 and 2021E.

Risk: Potential downside or upside risks to our Rp4,200/share target price and NEUTRAL rating for Astra International risks include: (1) a better- or worse-than-expected COVID-19 impact, (2) weaker- or stronger-than-expected industry auto growth, (3) sharply tightening or loosening auto financing conditions, and (4) a sharp slowdown or acceleration in the economy. Target Price and Rating Valuation Methodology and Risks: (12 months) for Geely Automobile Holdings Ltd (0175.HK) Method: We derive our HK$17 target price for Geely Automobile from a DCF-based methodology, implying 13x 2021E P/E (price-to-earnings). We make the following assumption in arriving at our DCF (discounted cash flow)-based TP: cost of equity 14.2%, risk-free rate 3.5%, beta 1.53, borrowing cost 6%, tax rate 16%, WACC (weighted average cost of capital) 11.7%, revenue growth 10%, terminal growth 1%, and equity to equity-plus-debt ratio 76.7%. We rate the stock OUTPERFORM due to a combination of Geely's promising future of new 'Lynk & Co' high-end brand and cooperation with Volvo car.

Risk: Risks that could impede the achievement of our HK$17 target price for Geely Automobile include the following: weaker-than-expected margin due to sector-wide price competition, and weaker-than-expected auto sector-wide demand due to sever macro-economic situation. Downside risks to our OUTPERFORM rating are the failure of Geely Automobile's 'Lynk & Co' brand due to severe quality issues or product competitiveness, as well as sector-wide notable price competition hurting margin. Target Price and Rating Valuation Methodology and Risks: (12 months) for General Motors Company (GM.N)

Method: Our $33 target price and OUTPERFORM rating are derived using a SOTP EV/EBITDA framework on our FY21 numbers. Within the framework we now apply a 2.3x multiple on $12.1bn FY’21 automotive EBITDA, a 7.5x multiple on $742mn of equity income, and value GMF at 1x book value.

Risk: Risks to our $33 target price and Outperform rating include: production shutdowns extending through June and/or beyond; a second wave of virus infections and resulting shutdowns; supply chain disruptions; a weaker than anticipated recovery in NA consumer spending in ’21. Target Price and Rating Valuation Methodology and Risks: (12 months) for Honda Motor (7267.T)

Method: Our ¥3,600 target price for Honda Motor is based on our FY3/22E BPS forecast of ¥5,005 and a fair P/B of 0.72x. Our fair P/B of 0.72x is derived from a theoretical P/E of 9.7x and our FY3/22 ROE estimate of 7.4%. Our theoretical P/E of 9.7x is derived from a cost of capital of 7.2% based on beta of 1, ERP of 7.23%, RFR of −0.02% and a valuation discount of 30% based on the stock’s TOPIX-relative P/E over the past two years. Although a downturn in global automotive demand is unavoidable, due to slower growth in the two major markets of North America and China, we think that Honda is still in position to realize sustained earnings growth. We look for sustained sales volume and earnings growth from FY3/19 and beyond, thanks to an improved product mix (capacity expansion for light trucks in North America), capacity expansion in China driving sales growth, and efforts aimed at capturing robust motorcycle Autos & Auto Parts Sector 36

16 July 2020 16 July 2020 demand. Our Outperform rating is based on a comparison of the company's 12-month-forward estimated total return versus our coverage universe. Risk: Risks to our ¥3,600 target price and Outperform rating for Honda Motor include a greater-than-expected impact from changes to the automobile production system, prolonged weakness in motorcycle demand in emerging markets, a rise in product quality-related costs, and yen appreciation. Target Price and Rating Valuation Methodology and Risks: (12 months) for Hyundai Mobis (012330.KS) Method: Our W250,000 target price for Hyundai Mobis is based on an SOTP (sum-of-the-parts) methodology, to derive Mobis' re-rating on the undervalued core operating values with the Hyundai Motor group restructuring. Our OUTPERFORM rating is on the back of Mobis (1) expecting cost reduction pressures from OEMs to disappear and (2) expecting Mobis' core operating value to regain its valuation premium over OEMs.

