MOSCOW CITY INVESTMENT AGENCY
Automotive market in Russia and Moscow
July 2013 Car sales have grown strongly during past decade
• Over the last three years, the automotive market has been recovering post crisis thanks to government support and strong unfulfilled demand. • Approx. a third of all foreign cars are sold in the Moscow Region +10% Market volume, thousands of units* 3 000 2 780 2 760 2 410 2 500 2 500 2 000 1 800 1 780 1 290 1 400 1 355 1 500 1 088 1 000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Market volume, bn USD 80 +20% 71 62 59 60 47 40 35 28 26 15 18 20 9
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *only new car sales Source: AEB, PwC data
2 MOSCOW CITY INVESTMENT AGENCY / 2013 Light vehicle density
Number of cars per 1000 inhabitants, units
USA 762
Germany 561
Poland 557
Russia 282
Moscow City 380
Brazil 178
China 83
India 22
0 100 200 300 400 500 600 700 800 900
3 MOSCOW CITY INVESTMENT AGENCY / 2013 Sales of new cars in Russia in 2012
• After several years of intense sales volatility at car market the signs of stabilization emerged • At 2012 sales of new cars increase by 10% in unit form and by 21% in USD form compared to previous year. • Russian-made foreign brands were leaders among other types of cars and raise its market share up to 44%.
Sales of new car in 2012, bUSD Sales of new car in 2012, ‘000 units
40 1 600 33,1 31,2 1 215 30 1 200 965
20 800 580
10 6,7 400
0 0 Russian Brands Russian-made Imported Foreign Russian Brands Russian-made Imported Foreign Foreign Brands Brands Foreign Brands Brands
Source: АЕБ, Автостат, АСМ-Холдинг, PwC
4 MOSCOW CITY INVESTMENT AGENCY / 2013 Share of cars sales by price segment
• During 2010-2012 the share of more expensive cars (>$20k) exceeded 50% of the market (increase from 40% to 52% over the period). • The share of SUVs is growing, both in premium segment (all the major premium brands introduced smaller SUVs, e.g. RR Evoque, Audi Q3, BMW X1, etc.) and lower price segment (Renault Duster).
New car sales by class New car sales by price segment 100% 100% 9% 11% 19% < USD 10k C 35% 31% 38%
39% 41% +7% 41% USD 10-20k 26% 31% SUV 24% +12% 23% 22% USD 20-30k 18% B 27% 28% 27% 12% 16% USD 30-40k 12% D 4% 3% 3% 9% 8% E 2% 2% 3% USD 40-70k 5% Other 5% 5% 5% > USD 70k 5% 5% 5% 2010 2011 2012 2010 2011 2012 Source: Autostat
5 MOSCOW CITY INVESTMENT AGENCY / 2013 New Car and LCV sales by brand in Russia in 2012
Breakdown of market share by brand of new car and LCV in 2012, %
40,0%
32,0%
30,0%
20,0% 18,3%
10,0% 7,0% 6,5% 6,4% 5,9% 5,6% 5,2% 5,2% 4,5% 3,4%
0,0% Lada Chevrolet Renault KIA Hyundai VW Nissan Toyota Ford Skoda Other
Source: AEB
6 MOSCOW CITY INVESTMENT AGENCY / 2013 25 top sold models in 1h 2013
100 Sales volume in 1H 2013, thousand units
80 Among the top 10 bestselling models 10 were produced in Russia, 2 of it in Moscow 60
40
20
0
Source: AEB
7 MOSCOW CITY INVESTMENT AGENCY / 2013
New car sales in Russia in 5 months of 2013
• In March 2013 the market declined for the first time in the last three years (-3% y-o-y). In April and May the downward dynamics continued (decline by 8% and 12%, respectively). • In response at the end of June 2013 the Russian government announced the introduction of subsidised loans to support the market (but likely only for cars with the price under 23k US dollars).
