Regulation and Electrification in Vehicle Sales Forecast Scenarios How Will Forecasts Reflect Disruptive Trends? 28 February 2017 | Tokyo, Japan

AUTOMOTIVE Regulation and Electrification in Vehicle Sales Forecast Scenarios How will forecasts reflect disruptive trends? 28 February 2017 | Tokyo, Japan

Reinhard Schorsch, Director Advisory Services EMEA & APAC, [email protected]

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

Preliminary questions

How are disruptive trends impacting your planning processes?

Which transparency and understanding of forecast/planning backgrounds do you require?

Which ‘what if’ questions do you need to answer?

Do forecast backgrounds and scenarios give answers to these questions?

What are your current and future expectations regarding automotive information, forecasts, or supporting services?

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

Scenario concept

2. Top-down factors

2.1. Market 2.2. Market 2.3. Technology 2.4. Mobility regulation structure and cost and others -Emission - Charging - Battery prices - Total industry compliance infrastructure - Plug-in vehicle volume (TIV) - Taxation, - Regulated (xEV)/internal impact 1. IHS Markit data incentives, state/city specifics combustion engine - Business model 4. Scenario and forecasts restrictions (ICE) development forecast & production cost - Registration and E.g., Vehicle Sales price-volume data by Powertrain Scenario Forecast - Production, Scenario forecast process powertrain, and sales forecasts

3.3. Positioning, 3.1. OEM 3.2. OEM pricing, and total 3.4. Sales strategies offerings cost of ownership potential - Assessment of - Assessment of (TCO) - xEV trend by price- powertrain/ vehicle & -xEVpositioning volume segment electrification powertrain/ 5. Compliance strategies per OEM electrification - Target pricing check portfolio per OEM - TCO analysis per segment

3. Bottom-up factors

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

China—city restrictions are major forecast drivers

Two major types of city restrictions

Top-30 potentially restricted cities • First introduced in Shanghai in 1986 to reduce carbon dioxide (CO ) emissions and traffic in the city center 2 Beijing Shanghai Restricted • Vehicles cannot enter the city center every day and Guangzhou Shenzhen License cities are banned for one day of each week, depending on plate ban Hangzhou Tianjin the number on their license plates Changsha Shenyang • Exception for neighborhood electric vehicles (NEVs) Signs of Chongqing Suzhou with special green license plates city restrictions Nanjing Taiyuan Ningbo Zhengzhou

• First introduced in Beijing in 2008 to reduce private Chengdu Ürümqi vehicle volume and create safer, more livable cities Donguan Wenzhou with lower registration rates Foshan Wuhan • Works like a lottery and includes better chances for Car quota Potential Jiaxing Wuxi NEVs to get a license plate (e.g., gasoline license system restrictions plate in Shanghai costs CNY90,000) Jinan Xi’an Kunming Xiamen • Beijing already set a cap to have not more than 6 million registered vehicles in 2017 and 100,000 Qingdao Zhongshan vehicles a year from 2018–20 Shijiazhuang Zhuhai

China—NEV quotas will affect sales significantly

Beijing vehicle registrations by registration type, 2011–28

600 • Beijing introduced its license plate restriction scheme in 2011. The lottery-based system allowed 240,000 new plates to be issued each 500 year. This limit was reduced to just 150,000 units in the beginning of 2014. IHS Markit assumes that this level will be maintained until 400 the end of 2017 as the regulations have already been put in place.

300 • The main goal of the controls was to limit road congestion while expanding the Beijing metro Thousands system in parallel, increasing its size and 200 coverage by a factor of three or four by 2020.

• In line with new national government guidance 100 (September 2015), NEVs are no longer to be subject to licence plate or circulation restrictions. - • After 2020, NEVs will become common, so that they are assumed to be included in a separate cap (in line with assumptions on other City restriction Replacement Replacement by NEV Yellow car rep NEVs restricted cities at that time).

