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Automotive Industry Update

pwc.com/auto pwc.com/mobility. Automotive Industry Update. Draft. Total global vehicle production. With more than 17.4 million units of growth, emerging markets are expected to contribute 86% of global growth until 2024, as mature markets lose momentum. + 17.4m. EMERGING MARKETS.

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Automotive Industry Update

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  1. pwc.com/auto pwc.com/mobility Automotive Industry Update Draft

  2. Total global vehicle production • With more than 17.4 million units of growth, emerging markets are expected to contribute 86% of global growth until 2024, as mature markets lose momentum. +17.4m EMERGING MARKETS CONTRIBUTION TO GROWTH (percentage share) VOLUME CHANGE (units) +2.8m MATURE MARKETS Source: Autofacts 2018 Q3 Forecast Release 2

  3. Light vehicle assembly by region • The lion’s share of the new volume is expected to come from developing Asia-Pacific. Automakers are increasingly following a local-for-local strategy, aligning regional demand with regional assembly. Global: Regional Contribution to Global Light Vehicle Assembly Growth 2017 – 2024F (percentage share) Americas Europe, Middle East & Africa (EMEA) Asia-Pacific North America South America European Union Eastern Europe Middle East & Africa Developed Asia-Pacific Developing Asia-Pacific 7.8% 4.4% 13.2% 4.8% 6.8% (2.1%) 65.0% Regional Topline Comparison & Assembly Volume Change 2017 vs. 2024F +1.6m +0.9m +2.7m +1.0m +1.4m +13.1m (0.4m) ∆ 18.6m 4.0m 21.5m 4.4m 3.9m 49.3m 12.5m 2024F 17.0m 3.1m 18.8m 3.4m 2.5m 36.1m 12.9m 2017 Source: Autofacts 2018 Q3 Forecast Release 3

  4. Alternative fuel assembly forecast by technology – Global • Alternative powertrain installation is forecasted to grow by more than 234% (+15.5m) units by 2024. Electric and hybrid powertrains are necessary to achieve targets. Fuel economy limits in major global markets have driven a significant increase in alternative fuel vehicle offerings, but not yet corresponding sales. Source: Autofacts 2018 Q3 Forecast Release 4

  5. Trade Wars…or Art of the Deal? • It remains to be seen which countries will come to terms on a trade deal with the US, but the stakes are high for manufacturers whose products are at risk of significant cost increases. What would be the impact on the top 5 import markets if 25% tariffs were assessed? Canada 1.8m units $42.5b ~$23,300 per vehicle Germany 500k units $20.2b ~$41,100 per vehicle Japan 1.7m units $39.8b ~$23,000 per vehicle Mexico 2.4m units $46.9b ~$19,200 per vehicle South Korea 930k units $15.7b ~$16,900 per vehicle Source: International Trade Association, Office of Transportation and Machinery, http://www.trade.gov/td/otm/autostats.asp; Based on 2017 full-year data. PwC Autofacts Analysis 5

  6. Product Mix • It is likely that a structural shift in demand is here – customers in the US (and Canada) prefer light trucks, specifically crossovers and pickups, over passenger cars. Light truck sales in the US are approaching 70% of the market. Source: Ward’s Automotive Reports, Autonews, Autofacts Analysis *YTD through October 6

  7. CAFE / Emissions…headed for a showdown • NHTSA & EPA’s newly proposed “SAFE” vehicles rule aims to freeze fuel economy and emission targets from 2020 while simultaneously revoking California’s ability to enforce their own, more stringent, standards. • SAFE: “Safer Affordable Fuel-Efficient” Vehicles Rule Summary: • Freeze emission & fuel economy standards from MY 2020 • Reduction in overall vehicle ownership costs • Fewer crash fatalities • Reduction in regulatory costs for OEMs & suppliers • Reduction in “societal” costs • Slight increases in daily fuel consumption and CO2 emissions Source: NHTSA, EPA, PwC Analysis 7

  8. Light vehicle sales plateau expected • Although sales in the first-half of 2018 were strong, the full year sales forecast in the US is a modest 16.9 million. High transaction prices and an increase in interest rates are expected to contribute to the decline. Source: Autofacts 2018 Q3 Forecast Release, Autonews 8

  9. Changeover to crossover assembly • The industry is retooling to support consumer preferences. The high potential once seen in Mexico may be waning. Canadian assembly is expected to decline as automakers focus on the US. Source: Autofacts 2018 Q3 Forecast Release 9

  10. Five myths… • About the future of the automotive industry • There will be significant adoption of electric vehicles within the next few years • The fully-autonomous vehicle world is on the near horizon • “Uberization” will radically change the industry and facilitate the transition to the fully-autonomous world • Traditional automotive OEMs and many suppliers are under enormous threat from new competitors • Downstream vertical integration and selling services will help auto OEMs protect/bolster revenues Source: Strategy& 10

  11. Five predictions… • About the future of the automotive industry • The electric vs. ICE vehicle cross-over point in the U.S. will occur in ~10 years and could then rapidly alter the industry • Although the fully autonomous world is much farther away, when it arrives it will be even more revolutionary • “Mobility” will only transform when the relativecost and convenience of private vehicle ownership decline a lot • In the interim, the industry will change substantially, but not the way many think it will • We can expect an important downturn sometime in the next several years Source: Strategy& 11

  12. Thank you! 12

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