Global Industry Trends & China Market Update

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December 2016 Autofacts Seminar 1 Grow th of a Global Industry Growth of a Global Industry

PwC Autofacts ® 2 1 Grow th of a Global Industry The global automotive industry is a growth industry and China continues to be the most important growth driver

Global Light Vehicle Assembly 2009 vs. 2015 vs. 2022 (millions) CAGR* +23.0m Additional production volume CAGR* 120 09 – 22 15 – 22 8.8 111.2 9.7 +30.3m Additional production volume Total 5.2% 3.4% 4.5 5.0 88.2 12.1 80 13.2 Triad 3.6% 1.4% 57.9

40 China 8.6% 5.1%

Annual growth: 6.2% Annual growth: 3.4% +4.3m per year +3.3m per year ROW 5.0% 5.2% - 2009 Triad China ROW 2015 Triad China ROW 2022F

Source: Autofacts 2016 Q4 Forecast Release Triad = EU, NAFTA, Japan *Compound Annual Growth Rate

PwC Autofacts ® 3 1 Grow th of a Global Industry Growth in global vehicle assembly follows demand, but also leverages location factors and free trade agreements

Global: Light Vehicle Sales vs. Assembly EU + EFTA 2016 – 2022 (millions)

NAFTA China

Japan

RoW 4.7 4.8 8.2 8.2 17 .0 20.1 19.0 20.2 2016 2022 2016 2022 2016 18.3m2022 201615.8m 2022

21.0 21.6 17 .7 19.8 2016 2022 2016 2022 South Korea

24.9 31.8 25.5 33.0 1.6 1.5 4.3 4.1 2016 2022 2016 4.92022m 2016 2022 2016 2022

24.3 32.1 16.723,4 25.5 Sales 2016 2022 2016 2022

Assembly

Source: Autofacts Analysis, Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 4 1 Grow th of a Global Industry Global production capacity is growing almost exclusively in Asia-Pacific

Global Light Vehicle Assembly Capacity European Union Eastern Europe 2016 – 2022 (millions) +6 plants North America +6 plants +301 product launches +7 plants +133 product launches 1.3 +209 product launches 1.1 2.9 2016 2022

2016 2022 19.3 22.5 Asia-Pacific

2016 2022 +14 plants Middle East & Africa +978 product launches 9.0 +5 plants South America +62 product launches +0 plants 3.7 0.7 4.4 +98 product launches 0.6 2016 2022 68.1 77.0 5.8 6.4 2016 2022 2016 2022

Source: Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 5 1 Grow th of a Global Industry Question

“ Who will be the leading global OEM by assembly volume by 2022?

a GM

b VW

c Toyota

PwC Autofacts ® 6 1 Grow th of a Global Industry Top Five OEMS all forecast to capitalise on global demand growth

Top 5 OEMs by Global Assembly Volume CAGR 1990 – 2022F (millions) 1990 – 2022F 14 VW Group 4.2% 12

10 Toyota Group 2.6%

8 GM Group 1.3%

Renault-Nissan 2.0% 4

2 Hyundai Group 7.6%

- 1990 1995 2000 2005 2010 2015 2020

Source: Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 7 1 Grow th of a Global Industry Strict fuel economy limits in all major global markets are expected to drive a significant increase in alternative fuel vehicle production

Alternative Fuel Vehicles Looming emission 2010 – 2022F (millions) standards, particularly 10 10.00% 8.5% in Europe, are expected 8.0% to drive a significant 8 7.2% 8.00% increase in alternative 6.8% 5.8% fuel vehicle production 6 6.00% as manufacturers fight 4.9% 4.1% low oil prices and 3.5% 4 3.2% 4.00% waning consumer 2.6% 2.6% demand for fuel 1.5% 1.6% efficient products. 2 2.00%

0 0.00% 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Hybrid (Mild + Full) Plug-in (PHEV) Pure Electric (PEV) Fuel Cell (FCV) Market Share (R-Axis)

Source: Autofacts 2016 Q4 Forecast Release *Includes mild & full hybrid

PwC Autofacts ® 8 2 China Automotive market 2016 and beyond China Automotive market 2016 and beyond

PwC Autofacts ® 9 2 China Automotive market 2016 and beyond Economy outlook – A slow but sustainable growth will be the trend in the following few years. Challenge will be coexist with opportunities.