China—infrastructure will support NEV convenience

Charging infrastructure development in China

• Main focus on East, North, and Regional South China, including megacities focus Beijing, Shanghai, Guangzhou, and Qingdao

• New Chinese charging standard Charging from early 2016 supports both DC standard fast charging and level 2 charging

• About 81,000 public charging Infrastructure stations and more than 50,000 development private charging stations • USD600 million investment in 2016

• Government aims to build 12,000 Ambitious charging stations, 4.8 million target charging points by 2020 • Investment of up to USD19 billion

United States—a market differentiated by two regulations

Section 177 of Clean Air Act allows states to choose from:

California zero-emissions vehicle National regulations or (ZEV) mandate

• California is allowed to set own (stricter) • The US Environmental Protection Agency (EPA) emission standards owing to special provisions in has established national greenhouse gas the Clean Air Act. emission standards. • ZEV mandate forces OEMs to sell increasing percentages of transitional ZEVs, i.e., battery • National Highway Traffic Safety Administration electric vehicles (BEVs), fuel-cell electric vehicles (NHTSA) has established Corporate Average (FCEVs), and plug-in hybrid electric vehicles Fuel Economy standards. (PHEVs) until 2025. • Parallel standards are combined in nationwide • As other states are not allowed to set own standards until 2025, mandatory for all states regulations, nine so-called Section 177 states not using section 177. have chosen to follow the ZEV mandate instead of national regulations.

United States—domestic OEMs are less dependent on ZEV states than European or Asian competitors

Passenger vehicle sales share by OEM and regulation region, 2015

Tesla Motors

BMW

Daimler

Honda

Volkswagen Group

Toyota

Mazda

Renault-Nissan ZEV states

Hyundai

Ford Domestic players are FCA less dependent General Motors on ZEV states

0% 20% 40% 60% 80% 100%

United States—ZEV states drive the powertrain electrification ZEV mandate vehicle classifications and credits Mercedes-Benz example below: 13% actual ZEV, 25% TZEV share enough to reach 20% 22% target in 2025 ZEV 6.0% 5.5% TZEVs, Type 0 15% 5.0% ZEVs, NEVs 4.5% 10% AT PZEVs 4.0% 16.0% 3.5% 14.0% 12.0% 5% 3.0% 10.0% PZEVs 3.0% 3.0% 3.0% 8.0% 2.5% 6.0% 4.0% 3.0% 3.0% 3.0% 2.0% 0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Example: Mercedes-Benz 2018 2019 2020 2021 2022 2023 2024 2025

Credits needed for 100,000 sales 4,500 7,000 9,500 12,000 14,500 17,000 19,500 22,000

Mercedes-Benz GLC Max. units: 4,290 5,000 5,710 6,430 7,140 7,860 8,570 PHEV: 0.7 credits 3,570 (20 miles range assumed) -13% Mercedes-Benz EQ Min. units: 1,110 1,670 2,220 2,780 3,330 3,890 4,440 BEV: 3.6 credits 560 (310 miles range assumed)

ZEV: Zero emission vehicle AT PZEV: Advanced technology partial © 2017 IHS Markit TZEV: Transitional zero emission vehicle zero emission vehicle 12 NEV: Neighborhood electric vehicle PZEV: Partial zero emission vehicle 2017 Spring Automotive Conference | 28 February 2017

Europe—a common emission regulation, but different market frameworks

United Forecast drivers France Spain Italy Germany Kingdom

Incentives

Taxation

Market frameworks City restrictions

Infrastructure

Small segments TCO Larger segments

OEM Industry wide offerings

France—BEVs target limited market volumes owing to high price positioning

France premium, medium, and large SUV sales by price cluster

3000 100%

60% of the market priced 90% below assumed minimum 2500 I-Pace entry price 80%

Future 70% Cummulated sales 2000 Increased malus pushes net prices 60% of ICE vehicles, 1500 50% while decreasing battery costs

