battery / battery materials - credit suisse

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03 July 2012 Asia Pacific/Japan Equity Research

Battery / Battery materials Connections Series

Examining medium-term structural changes in the LiB and xEV industries Figure 1: Battery makers’ (by country / region) market share and company

scale: Chinese, US / Europeans vying to catch up (High) Battery company market share - company scale matrix

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Source: Credit Suisse

■ LiB theme at a temporary lull: The uptake of eco-cars has been slower than initially forecast. Sentiment has cooled toward electric vehicles (EVs) and lithium-ion batteries (LiBs), against a backdrop of lackluster sales, accidents, and falling gasoline prices. Superficially at least, this is likely to affect sales trends for EV/PHV models already announced or already on sale.

■ Focal points for medium term: However, our purpose in this report is not to assess the near-term question of what will sell and what will not, but rather to take a step back and examine from a slightly longer-term perspective the structural changes now under way as well as potential upcoming themes. In particular, we will be focusing on possible changes in the competitive landscape as companies from China, the US, and Europe make further inroads into the market for LiBs and their constituent materials, especially in automotive applications. Previously, Japanese and Korean companies have been the dominant players in this market.

■ Stock calls: Among the companies worthy of attention from a medium-term standpoint, we highlight GS Yuasa (6674, OUTPERFORM), LG Chem (051910.KS, OUTPERFORM), Samsung SDI (006400.KS, NEUTRAL), Hitachi Chemical (4217, OUTPERFORM), and Mitsubishi Chemical Holdings (4188, OUTPERFORM).

The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive cross-sector and cross-border thematic insights for our clients.

Research Analysts

Jun Yamaguchi 813 4550 9789

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Masami Sawato 813 4550 9729

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John Sung 822 3707 3739

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A-Hyung Cho 822 3707 3735

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Patrick Jobin 212 325 0843

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03 July 2012

Battery / Battery materials 2

Table of contents LiB theme at a temporary lull 3

Rise and fall of the electric vehicle/lithium-ion battery theme 3 However, environment for EV/LiB is changing 3 Stock calls 3

LiB overview 5 What is LiB? 5

LiB cost structure 5 Analysis of operating margin variables for small LiBs 6

Small LiB market 7 Annual growth of about 10%, but varying by application 7 Cylindrical stagnating, polymer on the rise 7 Small LiB: require both cost competitiveness and product customization prowess 8 Market share: Familiar faces likely to continue dominating the market 8

Automotive LiB market 9 Automotive LiB market likely to top small LiB’s by 2020 9 Automotive LiB standardization unlikely for now 10 Battery-maker shake-out likely even without standardization 10

xEV market 11 Most xEVs now mainly HEVs using Ni-MH batteries 11 Transition from Ni-MH to LiB likely to continue in HEVs 11 LiB in mainstream of current battery technology 11

LiB industry trends 12 Battery makers 12

Entry of US and European companies 12 Japan 12 Korea 13 China 13 US and Europe 14

Battery materials makers 15 Shift in battle arena away from Japanese specialty technology/niche markets 15 Japan 15 Korea 17 China 17 US and Europe 17

Production capacity outlook for automotive LiBs and materials 18 Expansion plans suggest massive supply glut (on paper) 18

Relationships between automakers and battery suppliers changing 19 Japanese automakers: strategic alliances with battery suppliers 19 US and European automakers: multipronged approach to Asian battery makers 19 Technical alliances between automakers, reevaluation of diesel (non-EV tech) 19 Companies need to acquaint themselves with battery technology 20 Pros and cons of partnerships between battery and auto parts makers 20

Do xEVs make economic sense? 24 xEVs still run counter to economic rationality 24

Lifetime costs of even HEVs not necessarily cheaper than gasoline cars 24 Maintenance costs a potential barrier 25 $250/kWh cost target for EVs to make sense economically 25 EV cost impact: "initial cost factors" > "external running cost factors" 26

Supplementary materials 27

03 July 2012


LiB theme at a temporary lull Rise and fall of the electric vehicle/lithium-ion battery theme

Investors’ interest in electric vehicles (EV) and lithium-ion batteries (LiB) rose sharply with the December 2007 announcement of plans by GS Yuasa, Mitsubishi Corp., and Mitsubishi Motors to establish a joint venture for EV LiBs. We think this interest probably peaked in mid-to-late-2009, when GS Yuasa’s share price hit a record high. Mitsubishi Motors’ had already announced its i-MiEV electric vehicle at that point, and subsequent market introductions from 2010 of Nissan’s Leaf EV and General Motors’ Volt PHV showed major global automakers on board and supported expectations for a full-scale expansion of the LiB market. However, weaker-than-expected sales of these cars has since eroded the euphoria, and with the business now looking unlikely to generate meaningful profits (or incur smaller losses) any time soon, the LiB story has gone from a premium to a discount factor for certain companies in the space.

However, environment for EV/LiB is changing

Companies that make xEVs (EV, HEV, and PHV; referred to here in total as xEVs), batteries, and battery materials have become recognized to some extent by the stock market over the past several years. In addition, battery and battery-material makers are now pursuing orders or vendor certification for use in next-generation vehicles (launching from around 2015), and we think the period between now and next year will determine whether xEVs can sell as well as related companies’ existing roadmaps assume. We accordingly see sales trends for these already-announced (or already-on-sale) vehicle models as the key determinant of related companies’ earnings. However, our purpose in this report is not to assess the overall sector and the near-term prospects of individual stocks solely on this basis but to discuss the structural changes now under way and the sector’s potential upcoming themes (albeit from a slightly top-down perspective).

Stock calls

Among the companies worthy of attention from a medium-term standpoint, we highlight GS Yuasa (6674, OUTPERFORM), LG Chem (051910.KS, OUTPERFORM), Samsung SDI (006400.KS, NEUTRAL), Hitachi Chemical (4217, OUTPERFORM), and Mitsubishi Chemical Holdings (4188, OUTPERFORM).

■ GS Yuasa: The startup of GS Yuasa’s Ritto No. 1 Plant should pave the way for lower costs, and we see operating losses bottoming in FY3/13. We await the start of EV LiB shipments to companies other than Mitsubishi Motors and PSA Peugeot-Citroen.

■ LG Chem: LG Chem was quick to focus on automotive applications, and to date has supplied LiBs for a number of vehicles including GM’s Volt PHV. The company has a wealth of expertise in LiBs with laminated packaging, and is highly competitive.

■ Samsung SDI: Samsung SDI is the leading manufacturer of small LiBs. The company will begin shipping automotive LiBs in earnest with the i3, BMW's first mass-produced EV scheduled for launch in 2013.

■ Hitachi Chemical: Hitachi Chemical holds the top share in anode materials for small LiBs, and has successfully lowered production costs by expanding into China. The company has also secured orders for automotive LiBs—from Nissan, for example—and appears set to retain its competitive edge over the medium term.

■ Mitsubishi Chemical Holdings: Among battery material makers only Mitsubishi Chemical Holdings is a “total solution provider” covering all four major materials (cathode materials, anode materials, electrolyte solutions, and separators). It has also taken the initiative in already establishing production facilities in the US and UK.

03 July 2012


Figure 2: GS Yuasa’s relative share-price performance: from rise of LiB theme to erosion of premium

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12/12/07: GSY / Mitsubishi Corp / MMC announce EV-LiB JV

12/17/08: GSY / Honda announce HEV-LiB JV

6/17/09: Share px peak ¥1,180

7/13/09: Announcedequity financing

4/14/10: Announce Ritto #1 plant construction (50k LiB packs/yr)

12/13/11: Announce Ritto #2 plant construction (75k LiB packs/yr)

Continuous decline in "LiB premium" since Jun '09 peak

Source: Thomson Reuters, Company data, Credit Suisse

Figure 3: Relative share-price performance in 2009:

strong outperformance by leading names

Figure 4: Relative share-price performance since 2010: all

except LG Chem underperforming

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Source: Thomson Reuters Source: Thomson Reuters

Figure 5: Valuations of global LiB manufacturers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *

Ticker Company Rating CCY Px (LC) Px (LC) (Diff.) Cap (mn $) FY1 E FY2 E FY1 E FY2 E FY1 E FY2 E FY1 E FY2 E

[ BATTERY MAKERS]6501 Hitachi N JPY 410 485 -15% 28,245 10.1 x 9.6 x 1.2 x 1.1 x 4.4 x 4.2 x 12.1% 11.6%