Sales of new cars, thousands of units Car category* 5 months 2013 5 months 2012 Change
Domestic brands 202 221 -9%
Locally assembled foreign cars 473 467 +1%
Imported cars 352** 385 -9%
TOTAL 1027* 1073* -4%
*Net of LCV ** PwC estimate
Sources: AEB, Federal Customs Agency, PwC
8 MOSCOW CITY INVESTMENT AGENCY / 2013 Passenger car production in Russia
Passenger car production in Russia, thousands of units 2500
2000 2000
1737
1472 1500 1296 1175 1207 1105 1069 1021 1013 965 982 1000
598
500
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
9 MOSCOW CITY INVESTMENT AGENCY / 2013
More foreign brand cars produced in Russia than imported
• Almost all growth in Russian market during past 10 years has come from foreign brands. • From 2011 internally produced foreign brands outperform imported foreign brands in unit terms. • The share of imported cars in monetary terms is constantly declining. • We do not expect these trends to change in the medium term.
Market share of foreign brands vs. imported, %
100% 100% 88% 80% 82% 81% 84% 81% 80% 44% 80% 74% 50% 45% 64% 68% 72% 72% 59% 60% 75% 73% 73% 54% 51% 60% 49% 40% 46% 40% 41% 26% 50% 55% 56% 20% 20% 19% 36% 32% 20% 27% 18% 28% 19% 16% 28% 25% 12% 27% 0% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Share of Russian-made foreign brands (in units), % Share of imported foreign brands (in units), % Share of Russian-made foreign brands (in monetary terms), % Share of imported foreign brands (in monetary terms), %
Source: PwC data
10 MOSCOW CITY INVESTMENT AGENCY / 2013
Despite short-term fluctuations in the market, there is long-term growth potential
Short-term perspective Long-term perspective
• Factors having a negative impact on the results Car ownership level in different countries of the first 5 months in 2013 tend to be short- 45
term: USA 40 ─ decline in special offers for cars Germany 35 France assembled in 2012 and disappointment of Japan UK customers with prices for new cars 30 Russia (2025) Italy assembled in 2013; 25
─ uncertainty about prospects of economic 20 Russia (2011) Brazil situation in Russia and Europe; Czech Republic 15 China ─ depreciation of the ruble; Slovakia 10 ─ high interest rates on car loans; Russia (2002) Poland
5 Ukraine newvehicle sales per 1000 people ─ reduced number of working days in May. India 0 0 200 400 600 800 1000 vehicles per 1000 people
Source: Autostat, PwC estimates
11 MOSCOW CITY INVESTMENT AGENCY / 2013 Car sales and production forecast
Estimate of total car sales and production in Russia in 2009-2018, ‘000 units
The introduction in 2005 of the industrial assembly regime has been one of the key drivers of localisation +1 066
+1 090 4000
3500
3000
2500
2000
1500
1000
500
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total car sales Total car production
Sources: Autostat, PwC estimates
12 MOSCOW CITY INVESTMENT AGENCY / 2013 Primary market of components for foreign car model assembly
Estimate of production of foreign light vehicle models, millions of units
2,5 2,1 2,2 2,2 Volume estimate of the primary market of auto 2 components for foreign car model assembly, 2 1,8 1.6 USD billion 1,5 1.2 1.6 40,0 1 0.6 33,6 34,0 35,0 31,8 0,5 0.3 30,0 30,0 26,7 23.9 0 25,0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20,0 18.2
Estimate of the production cost of 15,0 13.8 foreign light vehicle models, USD billion 9.1 10,0 50 42,0 42,5 5,0 3,2 39,7 40 37,5 33,4 0,0 29,9 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 30 22,7 20 17,3 11,1 Precondition: auto components represented 80% 10 3,8 of overall cost in 2011-2018. 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: PwC data
13 MOSCOW CITY INVESTMENT AGENCY / 2013
Potential development of a primary market for locally made auto components for foreign car assembly
Development scenarios for a primary market of locally made components for assembling foreign cars in Russia
25
20,4 Localisation by 2018 = 60% 20 18,0
15,0 15 12,2 +16,5
10 9,2 USD billion USD 6,7
5 3,9 2,1 1,3
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Given the achievement of 60% localisation by 2018, the volume of the primary market for locally made auto components for foreign car assembly could increase 10 times versus 2011.