Sales units 40% enables lower BEV 1000 positioning 30%

20% 500 10%

0 0% 98 € 96 € 94 € 92 € 90 € 88 € 86 € 84 € 82 € 80 € 78 € 76 € 74 € 72 € 70 € 68 € 66 € 64 € 62 € 60 € 58 € 56 € 54 € 52 € 50 € 48 € 46 € 44 € 42 € 40 € 38 € 36 € 34 € 32 € 107 € 105 € 102 € 100 € 110€+

List price in thousands abs. %

France—the malus system makes BEVs attractive at a high price positioning

Jaguar F-Pace/I-Pace Pricing Scenarios in France

100

Malus on high- 90 emitting vehicles makes BEV price competitive 80 BEV purchase cost to remain higher than ICE vehicles in 70 smaller segments

60 Too low for BEV positioning (no AWD and auto.) 50 Thousands (euro)

30 20d 20d AWD 20d AWD Auto. 30d AWD 35t AWD S AWD

F-Pace F-Pace with malus I-Pace 10% surcharge I-Pace 15% surcharge

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

OEM strategies—OEMs react differently to the challenges of regulation and electrification

Plays in segments with

high CO2 level/impact

– reduction–focused 2 CO

Plays in segments with

low CO2 level/impact Low opportunity costs High opportunity costs

Opportunity cost–driven

OEM strategies—Jaguar Land Rover (JLR) starts a BEV offensive

Current strategic steps Alternative powertrain strategic relevance, 2026*

Mild-hybrid gas 6 • PHEVs mostly use diesel engine. 5 Mild-hybrid FCEV PHEV Land Rover, especially, will not use 4 diesel gasoline engine for its PHEVs. 3 2 1 • Jaguar I-Pace is the first BEV in BEV 0 Full-hybrid gas 2017. Luxury EV (I-Type) – Formula BEV E engagement is to promote BEV. • JLR rumored to open battery plant in cooperation with BMW and Ford PHEV diesel Full-hybrid diesel Mild hybrid • In 2026, MHEVs will dominate the electric market of JLR vehicles and will help PHEV gas vehicle the OEM to reach future compliance (MHEV) targets. Jaguar Land Rover Cate 123456 Ian Callum “I’m clear in my mind that an gory (Head of electric Jaguar would be suitable % of 5– 10– 0– 1– >20 Design, for the brand. You have to move total 0% <10 <20 <1% <5% % Jaguar) with the times.” sales % %

OEM strategies—JLR BEV lineup assumption

Future BEV lineup F E

I- I- Grand Pace Type Evoque D XE

C Discovery Sport Evoque A- CUV B A

currently offered 20172018 2019 2020 2021 2022 2023 2024 2025 2026 2027

OEM strategies—BMW rolls out PHEVs, followed by BEVs, while mild-hybridization almost becomes a standard

Current strategic steps Alternative powertrain strategic relevance, 2026*

• Portfolio expansion of the i brand Mild-hybrid gas focuses on technologies, rather than 6 BMW i on BEVs. 5 Mild-hybrid FCEV • iNEXT is focusing on autonomous 4 diesel driving and connectivity. 3 2 • PHEV rollout across most model 1 ranges, starting from 2 Series to 7 BEV 0 Full-hybrid gas Series, branded as iPerformance. Performance • BMW vehicles to be launched with BEV powertain (MINI, X3, 3 Series).

• Fuel cell research in cooperation PHEV diesel Full-hybrid diesel Fuel cell with Toyota research • Limited production volumes only PHEV gas due to costs and infrastructure hurdles Cate 123456 gory • In 2026, MHEV will dominate the % of 5– 10– MHEV 0– 1– >20 offerings of BMW vehicle. total 0% <10 <20 <1% <5% % sales % %

OEM strategies—BMW BEV lineup assumption

Future BEV lineup F E

5 Series i X5 i

D X3 i 3 Series i

i5 C

i3 X2 i B

MINI E A

currently offered 20172018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

Electrification trends—EU28 emission regulations and OEM offerings lead to BEV & PHEV scenarios with >14% sales share

