New Normal for the Automotive Industry Tracking Developments of the Strategic Implications of the Crisis – Oct Update

New Normal for the automotive industry Tracking developments of the strategic implications of the crisis – Oct update

October 21, 2020 Existing industry pressures, shocks from the crisis, and the ensuing changes in policy, society and the economy will drive the New Normal

Status quo COVID-19 crisis New Normal 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Global light vehicle sales [million vehicles] 94.3 92.2 93.7 Significant uncertainty 88.3 89.5 remains over the potential recovery ?

Automotive companies were feeling pressure from The pandemic has Changes in policy, consumer behavior and the economy ongoing structural changes impacted all facets of life will affect the industry long after the crisis > Declining global volumes and margins falling by 1-2% pts on average > Industry shutdown > The pace of economic recovery will drive global volumes > Overcapacities in the market and increasing price pressure > Global recession > Stimulus and incentives will influence the market and the sales mix > Upfront investments for electrification, autonomy and digitalization > Stimulus spending > Trade policy will alter global supply chains and capital investment > Tightening emissions requirements and "Dieselgate" fallout > Political fallout > Political outcomes will steer environmental regulations > Changing customer behavior and expectations > Societal changes > Consumer preferences and social norms will be altered

Source: IHS Markit; Capital IQ; Roland Berger 2 There are two main dimensions of uncertainty: the speed and nature of economic recovery and the general direction of government policy Roland Berger post-COVID-19 scenarios Economic recovery

U-Shape recovery L-Shape recovery Gradual recovery starting in 2020 Profound recession brought on by Government policy with successful containment a prolonged pandemic Progressive > Acceleration of change > Increased regulation > More government spending > Focus on public welfare and environment

> Preservation of status quo > Decreased climate regulation > Less government spending Conservative > Focus on local manufacturing

Source: Roland Berger 3 1 Economic recovery Chinese LV sales have had consistent YoY growth since May, and Europe and the US show signs of recovery – Long term outlooks still uncertain GDP and Light Vehicle sales forecast by region

GDP forecast1) [USD tr] U-Shape Light Vehicle sales forecast2) [Vehicles m] Strong, but not full 24 30 recovery by 2021 22 Definite 25 20 Likely 18 Some indication 16 20 Uncertain 14 Some 15 indication 0 0 2019 2020 2021 2022 2023 2024 2025 Likely 2019 2020 2021 2022 2023 2024 2025 > As of October 2020, Oxford Economics projects all three regions to > Early containment has allowed China to hit its trough in March and follow a similar recovery path through 2025, with China experiencing Definite register positive year on year growth every month since May the quickest short term recovery > The US market has underwent a bumpy recovery since April lows, > In Q2, the US and Eurozone saw GDP fall by 9.1% and 12.1% when L-Shape with monthly sales figures up YoY for the first time in September compared to the same period last year while China grew by 3.2%, Profound, prolonged > Widespread incentives allowed Europe to also show positive YoY and all three regions are expected to have seen positive growth in Q3 recession growth in September, although the resurgence of the virus casts uncertainty over future growth prospects

USA Europe China USA (January forecast) Europe (January forecast) China (January forecast) Certainty of recovery shape 1) From Oxford Economics as of October 2020; Real GDP in 2015 prices; Europe numbers for Eurozone; 2) From IHS Markit as of September 2020; Europe numbers for West and Central Europe Source: Desk research; IHS Markit; Oxford Economics; IMF; Roland Berger 4 1 Economic recovery A significant rebound in COVID-19 cases through the winter months will hurt European LV sales recovery and, to lesser degree, recovery in the US Impact of COVID-19 on year-to-date LV sales by region

United States Europe1) China YoY change in 2.0 20 YTD LV sales [%] 1 5 & monthly COVID 0 1.5 NA2) cases [millions] -7 -7 -10 -12 -16 -13 -20 -21 -19 -20 -20 -23 -24 -22 -22 -26 -26 1.0 -32 -34 -40 -39 -39 -34 -43 -43 -44 -60 0.5 -80

