Russian automotive market www.pwc.ru/automotive 2018 results and outlook Passenger cars | Light commercial vehicles | Trucks | Buses February 2019 Contents 1 Overview of the Russian passenger car market 3 2 Overview of the Russian commercial vehicle market 11 3 Conclusions 15 4 About PwC 17 PwC 2 1 Overview of the Russian passenger car market PwC 3 Sanctions-related risks materialising in the first half of 2018 triggered year-end declines in several key macroeconomic indicators GDP growth rate and consumer price index (CPI), Average nominal RUB/USD exchange rate, Q1 2016 to Q4 2018 Q1 2016 to Q4 2018 8.4 74.9 7.4 6.8 GDP against similar quarter last year, % 5.8 65.9 CPI against similar quarter last year, % 66.5 4.6 64.6 65.6 4.2 3.9 63.0 3.4 61.9 3.0 57.1 2.5 2.2 2.6 2.2 2.4 2.2 58.6 59.0 58.4 56.8 0.4 0.9 -0.4 -0.2 0.6 1.9 1.5 -0.5 1.3 1Q ’16 2Q ’16 3Q ’16 4Q ’16 1Q ’17 2Q ’17 3Q ’17 4Q ’17 1Q ’18 2Q ’18 3Q ’18 4Q ’18 1Q ’16 2Q ’16 3Q ’16 4Q ’16 1Q ’17 2Q ’17 3Q ’17 4Q ’17 1Q ’18 2Q ’18 3Q ’18 4Q ’18 Sources: Ministry of Economic Development of the Russian Federation, Rosstat. Source: Central Bank of the Russian Federation Consumer confidence index, Q-end Brent oil price behaviour, USD Q1 2016 - Q4 2018 Q1 2016 - Q4 2018 82.7 79.4 70.3 -8.0% -8.0% 66.9 -11.0% -11.0% 56.8 57.5 -15.0% -14.0% -14.0% 52.8 53.8 -18.0% -17.0% -19.0% 49.7 49.1 47.9 39.6 -26.0% -30.0% 1Q ’16 2Q ’16 3Q ’16 4Q ’16 1Q ’17 2Q ’17 3Q ’17 4Q ’17 1Q ’18 2Q ’18 3Q ’18 4Q ’18 1Q ’16 2Q ’16 3Q ’16 4Q ’16 1Q ’17 2Q ’17 3Q ’17 4Q ’17 1Q ’18 2Q ’18 3Q ’18 4Q ’18 Source: Rosstat Source: Bloomberg PwC 4 In 2018, the passenger car market continued to recover, demonstrating 13% growth despite the slowdown in the Russian economy In 2018, sales of new Sales among Russian makers Sales of foreign brands Imports accounted for around passenger cars in Russia increased by 14%, driven by surging assembled in Russia grew by 16% of total sales in 2018. reached 1.669m, around demand for Lada models, including 15%, exceeding the average growth Increased scrappage fees and a 13% higher than for the the Vesta, Largus and Granta. Sales rates in the industry. This segment stronger Russian rouble helped to same period in 2017 of UAZ models shrank 3% compared accounted for over 60% of all new drive higher foreign brand sales in (1.425m cars). with the previous year, while the passenger car sales in 2018. the first quarter of 2018 than in company’s market share fell to 1.2%. the last nine months of 2017. By the end of 2018, the slumping economy and weaker national currency contributed to slowing the growth of foreign brand sales to 6%. +13% Sales,* USD billion In monetary terms, the market Sales,* thousand cars Sales,* RUB billion Passenger car categories grew in both Russian roubles and (exclusive of LCV) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec US dollars. In rouble terms, Change Change Change 2018 г. 2017 г. 2018 г. 2017 г. 2018 г. 2017 г. growth was higher (21% vs 12%), as the rouble was weaker and the Domestic brands 369 323 14% 231 188 22% 3.7 3.2 13% average new car price was higher Foreign car models in 2018 than in the previous year. 1,030 897 15% 1,196 1,018 18% 19.0 17.5 9% assembled in Russia Imported new cars 270 255 6% 948 764 24% 15.1 13.1 15% TOTAL 1,669 1,475 13% 2,375 1,970 21% 37.7 33.8 12% * Passenger car shipments Sources: AEB, Russian Federal Customs Service, Autostat, PwC analysis PwC 5 Car loans continue to play an important role in passenger vehicle sales, including in the used car market • In 2018, used car sales grew 2%, amounting to 5.4m cars. Around Passenger vehicle sales in Russia, 2014-2018, millions 80% of these sales were P2P sales with dealers, which accounted for a growing share of all sales (from 3% in 2013 to 13% in 2018). One factor 6.2 4.9 5.2 5.3 5.4 playing an increasingly important role in the market is the development of car history verification services. 2.3 1.5 1.3 1.5 1.7 • A large number of poor-performing dealers have left the market owing to their failure to service their debts or generate enough sales with unbalanced brand portfolios. 2014 2015 2016 2017 2018 New cars Used cars • More cars are being sold via loan. According to Autostat and the National Bureau of Credit Histories (NBCH), more than 800,000 cars Number of dealer networks, 1 January 2018 - 1 January 2019 were sold in 2018 via loan, around the same number as in 2014. 