Industries Expanding Service Potential Domestic Acceleration in upgrade Industry Consumption Urbanization

Credit and Corporate Excess Housing Bust Lack of Technology Debts capacity Risk Innovation

China: GDP Growth 2006-2021F GDP growth drops below 10% due to the global financial crisis; Consumer sentiment down as While GDP continued to slow in export and fix asset investments 2015, several measures taken by 15% Chinese government launches 40 trillion RMB economic began to slow down and the central government are likely 14% stimulus package consumption slowed to keep growth between 6.0- 13% 6.5% in the near to midterm 12% 11% 10% 9.6% 9% 8% 7.7% 7% 6.9% 6% 5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F

Source: IMF Forecast

PwC Autofacts ® 10 2 China Automotive market 2016 and beyond Driven by SUVs，the YOY sales growth reach 13.3% by September.Passenger car was up 2.8%, SUV increased 45.1%, MPV was up 23.4%, minivan was down 31.5% and LCV almost have no changes in the volume

China: Light Vehicles Sales by Segment China: Sales by Segment 2004 – 2016 (Millions) 2013 – 2016 (% Share) 100% 26 60% 24 55% 90% 22 50% 80% 20

Millions 45% 18 70% 40% 16 35% 60% 14 30% 12 50% 25% 10 40% 20% 8 30% 6 15% 4 10% 20% 2 5% 10% - 0% 2006 2008 2010 2012 2013 2014 2015 2016 0% Q3,YTD 2013 2014 2015 2016 Q3,YTD PC SUV LCV Minivan MPV YOY (R-Axis) PC SUV LCV Minivan MPV Source: CBU

PwC Autofacts ® 11 2 China Automotive market 2016 and beyond Autofacts expects 13.9 % growth in 2016 due to continuous tax stimulus and ~5.1% cagr growth between 2015 and 2022

China : Light Vehicle Assembly . The integration in automobile industry do benefits to 2000 – 2022 (Millions) solve the problems in excess capacity for the domestic 50 90 brands. 45 80 . Tier 2 and Tier 3 cities have unlimited potency to be 40 13 12 70 13 12 developed . Also, the demands for the premium 35 14 14 13 60 vehicles in tier 1 cities is another profitable market. 30 11 50 . NEV is still booming the automotive market with a 25 8 5 40 dramatically growth thanks to a series of favour 20 5 4 Drivers policies. 3 32 32 33 30 15 29 30 3 27 28 Hinders 22 23 . Tax cut for vehicles below 1.6L will be expired by the 10 5 20 20 3 16 16 18 2 end of 2016 taking the knock for overall market. 2 11 10 5 1 2 1 6 7 8 2 2 3 4 4 . OEMs are facing technology difficulties in stricter 0 1 2 2 - emission reduction standard. . Uncertainty in China macro economy influence the Assembly Volume Excess Capacity Utilisation (R-Axis) purchasing power directly Source: AutofactsForecast

PwC Autofacts ® 12 2 China Automotive market 2016 and beyond 2006-2022 Product structure evolvement underlines trends of demographic structure changes and consumption upgrade

China: Assembly by segment 2006-2022F PwC Insights 100%

90% • With the stabilized demands and Product offering, the phenomenal growth of SUV will moderate, but growth 80% rate is still expected to top all segments. 70% • Passenger car will keep the leading positioning in 60% volume. An increasing numbers of variant models will 50% be launched into the market to add its practicability. 40% 41% of the domestic assembled vehicles is expected to 30% be sedan by 2022. 20% • Despte its past growth, OEMs are still lacking 10% confidence in MPV sector 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 • LCV will witness a decrease period since 2016 to 2022 Car SUV MPV Minivan LCV and the CAGR figure is negative (-2.2%). Source: Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 13 2 China Automotive market 2016 and beyond New dynamics to appear when the market turn matured and competition landscape changes

1 . Market will continue the slowdown however some segments will grow higher Growth moderated . Consumption upgrade favored segments: middle sized and large car, SUV, MPV, luxury cars will enjoy higher growth . Government backed NEV sector will continue hyper growth in short term, however, with a clear schedule of exist of policy stimulus, sector growth remains uncertainty