0.0 -100 Jan Feb Mar Apr May Jun Jul Aug Sep Jan Feb Mar Apr May Jun Jul Aug Sep Jan Feb Mar Apr May Jun Jul Aug Sep Resurgence risk Considerations > LV sales hold a weaker correlation to COVID in > Europe was most impacted by the pandemic due > China has remained on a steady recovery path the US due to weakly enforced lockdowns to strictly enforced lockdowns after an initial COVID surge in Q1 > A Democrat victory in the November general > A quickly accelerating second wave casts > A proven disease management track record elections may reverse this trend uncertainty over an LV sales recovery suggests that China is at low-risk for a COVID resurgence

Year-on-year change in year-to-date LV sales New monthly COVID cases 1) Europe figures for 26 countries with available data in West and Central Europe; 2) Country level September LV sales not yet available for all European countries, but positive monthly growth is expected Source: Desk research; Marklines; Our World In Data; Roland Berger 5 1 Economic recovery Furthermore, the latest IHME forecasts indicate significant tail risk for Europe and the US if social distancing mandates are left unchecked Worst and best case forecasts of COVID-19 infections by region1) [millions]

United States Europe2) China

60 55 50 45 40 35 Accelerating cases will likely lead to strict -54 The outcome of the elections will 30 lockdowns in Europe through the Winter determine the degree of social distancing 25 mandates employed by the United States 20 China may see a resurgence in late winter if pandemic controls relax 15 -17 significantly, but the risk is minimal 10 5 -1 0 Oct Nov Dec Jan Oct Nov Dec Jan Oct Nov Dec Jan Worst case forecast Best case forecast xx Difference in January case numbers 1) Worst case forecast assumes continued easing of mandates; best case assumes universal mask adoption and re-imposing of mandates as necessary; 2) Europe figures for 26 countries with available data in West and Central Europe Source: IHME; Roland Berger 6 2 Government policy Political developments are highlighted by a universal shift towards protectionism as well as progressive emission policies in Europe and China Policy developments by region Strong Strong progressive conservative Progressive indications No net shift indications Conservative > Candidate Biden announces a $2 tr climate plan to reduce emissions > Targeting Huawei, Dept. of Comm. announces chip export bans > Court of appeals overturns Trump's rollback of fuel efficiency penalties > US restricts work visas, including H-1B, and green card issuance > California passes mandate requiring all new trucks to be zero emissions Emission regulation > Trump targets ByteDance and Chinese internet companies in EO vehicles by 2045 and approves $437 m EV charging program > Trump threatens tariffs on companies that leave the United States to Fiscal policy > California signs order to ban sale of new gasoline vehicles by 2035 create jobs overseas > US agrees to tariff deal with EU, reducing tariffs on an average trade Trade policy > Candidate Biden expresses hardline stance on China trade policy, and value of $160 m a year is expected to keep America on path of protectionism if elected > France expands $8.8 bn in aid for auto industry, including consumer > Economy Minister of Italy says FCA has to avoid delocalizing plants incentives for electric and hybrid vehicles as 200,00 vehicles have outside of Italy to apply for a state backed loan already been taken by the allocation by the end of July Emission regulation > UK MPs create plans to restrict foreign investment, targeting China > 20 members out of the 27 EU members (and the UK) introduced > Tensions rise between the EU and China, as Chinese Foreign Minister purchase incentives for EVs; 21 countries with tax benefits Fiscal policy threatens Czech Senate President for visiting Taiwan, and Germany > The EU lifts tariff on US lobsters as part of broader tariff agreement and France voice criticism over the threats > ECB President Lagarde indicates potential for follow-on stimulus as Trade policy > The UK is unable to reach Brexit deal with the EU before self-imposed coronavirus cases resurge in Europe October 15 deadline > Revised NEV OEM industry access regulation by MIIT to set lower > Shortly after US chip export controls are announced, China invests entry barriers for new entrants $2.7 bn in SMIC via its state investors, with hopes to establish self- > NEV subsidies and tax exemption extended by 2 years to 2022 Emission regulation sufficiency in chip manufacturing > ¥ 10 bn injection into battery charging infrastructure > The Chinese government sends messages to state-owned firms to halt > Gasoline-electric hybrids reclassified to ease restrictions on OEMs Fiscal policy purchase of US soybeans, though actual purchase has not totally suspended > China pledges to achieve net zero emissions by 2060 and criticizes the Trade policy US's climate policy efforts Apparent policy indications Source: Desk research; Roland Berger 7 3 Industry developments The key implications of COVID-19 have developed according to the range of long-term expectations based on scenarios from the New Normal study