6502 Toshiba N JPY 350 302 16% 16,069 10.7 x 7.4 x 1.4 x 1.2 x 4.5 x 3.8 x 13.4% 17.0%

6674 GS Yuasa O/P JPY 410 371 11% 1,924 10.9 x 10.6 x 1.1 x 1.1 x 5.9 x 5.2 x 10.4% 10.0%

6701 NEC N JPY 180 125 44% 4,081 8.1 x 6.9 x 0.5 x 0.5 x 0.7 x 0.7 x 5.9% 6.6%

6752 Panasonic Corporation O/P JPY 700 629 11% 18,274 38.8 x 11.7 x 0.7 x 0.7 x 4.6 x 4.0 x 1.9% 6.1%

6758 Sony N JPY 1,750 1,117 57% 14,085 - 24.9 x 0.5 x 0.5 x 4.4 x 2.3 x -10.0% 2.0%

7011 Mitsubishi Heavy Industries - JPY n.a. 322 - 13,574 19.5 x 14.5 x 0.8 x 0.8 x 6.6 x 5.8 x 4.6% 5.9%

006400.KS Samsung SDI N KRW 140,000 150,000 -7% 5,966 22.0 x 23.1 x 1.1 x 1.0 x 7.2 x 7.4 x 5.0% 4.6%

051910.KS LG Chem Ltd. O/P KRW 465,000 291,000 60% 16,836 10.4 x 7.2 x 1.8 x 1.5 x 6.5 x 4.4 x 17.2% 20.4%

096770.KS SK Innovation O/P KRW 210,000 141,500 48% 11,422 6.1 x 5.7 x 0.8 x 0.7 x 5.2 x 4.8 x 12.9% 12.4%

1211.HK BYD Co Ltd - HKD n.a. 14.6 - 6,478 22.6 x 16.0 x 1.2 x 1.2 x 9.4 x 8.3 x 0.1 x 0.1 x

CBAK.OQ China Bak - USD n.a. 0.6 - 37 - - - - - - - -

JCI Johnson Controls O/P USD 39.0 27.7 41% 18,853 10.4 x 8.6 x 1.5 x 1.3 x 7.8 x 6.5 x 14.8% 15.4%

S1A.PA Saft Groupe - EUR n.a. 18.9 - 600 9.7 x 8.9 x 1.1 x 1.0 x 5.2 x 4.8 x 12.2% 12.4%

AONE A123 Systems - USD n.a. 1.3 - 185 - - 2.5 x 19.4 x - - - -

TSLA.OQ Tesla Motors - USD n.a. 31.3 - 3,292 - 49.2 x - - - - - -

AVERAGE 14.9 x 14.6 x 1.2 x 2.3 x 5.6 x 4.8 x 8.1% 10.1%

* ROE = net prof it / common equity for global comparison purposes Source: Company data, Credit Suisse estimates

03 July 2012


LiB overview What is LiB? Lithium-ion batteries (LiBs), widely used in portable electronic devices these days, are a type of secondary battery in which charging/discharging is effected by the movement of lithium-ions back and forth between cathodes and anodes layered between insulating films called separators.

Global automakers such as Nissan, Mitsubishi, General Motors, and Toyota have begun mass producing electric vehicles (EVs) and plug-in hybrid vehicles (PHVs) powered by LiBs, and this segment is expected to grow.

Figure 6: Basic structure of a LiB

Source: Battery Association of Japan

LiB cost structure

There are four main components in a LiB: anode, cathode, separator, and electrolyte. These four items account for about 60% of the production cost. When combined with other components, material costs account for about 80% of manufacturing costs.

Figure 7: Typical cost structure of a small LiB

Cathode, 31%

Separator, 13%

Anode, 8%Electrolyte, 7%

Cu foil, 6%

Binder+Al foil+Case, 6%

Other (materials), 8%

Depreciation, 14%

Other (non-materials), 7%

Source: Solar & Energy, Credit Suisse

03 July 2012


Analysis of operating margin variables for small LiBs

We did a factor analysis of the operating margin on a typical small LiB.

Through 2Q 2010, the latest period for which data are available, the primary driver of margins was volume. Batteries are basically a device industry, and conventional cylindrical cells of standardized specifications have served as the main driver of volume growth to date, with higher marginal profit on higher volume being the main contributor to operating margin improvement. Achieving margin improvement on simple volume growth is going to be more difficult in the future, however. This is because polymer batteries custom tailored to specific customers and products are becoming the primary driver of growth, with the direct impact of sales volume growth in mass produced standardized cylindrical cells diminishing. As this raises the importance of reducing materials costs, manufacturers are engaged in a trial-and-error process aimed at boosting the weighting of low-cost Chinese materials in their products.

When the price of cobalt, the main component of cathode costs, rose around 2007, profits took a significant hit. This prompted makers to begin using alternative materials, and the weighting of such non-cobalt cathode batteries has been rising in recent years.

Yen appreciation has also significantly undermined the cost competitiveness of Japanese battery manufacturers, owing to the fact that they procured most of their materials from Japanese makers on a yen-denominated basis.

Figure 8: Analysis of operating margin variables for small LiBs

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TOTAL OPM change (QoQ) Sanyo Battery (total) OPM QoQ △Sanyo Rechrg. battery OPM QoQ △ SDI Rechrg. battery OPM QoQ △

Source: Credit Suisse estimates

03 July 2012


Small LiB market Annual growth of about 10% expected overall in medium term, but varying by application

We expect the small LiB market (centering on consumer electronics-use batteries) to continue to grow at an annual rate of about 10% by capacity volume. Smartphones and tablet PCs are set to be the main drivers, as they are expected to see growth in both overall volume and per-device battery capacity, while laptop demand, the main driver to date, is likely to decline as a result of market erosion from tablets and a downturn in battery capacity per unit. At the same time, a shift in the shape of batteries used in laptops, from cylindrical types (the “18650”) to polymer types, is also beginning to be seen.

As a result of these trends, the growth era in standardized cylindrical cells, which centered on cutting costs by expanding production, is now over.

Figure 9: Small LiB demand outlook

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Source: Company data, Credit Suisse estimates

Cylindrical stagnating, polymer on the rise

Conventional cylindrical cells used in laptops (the "18650") suffer from structural limitations that make a mix shift toward high-capacity (high-value added) batteries difficult. Basically, a shift in mix from the most common general-purpose 2.2Ah cells to higher capacity cells has not occurred as had been expected. Instead of relying on higher-capacity (and thus higher-cost) batteries, laptop makers have been extending the operating time of their products through use of low-power consumption chips and energy management improvements. At the same time, as the marketing focus of laptops shifts from function to design, usage of polymer batteries is rising because they can be made slimmer, thus providing greater design freedom.

Figure 10: Small LiB volume share by cell structure (2012 estimates)

Cylindrical37%

Prismatic41%

Polymer22%

Source: Company data, Credit Suisse

03 July 2012


Small LiB manufacturers require both cost competitiveness and high product customization prowess

There is a good possibility that the sort of standardization seen in cylindrical cells will not occur in polymer batteries. With design becoming a key point of differentiation in laptops, standardizing dimensions and specifications only reduces the advantage of polymer cells and limits design freedom. For this reason, while polymer demand volume can be expected to grow, the weighting of highly customized products will also remain high, so having the right balance of scale and production and the design systems necessary to meet customers’ needs and detailed specifications requirements will likely become a critical factor for battery manufacturers.

As they are also the main type used in tablets and smartphones, polymer cells are clearly set to be the primary driver of demand.

Market share: Familiar faces likely to continue dominating the market

Samsung SDI has the highest market share by volume in small LiBs (2011). Japanese battery makers’ share continues to decline. We do not expect to see significant changes to the lineup of companies occupying the top spots. With cylindrical cells quickly becoming a commodity, this is a difficult market to enter for a company without sufficient scale, and in the polymer segment with its high degree of customization, a new market entrant would not only need a production structure capable of handling multiple products, but would also have to be able to absorb losses and deal with leadtime issues related to the constant switching out of battery types.

In fact, with a number of small-scale battery manufacturers having withdrawn from cell production over the past few years (Sanyo GS Soft Energy, NEC Tokin, etc.), to a certain extent a shakeout is already under way.

Figure 11: Small (consumer-use) LiB volume share (2011)

Panasonic (inc. Sanyo), 24%

Samsung SDI, 23%

LG Chem, 16%Sony, 8%

BYD, 5%

BAK, 4%

Tianjin Lishen, 4%

ATL, 4% Maxell, 3% Other, 8%

Small LiB market share (2011 / volume)

Source: TSR, Credit Suisse

While a large number of non-brand Chinese manufacturers exist in the increasingly stand-alone Chinese market for electric bicycles and UPS (uninterruptible power supply), from the standpoint of scale, quality, and reliability, the risk of these companies emerging as rivals on the global battery scene looks pretty low at this point. Conversely, since it is also difficult for foreign manufacturers to enter the unique Chinese market, there will likely be a segregation of the domestic and international markets.