3,490 3,427 359 296 01.01.2018 Closed New opened 01.01.2019 dealerships dealerships Source: Autostat New loans for cars, 2015-2018, thousands 823 801 724 485 552 2014 2015 2016 2017 2018 Sources: Autostat, the National Bureau of Credit Histories (NBCH) PwC 6 In 2019, the growth of passenger vehicle sales is expected to slow due to declining incomes and currency fluctuations Factors that may put a brake on In 2018-2019, the Industrial Assembly In the optimistic scenario for sales growth in 2019: Agreement for most car manufacturers 2019, sales of new passenger will expire. To maintain the industry’s cars in Russia may grow 0.5% to • Price increases driven by higher VAT investment appeal and avoid freezing 1.68m cars. (from 18% t0 20%); new projects, the Russian Government In the baseline scenario, sales • Uncertain macroeconomic introduced a new investment regime in are expected to drop 2% to environment and increased currency 2016 to provide tax benefits and reduced 1.64m cars. volatility if new sanctions are import duties in exchange for enacted; investments and localisation of The likelihood of either scenario production (special investment will mainly depend on • Increased scrappage fees; contracts). As of February 2019, special macroeconomic conditions. • Reduced government support for the investment contracts have been signed automotive industry. with AVTOVAZ-Renault-Nissan- Mitsubishi, Hyundai, GAZ Group and Daimler under Special Investment Contract 1.0 (SpIC 1.0). The Government Factors that may drive sales is currently discussing amending certain growth in 2019: SpIC provisions for 2019 (SpIC 2.0). • Market transition to natural growth, assuming that there are no external shocks, national currency devaluation or additional sanctions. New car market forecast, thousand units (exclusive of LCV) 2019 2019 2018 Passenger car categories (baseline (optimistic (actual) forecast) forecast) Domestic brands 369 363 371 Foreign car models as assembled in Russia 1,030 1,012 1,035 Imported new cars 270 265 271 TOTAL 1,669 1,639 1,667 Source: PwC analysis PwC 7 Strategies applied by car makers during the transition from the industrial assembly regime to the new investment regime will influence further market developments New passenger car market outlook for Russia, 2019-2023, million cars Forecast period 2.74 2.76 2.61 2.48 CAGR*=7% 2.37 2.34 2.16 -1,8% +0,5% 2.06 1.93 1.78 1.75 1.67 1.64 1.68 1.49 1.47 1.37 1.31 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 optimistic scenario baseline scenario *CAGR: compound annual growth rate Source: PwC analysis PwC 8 Car sharing and mobile maintenance services are gaining traction in Russia Trends in Russian mobile maintenance services Car sharing More economic “mobility” Promotion of healthy lifestyles A growing number of people in urban settings Technology is beginning to transform Bicycle and scooter rental services are also are realising the utility of car sharing services. traditional car services, as a growing number of helping people to save on their transportation In 2018, Moscow had the second highest car maintenance and repair shops are using costs. Renting a car for a short period of time is number of registered car sharing vehicles.* mobile applications to communicate with their cheaper than owning a vehicle, but renting a There is a wide variety of cars on the car customers. bicycle or a scooter is even more economically sharing market, from entry-level to luxury. On feasible over short distances. In addition, mobile car maintenance and repair the whole, car sharing can help car services are springing up in the market (e.g. manufacturers and dealers to raise brand mobile refuelling and car wash services). awareness. Sources: Russian Association for Electronic Communications (RAEC), PwC analysis, public sources PwC 9 2 Overview of the Russian commercial vehicle market PwC 10 Sales growth in the light commercial vehicle segment will depend on the performance of small and medium-sized businesses Forecast for LCV sales, thousand units The light commercial vehicle segment includes vehicles with a gross weight of up to 3.5 tonnes In 2018, the light commercial vehicle market grew 3.4%, with 174 CAGR = 5% 112,000 units sold.