Significant Pre-crisis Significant Latest Industry topics Key implications Decrease expectations Increase trend Global OEM footprint Market Market & product mix Vehicle selling price & margin dynamics 1 New health & safety technology Consolidation 2 Competitive landscape Partnerships Use of shared mobility Disruptive Mobility technologies 3 Last mile delivery Autonomous driving Public interest 4 Ability of auto companies to invest Importance of software Digitalization 5 Potential for connected services EV penetration Electrification 6 EV platform consolidation Dealer revenue & margin Value chain Sales & distribution 7 o2o sales and service models Globalization Supply chain 8 Production capacity

Indication of developments to-date Range of long-term expectations across scenarios Trend since previous update Source: Roland Berger 8 3 Industry developments Developments within the industry demonstrate evidence of key implications (1/3)

Global OEM footprint Ford CEO says cars will eventually be made of anti-viral Osram and Conti to stop joint venture on automotive Renault leaves China market to close several plants in materials lighting due to cost-cutting France under $2.2 bn cost-cutting plan SoftBank and Toyota JV, Monet, announce vans with BMW and Alibaba to create innovation base in Shanghai Nissan drops Datsun and hands over presence in enhanced airflow to reduce COVID-19 transmission Audi and FAW to establish a new JV to produce Audi emerging markets to Mitsubishi Geely announces to invest ¥ 370 mn for R&D on all- EVs in China based on the premium PPE platform around healthy vehicle with virus protection function Nissan to take the lead in China, USA and Japan and Use of shared mobility scale back in Europe under new RNM strategy BAIC launches intelligent healthy cabin, Hi-me, with 98.5% droplet filtration efficiency UK Transport secretary says Britain's transport network Several OEMs and suppliers announce job cuts and will be reduced by 90% restructuring efforts after a difficult Q2 Several OEMs, including WM and Jetour, introduce new models with smart air purification at Beijing Auto Show UK announces £2 bn package to invest in cycling and Volkswagen reportedly making plans to spin off and Consolidation walking infrastructure potentially list Lamborghini June IBM survey finds one in four respondents will Vehicle selling price & margin Continental to sell parts of Vitesco and Contitech in exclusively use personal vehicles for transportation restructuring effort Nissan to shift Infiniti brand from luxury to "Nissan-plus" European cities, including Milan, Berlin and Brussels, ZF buys Veoneer's U.S. brake business for $1 RNM to use four commonized platforms across the three plan to implement car-free and traffic-calmed zones companies and commonize upper bodies Tesla to acquire ATW Automation, a German battery First time car buyers make up 60% of VW's China sales modules and pack assembler Daimler will stop making manual transmission vehicles in April and substantially reduce the number of total platforms VW's truck unit, Traton, offers to purchase the rest of In June, Apple map driving requests in the US return to Navistar's shares for $3.7 bn Renault drops minivans in cost cutting effort pre-crisis levels Partnerships Didi announced ride volume has returned to 100% of Fiat Chrysler's small cars to adopt PSA architecture Volkswagen and Ford partner on technology investments pre-crisis levels in early June Dodge to end production of its Journey crossover and GM and Honda create alliance in North America for new Uber leads USD 170 m investment in Lime Caravan minivan to focus on performance vehicles product development Intel buys Israeli mobility-as-a-service provider Moovit DF Yueda Kia releases new ten-year strategy under Ford's Lincoln cancels vehicle development plans with Uber considers purchasing Free Now, BMW & which will it no longer launch vehicles under ¥ 100 th New health & safety technology Rivian, but an alternative Ford-Rivian EV is in the works Daimler's ride-hailing venture Ford tests heating software that can kill SARS-CoV-2 FAW, DFM and Changan set up joint venture to deepen GM indicates an interest to enter air mobility market using existing hardware in police vehicles cooperation in NEV manufacturing and sales Uber and GE partner on aerial ride-sharing program New addition Source: Desk research; Roland Berger 9 3 Industry developments Developments within the industry demonstrate evidence of key implications (2/3)