03 July 2012


Automotive LiB market xEV penetration rate uncertain, but automotive LiB market likely to top small LiB’s by 2020

xEV sales are currently running below manufacturers’ expectations, but many global automakers have new models set for launch in 2012–14 and we think this could drive steady growth in overall xEV volume, even if sales for any one model are not that strong. We also realistically expect battery prices to fall no lower than $50/kWh by 2015, making it difficult for xEVs to be priced competitively with internal-combustion-engine (ICE) vehicles without government subsidies.

Research organizations have issued a variety of forecasts for xEV sales in 2020, with PHVs and EVs—which account for the majority of automotive LiB capacity—accounting for anywhere between a few percent of overall automobile sales to more than 10%. We forecast combined sales of less than 5mn PHVs and EVs in 2020 but think even this will be enough to support an automotive LiB market larger than the one for small LiBs at that point.

Figure 12: LiB demand volume (small + automotive) Figure 13: LiB demand value (small + automotive)

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Figure 14: EV-use LiB kWh price assumption

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03 July 2012


Automotive LiB standardization unlikely for now

One reason why automotive LiBs are more expensive than small LiBs is their lack of standardization. We think standardization would probably help lower manufacturing costs at the cell level, but we do not see this eventuating any time soon for the following reasons:

■ The number of production data samples available for automotive LiB cells is far short of the amount needed to create optimal standards.

■ We think automakers are unlikely to embrace standardization when it could mean the instant commodification of vehicle powertrains centered until now on high-value-added, knowledge-intensive engines.

Assuming no real progress toward standardization, we think certain battery makers could establish positions for themselves in turning out niche products in small quantities. In general, however, we expect companies with substantial cell-level production capacity to sharpen their cost capabilities in material procurement and other areas, as well as design and offer support for custom modules tailored for individual users. In short, we think the more likely scenario is for the strong to become even stronger.

Battery-maker shake-out likely even without standardization

Our basic scenario assumes a shake-out among battery makers between now and around 2020 that could leave the market dominated by four to five corporate groups, with smaller companies enduring as niche players targeting small-lot production for specialty applications (energy storage systems, military, others).

03 July 2012


xEV market Figure 15: xEV market unit volume

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Most xEVs now mainly HEVs using Ni-MH batteries

Toyota vehicles still make up the vast majority of HEVs, and most of these models use Ni-MH batteries produced by PEVE (Primearth EV Energy). This is because, in addition to deep experience and know-how, the company also has an annual in-house production capacity of some 1mn units, which gives Toyota a cost advantage over other automobile manufacturers that must rely on external procurement even as they produce fewer units than Toyota.

Transition from Ni-MH to LiB likely to continue in HEVs

Meanwhile, other automakers that do not have in-house capacity to manufacture batteries (like Honda and Ford) have to date mostly procured Ni-MH batteries from Sanyo (now Panasonic). But the ongoing shift in demand to LiBs is expected to accelerate going forward. Ford has already completely switched over from Ni-MH to LiB in all its models, and Honda is expected to boost its procurement volume following establishment of its joint venture with GS Yuasa (Blue Energy). One motivating driver is that, even though the shift to complete electrification of cars and explosive EV growth has yet to be seen, electric is clearly growing, and it is clear that LiBs will be the main type of battery used for the foreseeable future, so accumulating LiB technology and know-how is seen as critical. Also, given the clear shift to LiB, investing in further capacity in Ni-MH is risky for battery suppliers like Panasonic and the former Sanyo. This leaves little incentive for either Ni-MH users (automakers) or suppliers (Panasonic/former Sanyo) to expand Ni-MH volume. Accordingly, an increase in Ni-MH capacity or volume, at least among Japanese makers, looks unlikely.

LiB in mainstream of current battery technology

With automakers other than Toyota gradually shifting to LiBs for HEVs and all automakers adopting LiBs for their PHEVs and EVs from the beginning, we expect LiBs to be the mainstream battery type through at least 2020. Development of next-generation battery technology to resolve various issues in which even LiBs are insufficient, particularly operating range, is under way. But establishing an alternative technology is only the start, and considering the time required to establish mass production, bring costs down, and pass the evaluation and trial stage at automakers, which is longer than in the case of electrical equipment, we do not expect to see any new technology become mainstream any time soon.

03 July 2012


LiB industry trends Following is a summary of current trends among battery and battery materials makers from a top-down perspective, organized by country or region (obviously, overall trends will differ from those for individual companies).

Battery makers Entry of US and European companies in automotive battery market

In terms of share, Japanese and Korean battery makers have dominated the market to date, with the presence of Chinese firms rising in the mobile phone/smartphone segment.

Competition is intensifying in the emerging automotive LiB battery market, with not only the Chinese becoming more active, but US and European manufacturers also aggressively entering the segment. The latter have had little incentive to try to catch up in small LiBs because demand centers on electronic devices, the production of which is concentrated in Asia. However, there are several prominent companies in both the US and Europe who would become major customers of batteries for Evs and large-scale energy storage applications, so there is a growing incentive to develop powerful local industries in this area, rather than have to rely on imports from Asia for this key component.

Figure 16: Battery makers’ (by country / region) market share and company scale:

Chinese, US / Europeans vying to catch up

(High) Battery company market share - company scale matrix

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Japan: Aiming to halt erosion in small LiBs, while expanding lead in EV cells

In small LiBs, Japanese makers have tended to produce cylindrical cells domestically because production is more easily automated, and prismatic batteries used in mobile phones overseas because production is more labor-intensive. But with domestic production margins slim, companies like Panasonic and Sony are increasingly shifting production overseas to cut costs. Panasonic wants to raise its Chinese production ratio to 50% by FY3/14, compared to about 20% in FY3/12, and plans to source about half of its battery materials from China and Korea in FY3/13. Sony plans to completely shift its battery assembly operations to China and Singapore by the end of FY3/14, leaving its domestic facilities to concentrate mainly on electrode production. However, labor costs in China are rising rapidly and with rival Samsung SDI shifting a portion of its production to Malaysia this year (converting an old CRT plant into a battery manufacturing facility), it is not clear whether the moves being undertaken by Japanese makers will deliver the intended sharp boost in competitiveness. Consequently, there is a possibility that the current gap in competitiveness could remain unchanged.

03 July 2012


In automotive LiBs, companies like Automotive Energy Supply Corp. (AESC, a joint venture between Nissan and NEC) and GS Yuasa have already established mass-production facilities in Japan, so manufacturing will likely remain in the domestic market for the next few years at least. That said, it is possible that these companies would consider China or some other overseas location for any new plants they were to build going forward. In fact, GS Yuasa considered overseas locations before deciding to build in Japan its Ritto No. 2 plant, scheduled to begin production next spring, but from the standpoint of stable supply of materials eventually concluded that expanding its Ritto complex would be the best option. Moving production overseas is not always a smooth process, as the number of technical personnel needed and their relocation are issues that must also be considered.

Korea: Raising percentage of Chinese materials used in small LiBs and aiming to swiftly expand automotive cell orders

In small LiBs, Korean manufacturers are beginning to shift production to countries other than Korea and China, as noted above in the case of Samsung SDI, while on the materials side they are also expanding use of low-cost Chinese products more aggressively than their Japanese counterparts, in addition to raising the weighting of Korean materials used. Smartphones and tablets are seen as key growth areas, putting Samsung SDI in an advantageous position as it benefits from growing sales to Samsung Electronics, whose respective market shares for these devices is rising.

In automotive LiBs, leading domestic automakers Hyundai and Kia are the only customers, so battery makers (especially LG Chem) were quick to target North American and European automakers with aggressive sale programs. In an effort to expand their business with these makers, they have also worked hard to forge alliances and joint ventures with leading auto parts makers in different regions, which has allowed them to take a lead over their Japanese counterparts in this segment as a result.

But while the Koreans have won supply contracts from different automakers, this does not necessarily mean they have secured supply volume guarantees. As a consequence, if actual sales end up falling short of target, there is a risk of profitability suffering more than expected, when sales are not sufficient to cover development and labor costs. This may be the case at LG Chem, which announced a string of orders in 2010 and 2011, including with General Motors, whose sales of the Volt have been lower than expected.

China: Benefiting from growth in smartphones and tablets, as well as in home market

In small LiBs, Chinese makers are offsetting the decline in feature phones with growth in smartphones, and in midsize and large LiBs, they are taking advantage of growth in their own domestic market (especially for applications like electric bikes, buses, and UPS), while simultaneously also trying to gain an edge in automotive applications. It is said that in China there are hundreds if not over a thousand local manufacturers of LiBs, but due to quality, scale, and intellectual property issues, there are very few with the capacity to export overseas. However, even with the lack of export-level quality, many local makers already generate a large portion of their sales from batteries used in domestically produced electric bikes, UPS, etc. As overseas battery makers expand production in China and boost their procurement of Chinese materials, technology is likely to be transferred to local makers going forward, and this trend should be watched carefully.