2 Consolidation . At present, this industry suffers from excess capacity, especially in large state-owned enterprises and small and medium- expected sized companies. . Since automobile industry will be integrated, it will be hard to survive for some weak small and medium sized automobile companies. . The efficiency of automobile industry could be raised by eliminating excess capacity and effective integration. 3 Aftermarket to be . The Chinese market begins to reflect some dynamics in matured market: the take off of after-market, opportunities will take off appear in such fields as automobile finance, second-hand car, maintenance, and automobile E-commerce. . Further development of after-market requires a set of optimizing mechanism for the whole industry

4 New Business . Consumers’ shift from car ownership to car utilizing will fundamentally change the industry, breeding a series of new generated business, car sharing, Intelligent drive, and car connection

Source：PwC Analysis PwC Autofacts ® 14 2 China Automotive market 2016 and beyond The Chinese automotive industry is at a major inflection point

China: Industry Dynamics 1996 -2014 ( Thousands ) PwC Insights

OEMs “Chinese manufacturing . Annual sales expected to slow down from 21% presently faces the biggest 20,000 100 crisis in its history” CAGR (2004-2014) to ~6% CAGR in the next – Chairman, Chinese Automotive SOE decade (2015-2025) . The product and industry lifecycles are beginning to decouple, suggesting that an (orderly) shake-out 10,000 50 may be imminent . Competitive dynamics will start to resemble those elsewhere – Emergence of used vehicles and lease/ finance 0 0 – Price and margin pressure 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 – High level of overcapacity Product Lifecycle (Production) Industry Lifecycle (Independent OEMs) Source: Global Insight, Literature Research, PwC Strategy& analysis PwC Autofacts ® 15 2 China Automotive market 2016 and beyond Competition Landscape: Market Share Gained by Chinese OEMs

China : Market share by brand origin 2011-2016Q3 PwC Insights

100% 13.5% 14.0% 14.6% 13.6% 13.0% 12.7% . The diesel emission turmoil cause the loss of the market share of 90% 8.1% 7.5% Germany brands in 2015 .However ,the effect has gradually passed. 80% 10.4% 10.5% 10.4% 9.9% . The development of domestic brands were impressive thanks to the 70% 18.4% 17.8% 18.3% 23.7% 20.8% 20.3% improved manufacturing technology and comprehensive product profile 60% 3.5% 2.7% 3.9% 3.4% 3.5% . The deep anti Japanese sentiment in China continues to negatively 50% 3.4% 20.3% 19.9% 21.8% impacts Japanese vehicles' growth in the Chinese market.. 40% 20.3% 22.3% 22.5% . Korean brands lack premium products which do harm to the brand 30% image. 20% 37.0% 39.0% 28.7% 29.0% 28.7% 32.5% . The market share of U.S brands are stable. Also , U.S automakers are 10% investing more in Turbo charged engine to get rid of impression of large 0% 2011 2012 2013 2014 2015 2016 Q3,YTD displacement and high fuel consumption China German France Japan South Korea U.S.

Source: CBU

PwC Autofacts ® 16 2 China Automotive market 2016 and beyond Competition Landscape: Industry Consolidation Slowed

China : GDP Growth 2006 – 2021 • Due to the shell companies problems, small automakers will be closed or 15% acquired. 14% • The inefficient capacities is required to 13% be eliminated. 12% • As for the tier1 automakers, integration 11% is one of the most efficient method for 10% domestic brands to expand their 9% capacity, product line and company scale 8% Drivers 7% 6% Hinders • The local government is possible to 5% protect the development of local 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F automakers SAIC GAG Chang’an GAG BAIC • The integration of corporate culture is one of the key factor influencing the result of M&A NAC LIEBAO HAFEI CHANGHE GONGW CHANGHE

Source: Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 17 2 China Automotive market 2016 and beyond Competition Landscape: New Entrants to the Market

Traditional Value Chain Player Breakthrough Value Chain Player

Wangxiang & SAIC/BMW LeTV: LeEco & LeSEE  Automotive Parts  Leading Chinese Video website  Battery  LeSEE Plant will be founded in Zhejiang  Wind Power Generation Qingde with 400k capacity  Natural Gas Generation  Cooperating with BAIC and Aston Marin for R&D  Cooperating with SAIC for NEV buses and BMW with Karma PV  LeTV became a shareholder for Yidao for car sharing service Do-Fluoride & HongXing Chehejia  Inorganic Fluoride  Startup founded by automotive experts  Fluorine Electronic Chemicals from internet companies  Lithium Battery  The plants is constructing and the  Nanometallic Materials capacity is expected to be 200,000 units  Acquiring with Hongxing Auto per year by the end of 2017. Also, they will for BEV development built a battery plants