Hyundai accelerates air mobility test flights, partnering Amazon agrees to buy Zoox for $1.2 bn BMW and Mercedes suspend AV collaboration, and with Incheon Airport, Hyundai Construction and KT Aurora announces plans to go to market with Mercedes announces partnership with Nvidia Didi and BYD to launch co-developed electric vehicle autonomous semitrailer trucks before passenger vehicles Waymo to be Volvo's exclusive partner in developing for ride hailing Waymo to expand testing for autonomous trucks under electric robo-taxis Hertz files for bankruptcy Waymo Via, its self-driving delivery division BAIC signs strategic cooperation with DiDi on L4/L5 autonomous driving and intelligent mobility GM shuts down Maven, its car sharing service TuSimple announces autonomous freight network in partnership with UPS, U.S. Xpress, Penske and McLane Bosch and Pony.ai partner to develop maintenance and Daimler sells mobility platform Moovel repair system for AV fleets Lidar supplier Luminar to go public via SPAC at $3.4 CEO of Ridecell says all car sharing customers are billion valuation Veoneer partners with Qualcomm to develop driver seeing higher usage than pre-COVID assistance software Zoox becomes the fourth company to receive a Dida Chuxing to be listed in Hong Kong IPO and raise up driverless testing permit from state of California Intel's Mobileye and Geely Automobile jointly launch to $500 m scalable ADAS system for Lynk & Co EV Last mile delivery Softbank leads $500m investment in DiDi to support self- Importance of software driving technology Lyft partners with Grubhub to offer free food delivery for Volkswagen plans to use an open-source approach in DiDi announces plans for 1 million robo-taxis by 2030 Lyft Pink members developing its car operating system Uber to buy Postmates for $2.65 bn and begins testing in Shanghai Yandex and Uber to spin off joint self-driving unit Bosch creates combined software and electronics Just Eat Takeaway buys GrubHub for $7.3 bn business unit Uber launches Uber Connect, a package delivery Baidu rolls out Apollo Go robotaxi service for free in Toyota launches a software company, focusing on service, in several cities around the world Beijing autonomous driving and onboard software Caocao launches on-demand logistics services in 40 Ability of auto companies to invest in AV German supplier Hella creates in-house software unit cities in China, building partnership with 20k+ businesses Continental delays AV investment after poor earnings Daimler and Swiss Re launch Movinx, a provider of fully Shouqi starts cross-industry cooperation with Meituan ZF partners with Aeva to produce FMCW lidars digital automotive and mobility insurance products and Freshhema to develop joint-delivery services Ford postpones autonomous vehicle service until 2022 FAW and Neusoft Group establish vehicle software Public interest in autonomous driving cooperation and joint innovation center GM's Cruise acquires German hi-res radar maker, Astyx Waymo offers robo-taxi service to public in Phoenix Potential for connected services Navistar partners with TuSimple to create autonomous Cruise receives permit to test driverless AVs in SF BMW and Tencent launch digital cooperation on smart trucks by 2024 cockpit ecosystem New addition Source: Desk research; Roland Berger 10 3 Industry developments Developments within the industry demonstrate evidence of key implications (3/3)