03 July 2012


US and Europe: Aiming to break free of reliance on Asia for automotive LiBs

Although there are few prominent makers of small LiBs located in the US and Europe, both regions are home to a number of leading manufacturers (i.e. automakers), who are potential users of large cells like those used in EVs and would like to see the development of a local industry in these key components so that they do not have to rely on imports from Asia in the future. Bosch, which has an LiB pack manufacturing joint venture with Samsung SDI (SB LiMotive), is a good example. The company will release a sample of its own LiB, developed in cooperation with major chemical maker BASF (Germany), sometime in 2012 and has set a mass production target of 200,000 cells annually in 2015. By 2016, it hopes to be able to produce the cells without having to rely on any Japanese battery technology or know-how.

03 July 2012


Battery materials makers Mass entry by large overseas players, shift in battle arena away from Japanese specialty technology/niche markets

To an even greater degree than battery cells, battery materials have long constituted an area dominated by Japanese firms. In recent years, however, the ratio of domestic production at Korean makers has been rising, while low-cost makers in China have also begun to emerge in a trend that has been particularly pronounced for small LiB materials. In automotive LiBs, the key development is the entry of large US and European chemical makers, who have lagged Asian companies in this area as they have in battery cells.

While some major chemical companies in Japan manufacture battery materials, including Asahi Kasei and Mitsubishi Chemical, there are also many midsized chemical makers and materials makers with sales of only several tens of billions of yen that hold high market shares in specific areas, including Nippon Carbon in anode materials, Toda Kogyo in cathode materials, and Stella Chemifa and Kanto Denka Kogyo in electrolyte salts.

We expect to see a narrowing in differences in technological capacity and further decentralization of production (spreading to the US and Europe, instead of being concentrated in Asia), which should make it more challenging for Japanese firms to maintain their competitiveness due to their reliance on domestic production for niche markets and yen-denominated sales. The entry of major US and European chemical manufacturers with deep pockets (BASF, DuPont, 3M) and Korean conglomerates (Samsung, LG, SK, POSCO, GS) promises to change the playing field as well.

Figure 17: Battery makers’ (by country / region) market share and company scale:

Aggressive entry of overseas firms with deep pockets

(High) Material company market share - company scale matrix

(Low) (High)

JP

Material company scale (financial strength)

KR

CH

EU / US

Mat

eria

l co

mpa

ny m

arke

t sh

are


Japan: Despite technological prowess and high share in niche markets, makers must respond to customers’ (1) cost cutting demands, (2) diversification of supply risk, and (3) lowering reliance on Japanese suppliers

Japanese battery materials makers have long enjoyed the advantages of strong materials technology and high share in niche markets, but given sector trends in the last few years in terms of customers focusing on cutting costs, diversifying supply risk, and lowering reliance on Japanese material suppliers, it will become increasingly difficult for them to maintain competitiveness if they limit their businesses to the domestic market. As a result we are beginning to see greater activity related to overseas expansion and exploring different tie-ups and cooperative arrangements.

03 July 2012


On the cost side, since most production is done in Japan, companies are subject to indirect price pressure even on yen-denominated materials sales. As competition grows with Korean and Chinese materials makers offering lower prices, domestic production is increasingly putting Japanese makers at a disadvantage. Since the earthquake in March 2011, users (battery makers) have put greater emphasis on diversifying their materials suppliers, while materials makers have similarly tried to reduce their risk exposure through greater diversification of their domestic production.

Overseas, major US and European chemical makers (BASF, DuPont, 3M) and Korean conglomerates (Samsung, LG, SK, POSCO, GS), backed by significant capital resources to use for acquisitions and other investments, are accelerating efforts to expand their business in battery materials with the aim of capturing long-term demand growth in this key area. In materials development, there may be no substitute for technological expertise and know-how accumulated over many years, but there is growing competition from companies accessing intellectual property through acquisitions and shortening the development cycle through concentrated investment in specific areas. We believe the time is drawing near that the Japanese materials makers without sufficient finances and scale to compete directly with these rivals, will be forced to opt for tie-ups and cooperative arrangements with other companies and to expand their overseas businesses.

For companies who were slow to move in automotive LiBs, there is a risk of earnings growth beginning to slow, even though they may hold high market shares in small LiB materials (e.g., Asahi Kasei in separators, Ube Industries in electrolytes). We intend to closely monitor their efforts to catch up.

Figure 18: Japanese battery makers’ procurement ratios by country: About 90% procured from Japanese materials

makers, but Korea and China weightings are rising

JP94%

Others6%

Cathode material

JP97%

CH3%

Anode material

JP84%

Others16%

Electrolyte

JP91%

KR2% US

7%

Separator

Source: TSR

Figure 19: Japanese battery materials makers’ overseas expansion options flowchart Examples

Hitachi Chem (CH / Anode)Asahi Kasei (KR / Separator)Mitsubishi Chem (Multiple materials)Sumitomo Osaka Cement (VN / Cathode)

Toda Kogyo / Itochu (US / Cathode)Kureha / Itochu (US / Anode)

Central Glass (CH / Electrolyte)JX NOE / GS Caltex (KR / Anode)Ube Ind. / Dow Chem (US/CH / Electrolyte)

Ube Ind. / Hitachi Maxell (Separator)Toda Kogyo / Mitsui E&S (Cathode)

Kanto Denka Kogyo (Electrolyte salt)Nipon Carbon (Anode)

Overseas expansion

Joint w/ Japanese

Joint w/ foreign/local company

Joint businessin Japan

Joint overseas expansion

Independent overseas

Possible

Not possible ORfocus on domestic

Independently?

Jointly? w/ JP co?

w/ foreign co?

Independent in Japan


03 July 2012


Korea: Clear shift to in-house materials production and entry of conglomerates from other industries

Local production of cathodes, electrolytes, and electrolyte salt is already fairly high in Korea, and a clear shift to domestic production of anodes and separators is also being seen. Major chemical makers are also able to carry out production while keeping fixed costs in line thanks to their financial power (allowing for investment in capex and product development) as well as the cheap infrastructure costs in Korea and a favorable tax code.

In addition to chemical makers like LG and Samsung, major conglomerates in other industries, including steelmaker POSCO (through subsidiary POSCO Chemtech) and GS group (GS Caltex), have recently begun concentrating on the materials business too, which can be expected to lead to a further intensification of competition.

Figure 20: Korean battery makers’ procurement ratios by country: cathodes and electrolytes supplied by Japanese

makers only 10% or less of total

JP5%

KR71%

Others24%

Cathode material

JP50%

CH50%

Anode material

JP10%

KR72%

Others18%

Electrolyte

JP71%

KR24%

US5%

Separator

Source: TSR

China: Gaining momentum on development of local makers and overseas makers’ expansion in China

In China, considerable emphasis is being put on the development of an LiB materials industry, and the government is also providing direct support to material makers, who are growing stronger as a result. At the same time, Japanese and Korean materials makers in search of lower costs are also expanding production in China, which invariably is resulting in some transfer of technology to local companies. In cathodes, iron phosphate cathode materials are widely used for EV and electric bus LiBs. But it should also be noted that there may be a risk of export barriers emerging of these products due to patent and intellectual property issues.

There are numerous examples of Japanese firms forming joint ventures with local companies as a means of entering China, including Central Glass in electrolytes and Ube Industries in dimethyl carbonate.

US and Europe: Full-scale entry of major chemical makers aiming to reduce reliance on Asia for battery materials

In midsized and large LiBs, just as in battery cell production, there appears to be a desire to reduce dependence on Asian makers in battery materials as well. There has been an increase in activity among the major chemical makers over the past year to expand their businesses in this area through acquisitions and capital injections. Examples include:

■ BASF: The German chemical giant acquired Merck’s electrolyte business, purchased makers of LiB materials including electrolyte salt, and invested in emerging battery makers.

■ Umicore: The Belgian firm formed a joint venture with Prayon to produce iron phosphate cathode materials, taking a 49% stake.

■ DuPont: Leveraging its nanofiber technology, the US firm entered the separator segment.

03 July 2012


Production capacity outlook for automotive LiBs and their constituent materials Production capacity: Expansion plans suggest massive supply glut (on paper)

Judging solely by the capacity expansion plans disclosed by manufacturers of batteries and their constituent materials, there is likely to be a massive supply glut by the middle of this decade. Even a conservative calculation suggests that battery production capacity will reach around 35GWh/year, sufficient for more than 1.7mn vehicles assuming a 20kWh battery per EV. This would give rise to a huge supply glut, as even the most bullish forecasts indicate that there is no way EV and PHV demand could reach 1mn vehicles in by 2015. The story is similar for the key LiB materials. While there is some variation between materials, plans call for capacity sufficient to power 1.5–3.0mn EVs, based on which the supply glut would be even greater than that forecast for LiB cells. In our view though, this gap between nominal production capacity and demand is unlikely to have any immediate impact on overall supply/demand and prices, as has been the case with semiconductors and LCD panels. Our reasons include:

(1) It is not as if any battery manufacturer can produce batteries meeting users' needs, as automotive LiBs remain largely unstandardized.

