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China Coronavirus

Near Term Impact Assessment for Automotive Industry

4 February 2020

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Agenda

Analysis of impact on light vehicle production in China

Analysis of impact on powertrain production in China

Impact on supply chain in China – focus on Hubei

Scenarios – how could the situation evolve

Question and answers

Light vehicle production disruption widespread – affects 20 provinces, plus some additional OEM voluntary actions • In order to effectively control the nationwide spread of coronavirus at the end of Lunar New Year holidays, the Chinese government issued a new return to work directive delaying the start date to Feb 3rd, a 3 day extension to the Heilongjiang public holiday period.

Jilin • Some local governments are having to mitigate against an elevated risk of epidemic transmission and as such, these Liaoning governments have imposed further postponements to the Inner Mongolia Beijing return to work date. Typically this extends to Feb 10th but Tianjin th Hebei Hubei is expected to delay to Feb 14 at the earliest. Shandong • Some automakers also issued an individual revised start Henan Shaanxi Jiangsu dates; the FAW group (including FAW-VW and FAW- Anhui Toyota), GAC-Toyota and Brilliance-BMW will start Hubei Shanghai Sichuan from10th Feb. Zhejiang Chongqing Jiangxi Hunan • As of February 4th we estimate over 20 provinces and Guizhou Fujian administrative areas are subject to extension – the Yunnan translates to 80% of manufacturing by volume is currently Guangdong off line.

Key provinces account for 80% of annual build and each build more than 1.0 million units per year. • Guangdong: FAW-VW, GAC-Honda, GAC-Toyota, Dongfeng- Nissan, GAMC and BYD

• Hubei: Dongfeng-Honda, Dongfeng-Renault and Dongfeng-Nissan

• Chongqing: Hyundai, Changan, Dongfeng and SAIC-GM-Wuling

Jilin • Jiangsu: SAIC-VW, Hyundai, SAIC Motors

Liaoning • Shanghai: SAIC-GM, SAIC-VW, SAIC Motors Beijing • Beijing: BAIC, Daimler, Hyundai Hebei • Zhejiang: Geely, SAIC-VW

Jiangsu • Liaoning:BMW, SAIC-GM, Renault-Nissan-Mitsubishi Anhui Hubei Shanghai Sichuan • Sichaun: FAW-Toyota, FAW VW Zhejiang Chongqing • Hebei: Great Wall, Hyundai

• Jilin: FAW-Toyota, FAW-VW

Guangdong • Anhui: Changan, Chery, Jianghuai

Volkswagen operations most affected – no direct exposure to Hubei but broad footprint covers other disrupted provinces

Estimated daily production losses by OEM 16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

Hubei delays return to work until 14th February at the earliest; others target Monday 10th

Cumulative daily losses before scheduled return to work 100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

Analysis of impact on powertrain production

China engine production profile – affected areas account for over 93% of engine build for light vehicle applications

0 - 6t LV market_Jan 2020 version • Impacted provinces and municipalities cover the most 4.0 20% important engine production bases in China 2020 China Engine production Market share in 2020 18% 3.5 • Tianjin represents FAW-Toyota Millions 16% • Sichuan represents FAW-VW Chengdu facility. 3.0 14% • Engine production output of this cohort represents 2.5 12% approximately 93% of total China engine production in 2.0 10% 2020.

8% 1.5 • Top 5 (Guangdong, Shanghai, Hubei, Beijing and Jilin) 6% already account for about 50% of total share. 1.0 4% 0.5 2%

0.0 0%

Jilin

Anhui

Hubei Hebei

Fujian

Tianjin Henan Hunan

Others

Beijing

Jiangxi

Jiangsu Yunnan

Sichuan Shaanxi

Guizhou

Liaoning

Zhejiang

Shanghai

Shandong

Chongqing

Guangdong

Heilongjiang Inner Mongolia Inner

Source: IHS Markit

Coronavirus impact on China engine production by province; similar pattern to vehicle losses, Guangdong, Shanghai and Hubei dominate

75 • We expect that the production volume loss of 31st Q1 20 engine production loss by region Jan and 1st Feb can be ignored since OEMs will 0 - 6t LV market adjust the future work shifts.