Source: PwC data
14 MOSCOW CITY INVESTMENT AGENCY / 2013 Car fleet forecast
Doubling the number of foreign cars by 2018 versus 2011 and, thus, growth of the secondary auto components market
Estimate of the total number of cars and number of foreign car models in Russia in 1998-2018, millions of units +8 715 45000 • Car fleet of the 40000 Moscow region is
35000 more than 7mln units
30000 • The share of foreign 25000 car models within the
20000 total car fleet could triple over the period 15000 2009-2018, which in 10000 turn would lead to a
5000 corresponding increase in the size of 0 the secondary components market
Total car fleet Foreign car fleet
Sources: Autostat, PwC estimates
15 MOSCOW CITY INVESTMENT AGENCY / 2013 Automotive component market
Russian automotive component market, bUSD
Secondary market Primary market
45 +10,3
+14,1
34 34 33 33 31 32 30 31 30 27 27 25 23 23 21 20 18 17 17 15 14 15 11 11 9
4
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: Autostat, GAZ Group
16 MOSCOW CITY INVESTMENT AGENCY / 2013 OEM clusters
Production in 2012 (‘000 units) Kaliningrad Cluster Avtotor (BMW, GM, Kaliningrad KIA), 250
St-Petersburg
United Cluster of St.Petersburg and Leningrad Region Nizhniy Novgorod Cluster
GM, 85 GAZ-Volkswagen, 111, 6 KIA-Hyundai, 244 Kaluga Ford-Sollers, 108 Moscow Tatarstan Cluster Nissan, 43 Ford-Sollers, 18 Scania Mercedes-Benz- Toyota, 28 Trucks Vostok Nizhny Novgorod Fuso KamAZ, 51 Far East Cluster Kazan Sollers, 33 Toyota, 28 Kaluga Cluster Mazda, 3
Volkswagen, 180 Toliatti Volvo Trucks Mitsubishi-Peugeot- Citroen, 40 Samara Cluster Moscow Cluster AvtoVAZ-Renault-Nissan, 718 Renault GM-AvtoVAZ, 63 (Avtoframos), 167 MosAutoZIL Vladivostok
*The list is not exhaustive Note: major vehicle manufacturers that do not have production facilities in Russia - Honda, Suzuki, Subaru, Lexus, Volvo, Seat
17 MOSCOW CITY INVESTMENT AGENCY / 2013 OES clusters
Overview of automotive component clusters in Russia
United Cluster of Nizhniy Novgorod St.Petersburg and Cluster Leningrad Region St-Petersburg Asahi Glass Company Asahi Glass Company Benteler Doowon Faurecia Faurecia Tyco Electronics Ficosa Gestamp Johnson Controls Hyundai Mobis Knorr-Bremse Johnson Controls Lear Lear Kaluga Magna Magna Moscow Magneti Marelli Nokian Tires Michelin Tatarstan Cluster NVH Korea Stadco Cummins Stadco Valeo Daido Metal Tenneco Automotive Nizhny Novgorod Leoni AG Toyota Boshoku Kaluga Cluster Magna Yura Continental AG Benteler Stadco Bosal Kazan Sigit CIE Automotive Weigl Continental ZF Faurecia Yokohama Fuyao Glass Toliatti Gestamp Lear Samara Cluster Magna Moscow Cluster Delphi Corporation Siemens VDO Asahi Glass Company Eberspacher Sitech BASF Faurecia Visteon Hella Federal Mogul IHI Gestamp Knorr-Bremse Johnson Controls Lear Magna Magneti Marelli Robert Bosch Siemens VDO Michelin Tenneco Automotive Woco
*The list is not exhaustive Note: major vehicle manufacturers that do not have production facilities in Russia - Honda, Suzuki, Subaru, Lexus, Volvo, Seat
18 MOSCOW CITY INVESTMENT AGENCY / 2013 Renault
Largest investor of invested in Moscow automobile Industry $590m Russian automobile Signing general Beginning of agreement with construction of CKD industry Moscow Government Producing 7 models: assembly plant with on capacity extension Logan, Sandero, SKD assembly plant: production of to 160 000 vehicles and Fluence, Duster, Renault Megane and Renault Logan with production of new Latitude, Koleos, Renault 19 $250m of models Megane investments 2013- 1998 1999 2000 2003 2006 2007 2012 2013 2020