(2) When touting for orders from vehicle manufacturers, battery and battery material makers must show that they have enough capacity to fill the order. We think those with little prospect of winning orders will ultimately abandon or at least delay their capacity expansion plans, so that the supply glut will not be as great as a simple sum of planned additions would suggest.

(3) Among manufacturers with limited experience, some may struggle to produce volume equivalent to their nominal capacity (through issues with production efficiency, yields, etc).

We assume that companies unable to grow their automotive LiB businesses as planned will seek out alternative applications for their product, or perhaps focus their attention on niche markets. US company A123 Systems, for example, has diversified beyond the automotive sphere into ESS and military applications, thereby mitigating the risk posed when automotive LiB users do not progress their businesses as planned.

For details of planned capacity expansion for each key LiB material (cathode materials, anode materials, separators, electrolyte solutions, and electrolyte salts), please refer to the supplementary materials later in this report.

Figure 21: Total production capacity by mid-2010s for LiB cells and materials (simple sum basis)

Material New capacity additions

Cathode New capacity TOTAL 56,300 MT/yr

material EV unit equivalent 1,515 k / yr

PHEV unit equivalent 3,787 k / yr

Anode New capacity TOTAL 70,800 MT/yr

material EV unit equivalent 2,953 k / yr


Separator New capacity TOTAL 952 mn sqm/yr

EV unit equivalent 2,115 k / yr Current Est. capacity xEV equivalent units

PHEV unit equivalent 3,526 k / yr capacity (Est.) (by mid-2010s) EV (k/yr) PHEV (k/yr)

Electrolyte New capacity TOTAL 84,000 MT/yr

EV unit equivalent 3,120 k / yr


LiPF6 New capacity TOTAL 12,250 MT/yr

EV unit equivalent 2,805 k / yr


Cu foil New capacity TOTAL 120 mn sqm/yr

EV unit equivalent 622 k / yr


Average EV unit equivalent 2,188 k / yr


* Assuming battery capacity of 8kWh/PHEV; 20kWh/EV

Total battery capacity 7.5 GWh 34.9 GWh 1,745 4,362

Auto LiB cells aggregated expansion plans

LiB materials aggregated expansion plans


03 July 2012


Relationships between automakers and battery suppliers changing Japanese automakers initially favored strategic alliances (JVs, etc) with specific battery suppliers

In the early days, there was a tendency for automakers to build close relationships (joint ventures and such like) with battery manufacturers as a means of securing stable LiB supplies. There was a perception at the time that this was the best way to source batteries of reliable and high quality, and in sufficient volume. As Japan had plenty of battery makers well versed in technological development, finding partners for joint ventures and other strategic alliances domestically was likely a natural progression.

Toyota led the way with the establishment in 1996 of Panasonic EV Energy (now Primearth EV energy) to produce Ni-MH batteries for its Prius HEV. JVs formed in the LiB era include Automotive Energy Supply (AESC), set up by Nissan and the NEC group in April 2007; Lithium Energy Japan (LEJ), established by GS Yuasa, Mitsubishi Corp, and Mitsubishi Motors in December 2007; and Blue Energy, an HEV LiB manufacturer formed by GS Yuasa and Honda in December 2008.

US and European automakers took multipronged approach to business with Asian battery makers

US and European automakers of necessity sought to do business with Asian battery makers, in the absence of local manufacturers with sufficient expertise in mass production and battery technologies. Such companies had always sourced materials from multiple suppliers, and batteries were no exception. Rather than forming individual joint ventures, US and European automakers pursued development alliances with multiple partners, the plan being to avoid reliance on specific battery makers and in doing so mitigate risk from a technical standpoint.

Recent trend toward technical alliances between automakers; reevaluation of diesel and other non-EV technologies

While early-model EVs and PHVs are now available, they continue to be less than satisfactory in terms of price and driving range. This has given rise to a renewed focus on clean diesel and other ICE-based technologies. This is likely due in large part to clean diesel's sizable advantage over EVs, which are powered by high-priced LiBs, when it comes to cost per unit of emission reduction. More than ever, automakers are being forced to explore all manner of technologies relating to the environment. Due to funding constraints, though, there will likely be a limit to the scope of “green” technologies a single company can develop. Through the exchange of proprietary technologies, however, automakers can expect to lower development costs. Toyota and German carmaker BMW have an agreement, for example, to share hybrid, diesel, and fuel cell technologies.

In EVs, we think an increased incidence of OEM supply agreements between automakers could hasten the decline in battery costs, as the upshot should be an increase in EV production volume per company, at a lower cost than if multiple companies were each producing small numbers of EVs. Under one such agreement, Mitsubishi Motors is supplying the Minicab-MiEV commercial vehicle to Suzuki and Nissan.

03 July 2012


Even companies with little current involvement with EVs need to acquaint themselves with battery technology

While some automakers have no plan to shift toward EVs any time soon, or have chosen to adopt a wait-and-see stance, it seems likely that even these companies will be looking to acquire the requisite technology, in the belief that widespread uptake of EVs is virtually inevitable, even if the timeline is still murky. We regard Suzuki as one such company. In April this year Suzuki announced a ¥1bn investment in Eliiy Power, a company using iron phosphate cathode materials to manufacture storage LiBs. The two plan to jointly develop automotive LiBs.

Pros and cons of partnerships between battery and auto parts makers

Korea’s three major battery makers—Samsung SDI, LG Chem, and SK Innovation—have each formed a joint venture with an auto parts maker, with a view to utilizing the latter’s commercial networks while remaining a step removed from automakers. However, some such companies are not faring too well (e.g., SB LiMotive, the 50–50 battery pack JV between Samsung SDI and Bosch), with US and European companies appearing keen of late to reduce their dependence on Asia for battery production technologies. We will be closely monitoring developments.

03 July 2012


Figure 22: Changing face of supply relationships between automakers and battery manufacturers Relationship: Automakers sought to secure captive battery suppliers (build relationships based on equity stakes) to avert battery supply shortages

Main companies: Japanese automakers, Japanese battery makers

Timeframe: -2008

Relationship:

Main companies: Foreign automakers, Japanese/foreign battery makers

Timeframe: 2009-

Relationship:

Main companies: Japanese/foreign automakers, Japanese/foreign battery makers

Timeframe: 2011-

OEM supply: Commercial EV "MINICAB-MiEV HV, FCV technology to BMW ⇔ diesel engines to Toyota

HV battery

PHV battery

HV technology supplied by Toyota

Companies capable of mass-producing batteries emerged earlier than initially anticipated, prompting automakers to build alliances/supply relationships with multiple battery makers while conducting cost/technology comparisons

While automakers have many options in terms of technologies for complying with emissions and fuel-efficiency standards, few have all-around development capabilities. Automakers are consequently building reciprocal supply/OEM relationships with each other, focusing on their respective technological fortes.

=> As a result, automakers that produce battery-equipped eco-cars benefit from economies of scale while battery makers face a decrease in automaker customers (i.e., the number of automakers that develop battery-equipped eco-cars in-house).

PEVEToyota Panasonic

Lithium Energy Japan

Mitsubishi Motors

GS Yuasa

Blue EnergyHonda Motor GS Yuasa

Mitsubishi Corporation

Volkswagen

Panasonic / Sanyo

ToshibaBYD

SBLimotive

Daimler

AESC

LG ChemBYD

Johnson Controls

A123 Systems

SK Innovation

Mitsubishi Motors

Lithium Energy Japan

Toshiba

Other?

Nissan

Suzuki

Toyota

PEVE BMW

Fuji Heavy / Mazda

Panasonic / Sanyo


03 July 2012


Figure 23: Overview of automotive LiB alliances: Koreans chose to establish JVs with leading auto parts makers in

various regions

Business Format Battery cell / system supplier Investor / investment ratio Remarks

Primearth EV Energy Toyota (80.5%), Panasonic (19.5%) Mainly supplies HEV Ni-MH; also supplies Li-ion for HEV

Automotive Energy Supply (AESC) Nissan (51%), NEC Group (49%)AESC will supply battery modules/packs, NEC Group will supply cathodes to AESC

Lithium Energy JapanGS Yuasa (51%), Mitsubishi Corp. (40.7%), Mitsubishi Motor (8.3%)

Supply EV battery modules to MMC, PSA, others

Blue Energy GS Yuasa (51%), Honda (49%) Supply HEV battery packs to Honda

JV among Battery makers

Hitachi Vehicle Energy (HVE)Hitachi (64.9%), Shin-Kobe Electric (25.1%), Hitachi Maxell Energy (10%)

Split responsibilities among group cos: HVE for auto, Shin-Kobe Electric for industrial, etc.