Thousands • The 10 production days loss for Hubei province and the 5 days loss for the other provinces & 50 municipalities should be considered.

• Based on this, our expectation is a volume loss of approximately 426k units in Q1 2020 from plants with those areas. 25 • This equates to a 8.2% reduction to a total of 5.22 million units of Q1 China engine production.

Source: IHS Markit

Coronavirus impact on China engine production by design parent: VW, GM and Honda joint ventures most disrupted, near 50% of total lost volume

75 Q1 20 engine production loss by design parent

0-3.5PV market • For 0-3.5 PV market, total lost engine production of

approximately 377k units or about 8.6% share of Thousands 50 China Q1 2020 total 0-3.5 PV engine production, is expected.

• Joint ventures of VW, GM and Honda will be heavily impacted by production delays. 25 • Their engine production losses will account for about 42.4% of total loss.

• Domestic brands, Geely, Changan, Chery, GAMC, 0 BYD, SAIC Motors will lose about 63k units or

about 16.7% of total loss.

PSA

Ford

FAW

SAIC BAIC

BMW

Volvo

Geely

Chery

Honda

GAMC Others

Mazda

Toyota

Daimler

Hyundai

Changan

Dongfeng

BYD Auto BYD

Great Wall Great

Volkswagen General Motors General

Source: IHS Markit Renault-Nissan-Mitsubishi

China transmission production profile. Less impacted than vehicle or engine build as imports count for over 20% of installation; exporters beware

0 - 6t LV market_Jan 2020 version 3.5 20% • China transmission manufacturing – for light vehicle 2020 China transmission production Market share in 2020 applications - impacted less in volume terms, than that 18% of engine, given that over 23.2% of transmission 3.0 Millions installed in light vehicles produced in China, are 16% imported in 2020 (vs only 1.7% of engines) 2.5 14% • However those provinces/municipalities (Tianjin 12% 2.0 represents VW, Jilin represent FAW and VW）are 10% important transmission manufacturing hubs and accounted for approximately 90.5% of total 1.5 8% transmission production output in 2020.

1.0 6% 4% 0.5 2%

0.0 0%

Source: IHS Markit

Coronavirus impact on China transmission production – still hits near 309k and 7.5% of planned Q1 production volume

75 Q1 20 transmission production loss by region • We expect the impact on transmission production, whilst less than that of engine production, will still 0 - 6t LV market stand at approximately 309k units of lost output; 7.5% share of total 4.15 million units of China Thousands transmission production in Q1 2020.

50 • Guangdong province, represented by Jatco and Honda, Shandong province represented by Hyundai, Lingong and GM, Jiangsu province represented by Toyota, Punch powertrain and Jatco, Shanghai represented by GM, VW and SAIC Motor are impacted heavier than other provinces. 25

Source: IHS Markit

Coronavirus impact on China transmission production by design parent

• For 0-3.5 PV market, total lost transmission production 50 Q1 20 transmission production loss by design output of approximately 265k units or about 7.8% share of China Q1 2020 0-3.5 PV total transmission parent 0-3.5PV market production, is expected.

Thousands • VW’s Dalian, Shanghai and Tianjin facilities will be heavily impacted by production days’ delay, approximately 49k units loss. GM’s Shanghai, Yantai 25 and Wuhan transmission facilities are also affected a lot with the loss of about 27k.

• Other major losses affect Japanese and Korean transmission suppliers:-

• Jacto from its Guangzhou facility 0 • Honda from its Guangzhou and Wuhan facilities

• Hyundai from its Beijing and Rizhao facilities

PSA

Ford

Aisin SAIC

Jatco • Toyota from its Changshu and Suzhou facilities.

Geely

Chery

Honda

Others

Toyota Getrag

Hyundai

BYD Auto BYD

Tsingshan

Great Wall Great

Volkswagen

General Motors General PunchPowertrain

Source: IHS Markit

Supply chain impact – Hubei focus

Automotive supply chain in Hubei province

• There are about 70 suppliers’ plants in Hubei province according to IHS Markit data, which is still a partial coverage of the total supplier market. Supply to Hubei based OEMs • The major portion of the value generated by the local supply base is associated with interior components, but mostly to serve the just-in- time/just-in-sequence (JIT/JIS) needs of Honda and GM and to a less extent other OEMs. IHS Markit estimates they spend over 1 billion USD respectively per year in interior components in the region.