Risk: Risks that could impede the achievement of our target price of W250,000 and our OUTPERFORM rating for Hyundai Mobis include: (1) KRW appreciation, (2) utilisation rate decrease, and (3) losing earnings visibility and stability in its module division. Target Price and Rating Valuation Methodology and Risks: (12 months) for Hyundai Motor Company (005380.KS)

Method: Our W140,000 target price on Hyundai Motor is based on 8.8x to 2021E EPS (earnings per share), based on intrinsic P/B (price-to- book) ratio. We rate the stock OUTPERFORM as we believe: (1) SUV (sports utility vehicle) growth will finally offset falling sedan sales from 2019, (2) export sales growth will lead Korea plants' operating profit turnaround, and (3) earnings contribution from the US will turn positive. Risk: Risks to Hyundai Motor achieving our W140,000 target price and OUTPERFORM rating include the following: (1) KRW appreciation, (2) labour strikes, (3) quality defects, (4) rising market share of imported vehicles, and (5) rising customer incentives. Target Price and Rating Valuation Methodology and Risks: (12 months) for Lear Corporation (LEA.N)

Method: Our $127 target price and Outperform rating for LEA are derived from $1.56bn of FY'21 EBITDA at a 5.3x multiple. We expect this multiple is reasonable given the revenue growth we expect in FY'21 and beyond. Risk: Downside risks to our Outperform rating and $127 target price include: prolonged production shutdowns and a slower than anticipated economic recovery due to Covid-19, margin headwinds amid the push for more tech-driven growth, M&A integration, tariffs, and light vehicle production volatility. Target Price and Rating Valuation Methodology and Risks: (12 months) for Magna International Inc. (MGA.N) Method: Our Outperform rating and $54 target price are derived by applying a 5.5x multiple to our FY'21 EBITDA estimate of $3.26bn. We view the multiple as reasonable given MGA's strong balance sheet and steady FCF generation. Risk: Risks to our Outperform rating and $54 target price include end market pressure, especially in North America, to which MGA is more heavily levered; margin pressure via elevated engineering expense as MGA ramps on new technologies; elevated launch expense; prolonged shutdowns and slower than anticipated economic recovery post Covid-19.

Target Price and Rating

Valuation Methodology and Risks: (12 months) for Maruti Suzuki India Ltd (MRTI.BO)

Method: We value Maruti Suzuki India Ltd at a multiple of 25x our June-22E EPS (earnings per share) forecast, giving us a target price of Rs6900. Our multiple of 25x is marginally higher than its five-year average mutliple. Our OUTPERFORM rating on Maruti reflects its strong franchise but our concerns are on increasing competiitve intensity and negatives from Suzuki's deal with Toyota. Maruti still trades at higher-than-average valuation.

Risk: Downside risks to our Rs6900 target price and OUTPERFORM rating for Maruti Suzuki include: downside risks on INR depreciation vs JPY, discounts staying high and car demand in India being weaker than expected. The upside risk could come from higher margins if demand is very strong and discounts come down sharply. Any positive news from Suzuki's tie-up with Toyota also represents an upside risk. Target Price and Rating Valuation Methodology and Risks: (12 months) for Stanley Electric (6923.T)

Method: Our ¥3,200 target price is based on our FY3/22 BPS estimate of ¥2,441 and a fair P/B of 1.303x . Our fair P/B of 1.303x is derived from a theoretical P/E of 14.5x and our FY3/22 ROE estimate of 9.0%. Our theoretical P/E of 14.5x is derived from a cost of equity Autos & Auto Parts Sector 37

16 July 2020 16 July 2020 of 7.7% based on beta of 1.07, ERP of 7.23%, RFR of −0.02% and a premium of 12% based on the stock’s TOPIX-relative P/E over the past two years. We look for earnings to recover faster than sector peers as the company emerges from a lull in new model benefits, also due to its large sales exposure in China (where demand is recovering ahead of other markets), increasing rationalization