Compact Power (US) LG Chem (Korea) (100%)Compact Power will produce systems (LG Chem will supply LIB cells)

HL Green Power Co.Hyundai Mobis (Korea) (51%), LG Chem (Korea) (49%)

JV will produce battery packs for Hyundai Motors' HEVs (cells from LGC)

SB LiMotiveBosch (Germany) (50%), Samsung SDI (Korea) (50%)

JV will produce battery packs, BMS etc.

SK Innovation-Continental JVSK Innovation (Korea) (51%), Continental (Germany) (49%)

JV will assemble LiB packs (JV agreement signed Jan'12)

Mahy E-CellMagna Int'l (Canada) (60%), Hyundai Heavy (Korea) (40%)

JV will engineer, design, and develop LiB cells/packs for the xEV/ESS; target 400k unit sales in 2018

Johnson Controls / Hitachi (?)MOU for motive / non-motive advanced energy storage collaboration in R&D, procurement, production etc.

Zhejiang Wanxiang Ener1 Power SystemWanxiang (China) (60%), Ener1 (US) (40%)

JV to produce LIB cells / packs for Wanxiang's existing local automaker customer base

Panasonic (Sanyo Electric)Former Sanyo taking initiative marketing to global automakers

ToshibaAnnounced joint development of EV LIB / motor with VW in Feb '09; will also supply MMC, Honda

BYD Company (China)Tie-up for R&D tie-up for HEVs/EVs with VW (annc'd May '09); tie-up with Daimler; supply battery packs to BYD Auto

LG Chem (Korea) Will produce/supply battery cells

A123 Systems (US) Supply to auto, ESS, military etc. applications

JV among Battery, auto parts / systems makers

Battery maker solo supply

Auto maker + Battery maker JV


03 July 2012


Figure 24: Overview of relationships between xEV makers and their battery suppliers Battery Cell / Pack Supplier Auto OEM Customer (includes estimates)

Battery technologies Japan Korea US Europe China, other

Cathode material

Cell format Features Toyota Nissan Honda M'bishi FujiHyundai

/ KiaGM Ford Chrysler

VW/ Audi

BMWDaimler/ M.Fuso

Renault PSA BYD SAIC Th!nk Other

PEVE LNO PrismaticEnergy density high, but issues still remain with safety and mass-production technology.

1 ○

Nissan/AESC LNMO LaminateSafety enhanced by patented spinel structure. Laminate format with high level of heat dispersal used.

5 ○ ○ ○ ○ ○

Panasonic /Sanyo Electric*

NMC Prismatic Sanyo has developed an improved NMC cathode. 6 ○ ○ ○ ○ ○ ○

LEJ LMO Prismatic One of first to begin mass production of EV batteries. 3 ○ ○ ○

BE NMC Prismatic Will begin by supplying batteries for Honda HEVs. 1 ○

HVE LMOCylindrical / Prismatic / laminate?

Aims to supply batteries as package with Hitachi inverters, motors. 1 ○

Toshiba LMO PrismaticLTO anode with high I/O power density used. Also safer than graphite anode, and has better cycle characteristic.

4 ○ ○ ○ ○

LG Chem/ Compact Power

LMO LaminateExperienced in manufacturing laminate-type batteries as producer of small LIBs. Cathode materials and electrolyte solutions largely made in-house.

8 ○ ○ ○ ○ ○ ○ ○ ○

Samsung SDI/ SBLimotive

LMO PrismaticWith expertise in small LIBs, SDI is responsible for battery cell production.

5 ○ ○ ○ ○ ○

SK Innovation LMO LaminateHas proprietary separator technology, but no experience in mass-producing small LIBs.

3 ○ ○ ○

Johnson Controls

LNO One of first to start mass producing batteries for HEVs (for BMW). 6 ○ ○ ○ ○ ○ ○

A123 Systems LFPCylindrical / Prismatic / laminate?

LFP is very safe and there are no constraints on Fe (iron) supply. Energy capacity is low, however. Most orders for trucks / buses.

6 ○ ○ ○ ○ ○

EnerDel NMC/LMO LaminateAcquired LIB technology from Delphi, which was involved in GM's first EV project (EV1).

2 ○ ○

Tesla LCO/NCA**Cylindrical for

consumer electronics

Strength lies in technology for pack control of several thousand small LIB cells.

3 ○ ○ ○

BYD LFP Manufacturers LFP cathodes in-house; also has own auto brand. 4 ○ ○ ○ ○

Wanxiang-Ener1 LMOAims to market to existing customers of Wanxiang, China's largest auto parts maker.

1 ○

China BAK LFP Won contract to supply batteries for Chery's EVs. 1 ○

Number of battery suppliers (includes estimates) 3 1 3 3 1 3 3 3 2 4 4 7 2 2 1 2 1 14

Company# of cust.

wins


03 July 2012


Do xEVs make economic sense? It is a matter of public knowledge that xEVs remain far more expensive than their gasoline- and diesel-powered equivalents. Below, we examine the extent to which battery costs must fall for consumers to feel that they will not suffer a loss from the standpoint of lifetime costs.

xEVs still run counter to economic rationality Even HEVs not necessarily cheaper than gasoline-powered vehicles in comparison of lifetime costs

We compared lifetime costs for two types of ICE vehicle (gasoline or diesel) and three types of xEV (HEV, PHV, and EV), setting certain parameters for both initial costs and running costs. Somewhat surprisingly, even HEVs turn out to be more expensive than ICE vehicles from the standpoint of lifetime cost. In Japan, the distance travelled each year tends to be smaller than either the US or Europe; as such, savings on one’s gasoline bill will not necessarily make up for the initial purchase cost differential. Furthermore, technical advances tend to be swifter than for ordinary gasoline-powered vehicles. Whereas the latter have a useful life of maybe eight or ten years, xEVs will likely be replaced after a shorter period, leaving less time to recoup the initial purchase cost differential. Assuming a useful life of five years, the cost per kWh for LiBs would need to fall to around $250 for PHVs and EVs to compare with gasoline-powered vehicles in terms of lifetime cost. Most forecasts do not have LiB costs dropping that much until 2020 at least.

In short, one cannot really say that xEVs are cheaper from the standpoint of total costs, where fuel costs and so forth are taken into account. The appeal for consumers will inevitably lie more in such aspects as brand equity, "early adopter" status, and satisfaction in being environmentally aware. However the biggest hurdle for consumers to purchase an xEV will be the high initial cost, so unless the initial cost gap with ICE vehicles becomes sufficiently narrow, we find it hard to imagine the above characteristics alone fueling an large increase in sales.

Figure 25: Calculating lifetime costs for ICE vehicles and xEVs, and maximum battery cost at which latter make

economic sense (in Japan) Battery Breakeven Analysis (JPN) Gasoline ICE Diesel HEV PHEV EV

Assumptions Base Car Price $ 18,000 $ 19,000 $ 22,000 $ 24,000 $ 25,000

Annual driving distance (km) 8,000 Battery Costs $ - $ - $ 1,800 $ 7,500 $ 15,000

Lifecyle (years) 5 Tax Credit $ - $ - $ 3,000 $ 5,000 $ 10,000

Purchase Costs $ 18,000 $ 19,000 $ 20,800 $ 26,500 $ 30,000

Fuel efficiency (km/L) Gas ICE 14

Fuel efficiency (km/L) Diesel ICE 16 Annual Fuel Costs $ 1,119 $ 754 $ 716 $ 119 $ -

Fuel efficiency (km/L) HEV 21 Annual Electricity Costs $ - $ - $ - $ 277 $ 346

Fuel efficiency (km/L) ICE of PHEV 25 Annual Maintenance $ 600 $ 600 $ 720 $ 810 $ 900

PHEV Gas ratio 20% Annual Costs $ 1,719 $ 1,354 $ 1,436 $ 1,206 $ 1,246

Effective Gasoline Price ($/L) 1.89$ PV Total costs $ 25,651 $ 25,026 $ 27,193 $ 31,871 $ 35,549

Diesel Price ($/L) 1.51$ Cost per km $ 0.641 $ 0.626 $ 0.680 $ 0.797 $ 0.889

Battery Price ($/kWh) 750$ INITIAL purchase cost dif ferential ($) vs. Gasoline $ (2,800) $ (8,500) $ (12,000)

HEV Battery Size (kWh) 1.2 INITIAL purchase cost dif ferential ($) vs. Diesel $ (1,800) $ (7,500) $ (11,000)

PHEV Battery Size (kWh) 5

EV Battery Size (kWh) 20 Lifetime total cost differential ($) vs. Gasoline $ (1,541) $ (6,220) $ (9,897)

Lifetime total cost differential ($) vs. Diesel $ (2,166) $ (6,845) $ (10,523)

Electricity Price ($/kWh) 0.28$

Battery milage (km/kWh) 6.4 Max Battery Cost ($/KW), vs. Gasoline $ 216 $ 256 $ 255

Discount Rate 4% Max Battery Cost ($/KW), vs. Diesel $ (305) $ 131 $ 224 Source: Credit Suisse estimates

03 July 2012


Maintenance costs a potential barrier

In calculating lifetime costs for xEVs, maintenance costs may present a surprisingly large obstacle. In our simulation, we assume annual maintenance costs for xEVs are 1.2–1.5 greater than for ICE vehicles. In reality, though, costs could be higher still, as in addition to the usual expertise required of an automotive mechanic, those engaged in xEV maintenance also will need to be proficient in other areas such as electronics and software. If xEVs cannot be serviced by regular mechanics, and can only undergo repairs at registered dealers, the result is extra work for the consumer. This kind of intangible cost could end up making eEVs less attractive. As such we think that an extensive maintenance network will be just as important as charging facilities if xEVs are to garner greater market share.