Hubei-based Tier-1 Non-Hubei • On top of interior components, Wuhan and the Hubei region are Suppliers based OEMs important production hubs for lighting, electrical and braking components, which serve OEMs also outside the province and outside of China. • Dongfeng Motor Automotive Component Group, … supports several OEMs in the region and abroad as well as the Export to Overseas relatively high level of in-house production at Dongfeng Motor with a OEMs diverse portfolio (from camshafts to ECUs). • Given its extensive presence in Hubei and the reliance Honda’s other Hubei-based Tier- Non-Hubei based/overseas 2/3 suppliers Tier-1 Suppliers Chinese plants have on Hubei supplies, Honda appears somewhat Source: IHS Markit more exposed to potential disruption.

Hubei-based suppliers overview

Supplier * Revenue from Hubei Components Xiangyang Wuhan (in million USD)** • Faurecia NHK • ZF Group Yanfeng 738.0 Door trim panel, floor console, • HAPM • Chassis Brake instrument panels International Honda 460.0 Instrument panel, exhaust cold end • Henglong TS Tech 404.0 Door trim panel, seat assembly Shiyan • Federal-Mogul Yanfeng Adient 376.6 Seating • Dongfeng Motor • Dongfeng Visteon • INTEST ZF Group 289.4 Braking, shock absorbers, airbag Component Group module • KOTEI IAC 248.8 Floor console, instrument panel • Yanfeng Tachi-S 245.9 Seat assembly • TS Tech Jingzhou • Lear Lear 212.9 Seating, wiring harness Sumitomo 200.1 Wiring harness • Yanfeng Adient • Henglong Electric • Aptiv • Dongfeng Faurecia Chassis Brake 188.9 Braking • Tachi-S International • IAC Xiaogan Marelli 177.1 Headlamp, tail lamp, cold end • Sumitomo Electric Aptiv 173.8 Wiring harness • Stanley Electric • Marelli Stanley Electric 170.2 Headlamp, tail lamp • Koito • BorgWarner • Dongfeng Getrag *Supplier column lists by supplier Group, e.g. Yutaka Giken belongs to Honda who produce exhaust cold end in Wuhan. **Estimate based on IHSM’s component coverage and as defined in IHSM Source: IHS Markit Component Forecast Analytics.

Other impacted OEMs and regions

OEMs Revenue from non-Hubei OEM plants source • The Hubei supply base serves Guangdong and Chongqing/Sichuan from Hubei (in million USD)* provinces, mainly linked to Honda and Dongfeng’s sourcing. Dongfeng 146.9 Geely 112.7 • ZF Group and Chassis Brakes International have major Honda 98.7 operations in the Hubei province, supplying to several OEMs outside the Renault-Nissan-Mitsubishi 82.7 region (Geely, Jiangling, Honda, SAIC, VW and Daimler) and also PSA 65.3 outside of China. Daimler 61.1 BYD 56.5 • Brake components supply could be impacted given the major SAIC 45.8 investments from international brake suppliers in the region. Overall long Volkswagen 39.6 Great Wall 35.3 supply chains rely on Hubei as a component production hub from GAMC 34.9 Thailand to Brazil, so the impacts could be substantial in the short term. SAIC-General Motors-Wuling 31.9 • IHS Markit believes that the impact of extended shutdowns in the Hubei Changan 31.3 FCA 29.9 region could result in high risk of production disruption due Jiangling 27.3 to the extensive list of OEMs served and portfolio that suppliers in the Hawtai 23.2 Hubei region produce. Jianghuai 21.7 General Motors 17.3 • Should extended shutdowns happen beyond the Hubei province, for Ford 15.5 example in Anhui, Hunan, Chongqing, Guangdong, Chery 13.1 and , the risk that production Hyundai 13.0 Zhejiang, Shanghai Beijing disruption will occur at a more OEM facilities on a global basis would be * Estimate based on IHSM’s component coverage and as defined in IHSM Component significantly heightened. Forecast Analytics; Source: IHS Markit