Formation of joint Assembly of Clio Renault Logan is top seller Getting 100% Investing $700m in venture of Renault Symbol foreign brand in Russia control under procurement of with Moscow Avtoframos. equipment, production Government Capacity with 60 000 cars extension and 167 406 cars assembling new produced (+19% y- models o-y) Increasing production Achieving the Key figures 2013 at least to capacity with 188 336 000 Personnel 000 vehicles vehicles Total 6 000 Manufacturing 4 600 Localization* Logan & Sandero 74% Duster 70% *stamped details, bumper, dashboard, seats, glasses, exhaust system, accumulator, chassis, window regulator etc
19 MOSCOW CITY INVESTMENT AGENCY / 2013 MosAutoZIL
Conclusion the agreement between Acquisition of Chimex Construction of DKD Sberbank and Moscow Group, the holder of 166 assembling facility with the Government Agreement capacity of 15 000 LCV per year
2012 2013 2014 2015
Submission of business Reaching the agreement with Construction of CKD plan to Sberbank OEM1 on assembling LCV1 assembling facilities with the OEM2 expressed interest in capacity of 50 000 units assembling LCV2 per year Signing MoU with OEM3 on assembling range of CV
Old ZIL medium trucks production volume (units per year) 1992 205 000 2012 2 000
20 MOSCOW CITY INVESTMENT AGENCY / 2013 Federal incentives of OEMs: industrial assembly agreements
Custom duty reduction (3-5%) or exemption on import of automotive component in exchange for investment in construction or modernization of facilities for automotive assembling
Key requirements of 166 Agreement • Expiration of agreement at 2020 • Commitment of minimal volume production of 300 kUnits (for greenfield) and 350 kUnits (for brownfield) per year • Creation or modernization of R&D center • Commitment to produce in Russia not less than 30% of total production of engines/transmissions or not less than 200 000 if production of vehicles exceeds 1 mUnits
• Minimal localization* (greenfield): At 4th year from the date of Agreement inception – 30% At 5th year from the date of Agreement inception – 40% At 6th year from the date of Agreement inception – 60%
• Joint implementation of 166 Agreement by companies of one Group • Submission of statement once a year
31 OEMs signed the 166 agreement** *Localization = incremental value created in Russia ** 11 OEMs have committed to production of not less than 300 kUnits, the rest have 25 kUnits commitment
21 MOSCOW CITY INVESTMENT AGENCY / 2013 Federal incentives of OESs: industrial assembly agreements
Custom duty reduction (3-5%) or exemption on import of automotive component in exchange for localizing production
Key requirements of 566 Agreement
• Localization* rate at 15~45% (depends on the group of component)
• Strict list of technological operations
• Submission of statement once a year
• Commitment to procure of certain components made in Russia
Nearly of 70 OESs signed the 566 agreement
*Localization = incremental value created in Russia
22 MOSCOW CITY INVESTMENT AGENCY / 2013 Ways to earn custom duty exemption or reduction
Passing the Agreement between companies within one Group
Cooperation with OEM, holding active 166 Agreement Industrial cooperation with OES, holding 566 Agreement
Acquisition of company, holding Agreement
Formation on JV with holder of Agreement
*Localization = incremental value created in Russia
23 MOSCOW CITY INVESTMENT AGENCY / 2013 Summary
. Russian market is volatile, but not more than many others. The challenge is to focus on future growth while being ready to respond quickly to short term market downturns.
. Critical mass has been achieved for localization.
. Moscow region offers both a huge market and production opportunities.
. There is supportive attitude to automotive investment in Russia at Federal and Moscow level, as well as interesting potential partners to talk to.
24 MOSCOW CITY INVESTMENT AGENCY / 2013 Thank you!
Leonid Kostroma Moscow City Government Moscow City Investment Agency Strategy Deputy CEO
[email protected] www.mosinvestagency.com