Battery cost must come down to $250/kWh if EVs are to make sense economically

In our simulation, the base-case scenario demands that battery costs drop to $250/kWh for the purchase of an EV to be justified in terms of economic rationality. There are of course many variables, including years in service, annual driving distance, cost of electricity, and the base car price. A higher battery cost may be justified if one or more of these change in a favorable direction. The reality is, however, that battery costs are unlikely to come down this far in the next few years, so manufacturers would need to increase the attractiveness of the vehicles in addition to diligently lowering initial costs.

Figure 26: Calculating maximum battery cost at which EV would match gasoline-powered vehicle in terms of lifetime

cost; analysis of sensitivity to key variables (in Japan) EV

-60% -30% - 30% 60% 30% 15% - -15% -30%

$ 255 2.0 3.5 5.0 6.5 8.0 $ 255 $0.36 $0.32 $0.28 $0.24 $0.19

-40% $1.13 $152 $154 $156 $157 $158 -40% $1.13 $132 $144 $156 $167 $179

-30% $1.32 $163 $172 $180 $188 $196 -30% $1.32 $157 $169 $180 $192 $204

-20% $1.51 $173 $190 $205 $220 $234 -20% $1.51 $182 $194 $205 $217 $228

-10% $1.70 $184 $208 $230 $251 $271 -10% $1.70 $207 $219 $230 $242 $253

- $1.89 $195 $226 $255 $283 $309 - $1.89 $232 $244 $255 $267 $278

10% $2.08 $205 $244 $280 $314 $347 10% $2.08 $257 $268 $280 $292 $303

20% $2.27 $216 $262 $305 $346 $384 20% $2.27 $282 $293 $305 $316 $328

30% $2.46 $226 $280 $330 $377 $422 30% $2.46 $307 $318 $330 $341 $353

40% $2.65 $237 $297 $355 $409 $460 40% $2.65 $332 $343 $355 $366 $378

8% 4% - -4% -8% -50% -25% - 25% 50%

$ 255 27,000 26,000 25,000 24,000 23,000 $ 255 4,000 6,000 8,000 10,000 12,000

-40% $1.13 $56 $106 $156 $206 $256 -40% $1.13 $119 $137 $156 $174 $192

-30% $1.32 $80 $130 $180 $230 $280 -30% $1.32 $132 $156 $180 $205 $229

-20% $1.51 $105 $155 $205 $255 $305 -20% $1.51 $144 $175 $205 $236 $266

-10% $1.70 $130 $180 $230 $280 $330 -10% $1.70 $157 $193 $230 $267 $304

- $1.89 $155 $205 $255 $305 $355 - $1.89 $169 $212 $255 $298 $341

10% $2.08 $180 $230 $280 $330 $380 10% $2.08 $182 $231 $280 $329 $378

20% $2.27 $205 $255 $305 $355 $405 20% $2.27 $194 $250 $305 $360 $416

30% $2.46 $230 $280 $330 $380 $430 30% $2.46 $207 $268 $330 $391 $453

40% $2.65 $255 $305 $355 $405 $455 40% $2.65 $219 $287 $355 $423 $490

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Color coding:NOT Economic, even at long-term target ($300/kWh)Expected to be Economic between 2012-2020Economic with current battery costs ($750/kWh)


03 July 2012


While change in external factors affecting running costs can significantly influence buyer sentiment toward xEVs, a reduction in initial purchase costs would have a greater impact on lifetime costs.

The variables affecting xEV lifetime costs can be broadly categorized as either external factors or factors pertaining to the base car price. Among the former we count gasoline and electricity prices, while the latter include the cost of battery and drivetrain systems, and the car body cost, among others.

In the US, HEV sales display a strong correlation with the price of gasoline, however the overall cost advantage in buying an xEV at times of rising gasoline costs is surprisingly small. By the same token, there is very little disadvantage in buying a PHV or EV at times when electricity costs are rising.

Even if, for example, the cost of gasoline is 40% less than anticipated over the lifetime of an EV (here we assume a useful life of five years), we calculate a reduction in gasoline costs of only $447 over one year, and $2,235 over five years. This amounts to just 5.6% of a base car cost of $40,000; in other words, a 5.6% reduction in the EV base car cost would be sufficient to offset the loss of an EV cost advantage when gasoline is 40% cheaper than anticipated. Similarly, if the cost of electricity is 40% greater than anticipated, we calculate that the increase in recharging costs over five years would amount to just 1.7% of the EV’s base car cost, which is extremely insignificant.

We see only a slim likelihood of gasoline costs consistently remaining 40% lower than we currently anticipate, or of electricity costs remaining 40% higher. Even if this were the case, the impact could be offset by lowering EVs' initial costs. Over a period of five years, we would expect the base car cost for EVs to decline progressively. As such a commensurate reduction in initial costs should not be overly difficult, providing change in gasoline and electricity costs is not too extreme. (Note: the above calculations are based on assumptions for the Japanese market)

Figure 27: Comparison of PHV/EV base car costs with impact on costs from change in

gasoline and electricity prices (assuming five-year useful life for PHV/EVs) PHEV EV PHEV EV

$31,500 $40,000 $31,500 $40,0000% 0% 0% 0%

40% $2.65 7.1% 5.6% -40% $0.17 1.8% 1.7%

30% $2.46 5.3% 4.2% -30% $0.19 1.3% 1.3%

20% $2.27 3.6% 2.8% -20% $0.22 0.9% 0.9%

10% $2.08 1.8% 1.4% -10% $0.25 0.4% 0.4%

- $1.89 - - - $0.28 - -

-10% $1.70 -1.8% -1.4% 10% $0.30 -0.4% -0.4%

-20% $1.51 -3.6% -2.8% 20% $0.33 -0.9% -0.9%

-30% $1.32 -5.3% -4.2% 30% $0.36 -1.3% -1.3%

-40% $1.13 -7.1% -5.6% 40% $0.39 -1.8% -1.7%

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03 July 2012


Supplementary materials Figure 28: Calculating maximum battery cost at which PHV would match gasoline-powered vehicle in terms of lifetime

cost; analysis of sensitivity to key variables (in Japan) PHEV

-60% -30% - 30% 60% 30% 15% - -15% -30%

$ 256 2.0 3.5 5.0 6.5 8.0 $ 256 $0.36 $0.32 $0.28 $0.24 $0.19

-40% $1.13 ($158) ($128) ($100) ($73) ($49) -40% $1.13 ($174) ($137) ($100) ($63) ($26)

-30% $1.32 ($120) ($64) ($11) $39 $86 -30% $1.32 ($85) ($48) ($11) $26 $63

-20% $1.51 ($82) $0 $78 $151 $221 -20% $1.51 $4 $41 $78 $115 $152

-10% $1.70 ($44) $64 $167 $264 $355 -10% $1.70 $93 $130 $167 $204 $241

- $1.89 ($7) $129 $256 $376 $490 - $1.89 $182 $219 $256 $293 $330

10% $2.08 $31 $193 $345 $489 $624 10% $2.08 $271 $308 $345 $382 $419

20% $2.27 $69 $257 $434 $601 $759 20% $2.27 $360 $397 $434 $471 $508

30% $2.46 $106 $321 $523 $714 $893 30% $2.46 $449 $486 $523 $560 $597

40% $2.65 $144 $385 $612 $826 $1,028 40% $2.65 $538 $575 $612 $649 $686

8% 4% - -4% -8% -50% -25% - 25% 50%

$ 256 26,000 25,000 24,000 23,000 22,000 $ 256 4,000 6,000 8,000 10,000 12,000

-40% $1.13 ($500) ($300) ($100) $100 $300 -40% $1.13 ($243) ($172) ($100) ($28) $44