Human Horizons and Microsoft reaches a strategic VW and China partners including FAW, SAIC and JAC to o2o sales and service models cooperation on smart cockpit HMI invest $17B in electrified vehicles Toyota NA sees dramatic increase in demand from National Supervision Platform for intelligent connected Waymo offers robo-taxi service to public in Phoenix dealers for SmartPath, its o2o software platform vehicles established in China EV platform consolidation Geely launches direct vehicle sales via Souche, an FAW-VW and Alibaba backed startup Banma enter Merger of FCA and PSA, under the name Stellantis, will automotive ecommerce platform in China strategic cooperation for OS and connected solutions rely on three platforms across its EV programs China Spring Online Car Exhibition opens in April with EV penetration VW invests $2.3 bn across two Chinese companies – 20 million visitors and 600 million deals VW to make entire portfolio electric or hybrid by 2025 JAC Motors and Guoxuan High-Tech – in EV play Several OEMs, including Volvo, Audi, BMW and NIO, EV truck supplier Hyliion to go public via SPAC EV makers AYRO and Karma team up to manufacture have started live online car sales in China NIO and Chinese retailing giant Suning cross-border Chinese EV startups Li Auto and XPeng file for US IPOs delivery vehicles in California GM and Honda to jointly develop two next-gen EVs cooperates to deepen new retail model Lyft and Uber promise switch to 100% electric vehicles by Online used-vehicle seller Shift goes public via SPAC 2030 and 2040 respectively GM's deal to acquire 11% of Nikola potentially under question as the EV startup faces controversy Geely to launch car-sharing subscription service in EV startups Fisker, Lordstown, Canoo and Nikola go Europe starting at €500 a month public via special purpose acquisition companies Geely reveals Sustainable Experience Architecture Globalization Rivian raises another $2.5 bn in funding platform that it will open-source for other OEMs GM announces Ultium EV drive system family to be used GM China says all major components for EVs will be Baidu-backed EV startup WM Motor raises $1.5 bn across new EV programs made locally, while working closely with CATL Tesla becomes the most valuable automotive company Magna to build Fisker's EV SUV and take up to a 6% California import startup, HAAH Automotive Holdings, cancels plans to import Zotye vehicles from China GM considers a pure play EV spinoff stake in the company Foxconn announces MIH open platform, a modular Changan has reduced or suspended its business in Toyota to develop fuel-cell electric commercial truck with many overseas markets subsidiary Hino for North America hardware and software EV platform Dealership revenue & margin BMW and Brilliance Auto to build parts industry cluster in Battery suppliers QuantumScape and Romeo Systems to Liaoning as part of BMW Brilliance strategic agreement go public via SPAC Asbury Automotive Group reported a 52% decline in revenue in Q1 2020 from the previous year Production capacity Charging network ChargePoint to go public at $2.4 bn 88% of dealerships took PPP loans, totaling >$7.8 bn Several OEMs and suppliers announce cost cutting Swedish battery company Northvolt raises $600 m Average light-vehicle inventories in China dealerships efforts, including plant closures and layoffs increase in June for the first time since February New addition Source: Desk research; Roland Berger 11 Our commitment

At Roland Berger, we have made the conscious decision to continue focusing on what we do best, because recovery relies on resilient and capable contributors keeping the ship afloat, then carrying that determination and focus into the New Normal. We empathically recognize that leaders have been in crisis management mode and are doing their best. Making sure your best is enough is where we hope to be of counsel.

As the crisis has unfolded, we have tracked its developments at a pace that matches its dynamicity. This agile yet careful approach has informed our most up to date view of what the New Normal will look like, and channeling Roland Berger's expertise from supporting past transformations around the world allows us anticipate and respond to novel situations. We are not offering a universal panacea to make all your worries disappear, but instead offer institutional knowledge and proven tools to address strategic, corporate, and operational challenges.

We have shown repeatedly that we have the discipline, dependability, and dedication to help our clients through their biggest challenges with a tailored course of action. Whether you need additional troops, structure, analytical firepower or simply a "does my thinking make sense?" discussion, we are happy to help you put things into perspective and act as your sounding board or sparring partner. We are one call or email away, so please do get in touch.

12 Authors & contributors Regional contacts

Marcus Berret Marc Winterhoff Stephan Keese Norbert Dressler Ron Zheng Partner Partner Partner Partner Partner Germany USA USA Germany China [email protected] [email protected] [email protected] [email protected] [email protected]

Wolfgang Bernhart Konstantin Shirokinskiy Rahul Gangal Eric Kirstetter Satoshi Nagashima Partner Partner Partner Partner Partner Germany USA Canada France Japan [email protected] [email protected] [email protected] [email protected] [email protected]

Brandon Boyle Isaac Chan Marcus Ayres Andrea Marinoni Soosung Lee Partner Principal Partner Partner Partner USA USA Brazil Italy South Korea [email protected] [email protected] [email protected] [email protected] [email protected]

Jan-Philipp Hasenberg Neil Wu Philip Dunne Cristobal Colon Imran Haque Partner Principal Partner Partner Partner Germany China United Kingdom Spain India [email protected] [email protected] [email protected] [email protected] [email protected]

Felix Mogge Tim Hotz Benny Guttman Casper Veenman Martin Tonko Partner Senior Consultant Partner Partner Partner Germany Germany Sweden Netherlands Southeast Asia [email protected] [email protected] [email protected] [email protected] [email protected]

Daanish Khazi François Castelein Santiago Castillo Junior Consultant Partner Partner USA Belgium Middle East [email protected] [email protected] [email protected]