TIV light vehicle sales by propulsion system design and fuel type, 2016–26*

ICE diesel 14 ICE gas

12 PSD/fuel type 2016 2026 Mild hybrid ICE diesel 53.1% 12.6% diesel ICE gas 43.7% 21.0% Mild hybrid gas 10 Mild hybrid diesel 0% 15.8% Mild hybrid gas 0.1% 32.4% Full hybrid 8 Full hybrid diesel 0.1% 0% diesel Full hybrid gas 1.6% 3.8% Full hybrid gas Plug-in hybrid diesel 0.1% 0.6% 6 Plug-in hybrid gas 0.7% 5.5% Plug-in hybrid Million units BEV electric 0.5% 8.2% diesel FCEV hydrogen 0% 0.1% Plug-in hybrid 4 gas BEV electric 2 FCEV hydrogen

0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Notes: Gas includes gas, natural gas, LPG, and ethanol-petrol, RE included in PHEV, mild hybrid = 48V © 2017 IHS Markit 23 *Passenger cars incl. SUVs and excl. pickups 2017 Spring Automotive Conference | 28 February 2017

Electrification trends—BEV & PHEV scenarios reach >20% sales share in the European premium vehicle market

Premium light vehicle sales by propulsion system design and fuel type, 2016–26*

3.5

ICE diesel 3 ICE gas

Mild hybrid 2.5 PSD/fuel type 2016 2026 diesel ICE diesel 68.8% 7.3% Mild hybrid gas ICE gas 27.3% 7.1% Mild hybrid diesel 0% 23.5% 2 Full hybrid Mild hybrid gas 0% 39.5% diesel Full hybrid diesel 0.2% 0.2% Full hybrid gas 1.5 Full hybrid gas 1.4% 1.3% Plug-in hybrid diesel 0.1% 2.1% Plug-in hybrid Plug-in hybrid gas 1.7% 6.8% diesel

Million units BEV electric 0.5% 12.2% 1 Plug-in hybrid FCEV hydrogen 0% 0.1% gas BEV electric 0.5 FCEV hydrogen

0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Note: Gas includes gas, natural gas, LPG, and ethanol-petrol, RE included in PHEV, mild hybrid = 48V © 2017 IHS Markit 24 *Passenger cars incl. SUVs and excl. pickups 2017 Spring Automotive Conference | 28 February 2017

Electrification trends—market frameworks in United Kingdom and France support growth of PHEV sales

PHEV market share by country, 2014–26

10%

9% Long-term stabilization 8%

5% PHEV

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

France United Kingdom Germany Spain Italy

Note: Gas includes gas, natural gas, LPG, and ethanol-petrol, RE included in PHEV, mild hybrid = 48V © 2017 IHS Markit 25 *Passenger cars incl. SUVs and excl. pickups 2017 Spring Automotive Conference | 28 February 2017

Electrification trends—significant growth of BEV sales is expected after 2019

BEV market share by country, 2014–26

14%

12%

10%

8% BEV

4% Slow growth in midterm 2%

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

France United Kingdom Germany Spain Italy

Note: Gas includes gas, natural gas, LPG, and ethanol-petrol, RE included in PHEV, mild hybrid = 48V © 2017 IHS Markit 26 *Passenger cars incl. SUVs and excl. pickups 2017 Spring Automotive Conference | 28 February 2017

Contents

• Preliminary questions

• Scenario concept

• Scenario examples

‒ Market regulations

‒ OEM strategies

‒ Electrification trends

• Summary

Summary

• Markets require individual forecast approaches including anticipations of future regulations.

• OEM strategies and vehicle portfolios require individual assessments including anticipations of future emission compliance.

• Powertrain electrification is in progress. Customer acceptance and speed of xEV penetration trend depend on the closure of price and convenience gaps.

• Overall, the complexity of the forecast process increases significantly, along with your questions regarding the assumptions and their sensitivity regarding scenarios. We look forward to discuss them with you.

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