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 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