Scenario planning – how could the situation evolve

Direct Impact Production Scenarios for Q1 2020 – Mainland China

• Dramatic loss of market visibility

• 2003 SARS outbreak likely poor benchmark

• Virus tracking and policy response around prevention and containment

• Update of six possible scenarios

Tracking the spread of the virus should help signpost the most likely scenarios around return to work directives, eventual plant downtime and production fall out

Number of Confirmed Coronavirus Cases in Mainland China and Auto Production Loss Monitor

Epidemiology Models Confirmed cases (red -left hand scale) and estimated Q1 production loss at 20,000 1000000 each date (green -right hand scale) 1) Number of new cases may not nd 18,000 National Return 900000 peak until 2 week of February to Work - Normal 16,000 800000 2) HK university virus diffusion 14,000 700000 model suggests total cases may not peak until late April / May 12,000 600000

10,000 500000

8,000 400000 Vertical axis in grey 6,000 Crisis 300000 box's indicative of delayed Crisis delayed return 4,000 200000 National to work percent of China’s – 20 Province LV production 2,000 return to 100000 shutdown Hubei shuttered work Wuhan City - Province0

Virus Induced Downtime Scenarios and Estimates of Build Volume Losses for Light Vehicles

Prod loss % Feb Scenario # Scenario Outline Feb-20 Mar-20 Q1 Total Loss % Prod Loss Q1 alone

20 province shutdown for first week of February 1 (return to work 10th Feb) -436,000 0 -436,000 -8.2% -25.7%

Scenario 1) plus half major OEMs voluntarily close for 2 first week of Feb (return 10th Feb) -480,000 0 -480,000 -9.0% -28.3%

Scenario 2) plus five of the provinces closing for an 3 additional 2 weeks in Feb (return 24th Feb) -800,000 0 -800,000 -15.0% -47.1% Scenario 3) plus potential China wide supply chain disruption (caused by parts shortages from Hubei 3b component hub) -883,000 -28,000 -910,000 -17.1% -52.0% Scenario 3) plus closure of each immediately adjacent province to Hubei for 3 weeks of Feb (returning on 24th 4 Feb) -951,000 0 -951,000 -17.8% -56.1%

Scenario 4) plus shutdown extended into mid-March based on continued spread of the virus (return 16th 5 March) -1,130,000 -597,000 -1,727,000 -32.4% -66.6%

Notes: The 20 Province shutdown in scenario 1 include: Hubei, Shanghai, Guangdong, Chongqing, Zhejiang ,Beijing, Jiangsu, Anhui, Yunnan, Fujian, Jiangxi ,Shandong, Liaoning, Heilongjiang, Shaanxi, Ningxia, Henan, Guizhou, Hebei Hunan and Inner Mongolia, The five provinces included in the continued shutdown scenario (scenario 3) are Hubei, Shanghai, Guangdong and Chongqing and Zhejiang. The immediately adjacent provinces in scenario 4 are Henan, Anhui, Hunan and Sichuan.

Virus Induced Downtime Scenarios and Estimates of Build Volume Losses for Medium and Heavy Commercial Vehicles

Prod loss % Feb Scenario # Scenario Outline Feb-20 Mar-20 Q1 Total Loss % Prod Loss Q1 alone

20 province shutdown for first week of February 1 (return to work 10th Feb) -19,400 - -19,400 -6% -20%

Scenario 1) plus half major OEMs voluntarily close for 2 first week of Feb (return 10th Feb) -22,000 - -22,000 -7% -22%

Scenario 2) plus five of the provinces closing for an 3 additional 2 weeks in Feb (return 24th Feb) - 31,600 - - 31,600 -11% -32% Scenario 3) plus potential China wide supply chain disruption (caused by parts shortages from Hubei 3b component hub) - 40,200 -4,700 - 44,900 -15% -41% Scenario 3) plus closure of each immediately adjacent province to Hubei for 3 weeks of Feb (returning on 24th 4 Feb) -41,100 - - 41,100 -14% -42%

Scenario 4) plus shutdown extended into mid-March based on continued spread of the virus (return 16th 5 March) -49,800 -15,400 - 65,200 -22% -51%

Question and Answers

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