benefits, and dropout of quality-related costs booked in FY3/20. Our Outperform rating is based on a comparison of the company's potential total return versus our coverage universe. Risk: Risks to our ¥3,200 target price and Outperform rating for Stanley Electric include prolonged production troubles and lower unit prices for LED lamps.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): 005380.KS, LEA.N, TSLA.OQ, TAMO.BO, 000270.KS, F.N, DAN.N, 7203.T, 7205.T, NIO.N, FCHA.MI Credit Suisse provided investment banking services to the subject company (005380.KS, LEA.N, TSLA.OQ, TAMO.BO, 000270.KS, F.N, DAN.N, 7203.T, 7205.T, NIO.N, FCHA.MI) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): 005380.KS, GM.N, 7267.T, 002920.SZ, TSLA.OQ, TAMO.BO, 3808.HK, F.N, HROM.BO, DAN.N, NIO.N Credit Suisse has managed or co-managed a public offering of securities for the subject company (005380.KS, TSLA.OQ, 000270.KS, F.N, DAN.N, 7203.T, 7205.T, NIO.N, FCHA.MI) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): 005380.KS, LEA.N, TSLA.OQ, F.N, DAN.N, NIO.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (005380.KS, LEA.N, APTV.N, 7267.T, ASII.JK, 7244.T, ADNT.N, TSLA.OQ, TAMO.BO, DLPH.N, F.N, DAN.N, 7203.T, 7205.T) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, securities-related: 005380.KS, GM.N, 7267.T, TSLA.OQ, TAMO.BO, 3808.HK, F.N, HROM.BO, DAN.N, NIO.N Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, non securities-related: GM.N, 002920.SZ, TSLA.OQ, 3808.HK, F.N, DAN.N Credit Suisse acts as a market maker in the shares, depositary receipts, interests or units issued by, and/or any warrants or options on these shares, depositary receipts, interests or units of the following subject issuer(s): 0175.HK, 1211.HK, 2333.HK, 1958.HK, 0868.HK, 0489.HK, 2238.HK, 1114.HK. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): ADNT.N, 7283.T, 7259.T, AXL.N, 600418.SS, APTV.N, ASOK.BO, ASII.JK, 1958.HK, 1211.HK, 002594.SZ, 600733.SS, BAJA.BO, BWA.N, 5108.T, 1114.HK, 000625.SZ, 300750.SZ, 4246.T, DAN.N, DLPH.N, 6902.T, 002920.SZ, 0489.HK, EICH.BO, ESCO.BO, 7278.T, FCHA.MI, F.N, 3606.HK, 600660.SS, 6674.T, 0175.HK, GM.N, 2333.HK, 601633.SS, 2238.HK, 601238.SS, 002074.SZ, 161390.KS, 018880.KS, HROM.BO, 7205.T, 7267.T, 600741.SS, 012330.KS, 005380.KS, 011210.KS, 7244.T, 7202.T, 000550.SZ, 0179.HK, 7251.T, 000270.KS, 7276.T, LEA.N, MGA.N, MAHM.BO, 204320.KS, MRTI.BO, 7261.T, 0425.HK, 7211.T, 7220.T, 5333.T, NIU.OQ, 002350.KS, 1316.HK, 7988.T, 600699.SS, NIO.N, 7201.T, 600104.SS, 3808.HK, 6923.T, 7270.T, 5802.T, 5110.T, 7269.T, TVSM.BO, TAMO.BO, TSLA.OQ, 6995.T, 5975.T, 7282.T, 3116.T, 6201.T, 7203.T, 5949.T, VNE.N, 2338.HK, 000338.SZ, 000581.SZ, 0868.HK, 7272.T, 600066.SS A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (005380.KS, LEA.N, TSLA.OQ, TAMO.BO, 000270.KS, F.N, DAN.N, 7203.T, 7205.T, NIO.N, FCHA.MI) within the past 12 months. Credit Suisse may have interest in (ASII.JK) As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (5949.T, 7261.T, 0489.HK, 204320.KS, VNE.N, 6674.T, 6995.T, 7278.T, FCHA.MI).

Wolfgang Dehen, a Senior Advisor to CS, is a board member at Bridgestone Deutschland, a subsidiary of Bridgestone (5108.T)

For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=533331&v=- 40dd72r92ka7hqtkeji11nijf . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. Please visit https://www.credit-suisse.com/in/en/legal/research-disclosure.html for additional disclosures required under the Securities And Exchange Board of India (Research Analysts) Regulations, 2014 Autos & Auto Parts Sector 38

16 July 2020 16 July 2020 As at the date of this report, Credit Suisse has financial interests that aggregate to an amount equal to or more than 1% of the market capitalization of (0175.HK, 1211.HK, 2333.HK, 1958.HK, 1316.HK, 0489.HK, 3606.HK, 0425.HK, 2238.HK). This research report is authored by:

Credit Suisse (Hong Kong) Limited ...... Bin Wang Credit Suisse Securities (India) Private Limited ...... Satyam Thakur Credit Suisse Securities (Japan) Limited ...... Masahiro Akita ; Koji Takahashi Credit Suisse Securities (Europe) Limited, Seoul Branch ...... Michael Sohn PT Credit Suisse Sekuritas Indonesia ...... Robert Pranata Credit Suisse Securities (USA) LLC ...... Dan Levy To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited ...... Bin Wang Credit Suisse Securities (India) Private Limited ...... Satyam Thakur Credit Suisse Securities (Japan) Limited ...... Masahiro Akita ; Koji Takahashi Credit Suisse Securities (Europe) Limited, Seoul Branch ...... Michael Sohn PT Credit Suisse Sekuritas Indonesia ...... Robert Pranata Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. The same important disclosures, with the exception of valuation methodology and risk discussions, are also available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures . For valuation methodology and risks associated with any recommendation, price target, or rating referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.

Autos & Auto Parts Sector 39

16 July 2020

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Autos & Auto Parts Sector 40