Jiangte Motor & Joylong Auto Tecent & Foxconn & Harmony Auto:  Electric Motor Future Mobility  Lithium Energy Products  Minerals and Highly Processed Products  Leading Chinese hi-tech company  Integrating with different industry  Acquiring Joylong Auto for electric (Internet & manufacturing & Automotive vehicles development Source：PwC Analysis Dealer) PwC Autofacts ® 18 3 Topics:China NEV market Topics: China NEV Market

PwC Autofacts ® 19 3 Topics:China NEV market Assembly forecast - Alternative energy vehicles

Assembly forecast - Alternative energy vehicles 2010 -2022F ( Thousands ) • Chinese government announced that new automakers who is expected to produce fuel consumption vehicles will not

20 5.6% 6.00% allowed to be founded in principle. It is a good news for the 5.1% development of alternative energy vehicles. 18 4.6% 5.00% • Separate NEV license plates are issued to stimulate the NEV 16 4.2% growth, especially in combustion plate restriction cities. 14 3.6% 4.00% • Policy in carbon emission restriction and carbon emission 12 3.1% trading accelerate the process of the transformation for NEVs 10 3.00% 2.3% Drivers 8 2.00% Hinders • A large number of automakers are involved in the new energy 6 1.2% subsidy cheating scandal which will effect the policy of NEV 4 1.00% subsidy. NEV subsidies will gradually phase down by 2021. 0.2% 2 0.1% 0.1% 0.1% 0.1% • Battery technology including battery range, life and charging 0 0.00% period still needs to be improved progressively. 2010 2011 2012 2013 2014 2015 2016F2017F2018F2019F2020F2021F2022F • The establishment of charging station hasn’t been popularized Pure Electric (PEV) Plug in Hybrid (PHEV) Hybrid (Mild + Full) Market Share (R-Axis) yet which will effect customers’ confidence in purchasing NEVs. Source: Autofacts 2016 Q4 Forecast Release

PwC Autofacts ® 20 3 Topics:China NEV market Policy update: National and regional regulations with impact on other key drivers and NEVs sales volumes

“Push” Impact “Pull” Impact

• National: 25 ～ 55k RMB range depending Fleet Subsidy subsidy, expected pay-out until 2020 • Phase III: 6.9l/100km consumption R • Regional: additional benefits on same level like R • Phase IV: 5.0l/100km national programs • Phase V: ~4.0l/100km

• VAT exemption (2014-2017) Tax regimes NEV Demo Cities • 40 Cluster-regions / 88 demo cities • Exemption/ reduction of “Vehicle & Vessel Tax” • NEV target for 2015 in demo cities: • Consumption Tax omitted for BEV R I ~330k vehicles

City • NEV as exception from licensing restrictions (e.g. • Application of national charging restrictions/ Charging Shanghai, Beijing) standards from 2015 on (AC/DC) I Licensing • Planned exemption from toll and parking fees R Standards

Infrastructure • Dedicated NEV parking space in new buildings Mandatory • Mandatory NEV-quota for newly • Subsidy for charging stations I NEV share for purchased vehicles of officials: ≥30% R Officials (2014-2016) Penalties • Penalties phase III: “Name and Shame Energy I • Reduced electricity tariffs for NEV list”, no new projects approved R costs • Mandatory NEV production quota Emission • The policy will be carried out in 2017 (ZEV) currently in discussion quota trade • Selling quota is one of the capital source for NEVs R manufacturers

NEV-target of the Chinese Government: 5 million cars until 2020 R: Regulation I: Infrastructure Source：PwC Analysis PwC Autofacts ® 21 3 Topics:China NEV market

In NEV race: Who’s doing what, and how Illustrative

Breakthrough Innovation Radical Innovation New BMW TESLA VW BYD Wanxiang JAC CAR2GO BAIC Denza SAIC NEXTEV

LeSEE

Technology HARMONY AUTO ChANGJIANG EV HUAWEI Alibaba FOXCONN TELD Uber Chehejia Tencent Star Charge Baidu Didi Taxi EZZY XPENG

Incremental Innovation Breakthrough Innovation Closing to Closing exist Closing to exist Business Model New

Source：PwC Analysis PwC Autofacts ® 22 Thank you for your attention!

Autofacts®

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PwC Autofacts ® 23