-30% $1.32 ($411) ($211) ($11) $189 $389 -30% $1.32 ($199) ($105) ($11) $83 $177

-20% $1.51 ($322) ($122) $78 $278 $478 -20% $1.51 ($154) ($38) $78 $194 $311

-10% $1.70 ($233) ($33) $167 $367 $567 -10% $1.70 ($110) $29 $167 $306 $444

- $1.89 ($144) $56 $256 $456 $656 - $1.89 ($65) $95 $256 $417 $578

10% $2.08 ($55) $145 $345 $545 $745 10% $2.08 ($21) $162 $345 $528 $711

20% $2.27 $34 $234 $434 $634 $834 20% $2.27 $24 $229 $434 $639 $845

30% $2.46 $123 $323 $523 $723 $923 30% $2.46 $68 $296 $523 $751 $978

40% $2.65 $212 $412 $612 $812 $1,012 40% $2.65 $113 $362 $612 $862 $1,111

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Figure 29: Calculating maximum battery cost at which EV would match gasoline-powered vehicle in terms of lifetime

cost; analysis of sensitivity to key variables (in Japan) EV

-60% -30% - 30% 60% 30% 15% - -15% -30%

$ 255 2.0 3.5 5.0 6.5 8.0 $ 255 $0.36 $0.32 $0.28 $0.24 $0.19

-40% $1.13 $152 $154 $156 $157 $158 -40% $1.13 $132 $144 $156 $167 $179

-30% $1.32 $163 $172 $180 $188 $196 -30% $1.32 $157 $169 $180 $192 $204

-20% $1.51 $173 $190 $205 $220 $234 -20% $1.51 $182 $194 $205 $217 $228

-10% $1.70 $184 $208 $230 $251 $271 -10% $1.70 $207 $219 $230 $242 $253

- $1.89 $195 $226 $255 $283 $309 - $1.89 $232 $244 $255 $267 $278

10% $2.08 $205 $244 $280 $314 $347 10% $2.08 $257 $268 $280 $292 $303

20% $2.27 $216 $262 $305 $346 $384 20% $2.27 $282 $293 $305 $316 $328

30% $2.46 $226 $280 $330 $377 $422 30% $2.46 $307 $318 $330 $341 $353

40% $2.65 $237 $297 $355 $409 $460 40% $2.65 $332 $343 $355 $366 $378

8% 4% - -4% -8% -50% -25% - 25% 50%

$ 255 27,000 26,000 25,000 24,000 23,000 $ 255 4,000 6,000 8,000 10,000 12,000

-40% $1.13 $56 $106 $156 $206 $256 -40% $1.13 $119 $137 $156 $174 $192

-30% $1.32 $80 $130 $180 $230 $280 -30% $1.32 $132 $156 $180 $205 $229

-20% $1.51 $105 $155 $205 $255 $305 -20% $1.51 $144 $175 $205 $236 $266

-10% $1.70 $130 $180 $230 $280 $330 -10% $1.70 $157 $193 $230 $267 $304

- $1.89 $155 $205 $255 $305 $355 - $1.89 $169 $212 $255 $298 $341

10% $2.08 $180 $230 $280 $330 $380 10% $2.08 $182 $231 $280 $329 $378

20% $2.27 $205 $255 $305 $355 $405 20% $2.27 $194 $250 $305 $360 $416

30% $2.46 $230 $280 $330 $380 $430 30% $2.46 $207 $268 $330 $391 $453

40% $2.65 $255 $305 $355 $405 $455 40% $2.65 $219 $287 $355 $423 $490

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03 July 2012



economic sense (in Japan)

Battery Breakeven Analysis (JPN) Gasoline ICE Diesel HEV PHEV EV



Lifecyle (years) 5 Tax Credit $ - $ - $ 3,000 $ 5,000 $ 10,000

Purchase Costs $ 18,000 $ 19,000 $ 20,800 $ 26,500 $ 30,000


Fuel efficiency (km/L) Diesel ICE 16 Annual Fuel Costs $ 1,119 $ 754 $ 716 $ 119 $ -






Battery Price ($/kWh) 750$ INITIAL purchase cost differential ($) vs. Gasoline $ (2,800) $ (8,500) $ (12,000)

HEV Battery Size (kWh) 1.2 INITIAL purchase cost differential ($) vs. Diesel $ (1,800) $ (7,500) $ (11,000)


EV Battery Size (kWh) 20 Lifetime total cost dif ferential ($) vs. Gasoline $ (1,541) $ (6,220) $ (9,897)

Lifetime total cost dif ferential ($) vs. Diesel $ (2,166) $ (6,845) $ (10,523)


Battery milage (km/kWh) 6.4 Max Battery Cost ($/KW), vs. Gasoline $ 216 $ 256 $ 255

Discount Rate 4% Max Battery Cost ($/KW), vs. Diesel $ (305) $ 131 $ 224 Source: Credit Suisse estimates


economic sense (in the US)

Battery Breakeven Analysis (US) Gasoline ICE Diesel HEV PHEV EV



Lifecyle (years) 5 Tax Credit $ - $ - $ - $ 2,900 $ 7,500

Purchase Costs $ 18,000 $ 19,000 $ 23,800 $ 28,600 $ 32,500


Fuel efficiency (km/L) Diesel ICE 16 Annual Fuel Costs $ 914 $ 825 $ 585 $ 98 $ -









EV Battery Size (kWh) 20 LIFETIME total cost dif ferential ($) vs. Gasoline $ (4,869) $ (8,610) $ (12,654)

LIFETIME total cost dif ferential ($) vs. Diesel $ (4,266) $ (8,007) $ (12,051)


Battery milage (km/kWh) 6.4 Max Battery Cost ($/KW), vs. Gasoline $ (2,558) $ (222) $ 117

Discount Rate 4% Max Battery Cost ($/KW), vs. Diesel $ (2,055) $ (101) $ 147 Source: Credit Suisse estimates

03 July 2012



economic sense (in Europe)

Battery Breakeven Analysis (EU) Gasoline ICE Diesel HEV PHEV EV



Lifecyle (years) 5 Tax Credit $ - $ - $ - $ 2,900 $ 7,500

Purchase Costs $ 18,000 $ 19,000 $ 23,800 $ 28,600 $ 32,500


Fuel efficiency (km/L) Diesel ICE 16 Annual Fuel Costs $ 1,637 $ 1,240 $ 1,047 $ 175 $ -









EV Battery Size (kWh) 20 Lifetime total cost dif ferential ($) vs. Gasoline $ (3,711) $ (6,417) $ (10,288)

Lifetime total cost dif ferential ($) vs. Diesel $ (4,479) $ (7,185) $ (11,056)


Battery milage (km/kWh) 6.4 Max Battery Cost ($/KW), vs. Gasoline $ (1,593) $ 217 $ 236

Discount Rate 4% Max Battery Cost ($/KW), vs. Diesel $ (2,232) $ 63 $ 197 Source: Credit Suisse estimates

Figure 33: Capacity expansion plans by material (cathode material) Material Company Location Completion Comments

Cathode Mitsubishi Chemical Mizushima 600 MT/yr 1,600 MT/yr Oct 2010

material 12,800 MT/yr By 2015 Targeting total 15,000t in Japan by 2015

Tanaka Chemical Fukui 6,000 MT/yr 11,000 MT/yr Mar 2011

Toda Kogyo Onoda 3,000 MT/yr 2012 Majority is NCA but will increase NMC portion

Kita-Kyushu 3,400 MT/yr 2012

US 1,400 MT/yr 2012 Planning expansion into China as well

Nippon Denko Takaoka 6,700 MT/yr 80-100k? MT/yr 2014-? Planning for plant beyond 6,700t

BASF US (Ohio) - ?? 2012 New auto LIB cathode (NMC) plant (capex: $50M+ w/ $24.6M US DOE grant)

JGC C&C Niigata 1,000 MT/yr 500 MT/yr FY2010

500 MT/yr FY2011

Mitsui Mining & Smelting Hiroshima 960 MT/yr 11,040 MT/yr 2012 Build new auto-LIB LMO plant (1,000t/mo.); MP from 2012; total capex 7bn yen

JX Nippon M & M Kita-Ibaraki 300 MT/yr 4,700 MT/yr Apr 2012 Expand to 5,000t/yr w/ 9.2bn yen capex for NMC; target 20-30% share in 2020

Sumitomo Osaka Cement Vietnam 150 MT/yr 2,000 MT/yr 1H FY2012 Build LFP material plant in Vietnam (2,000t/yr); for Eliipower

Mitsui Eng. & Shipbuilding Chiba - 2,000 MT/yr FY2012 Build LFP material plant in Chiba

JNC (Chisso subsid.) Minamata 1,000 MT/yr 2012 JV with H.C. Starck (Gr) (CS Energy Materials); may expand up to 10,000 t/yr

New capacity TOTAL 56,300 MT/yr

New capacity EV unit equivalent 1,515 '000 EVs/yr

New capacity PHEV unit equivalent 3,787 '000 PHEVs/yr

Current capacity New capacity


03 July 2012


Figure 34: Capacity expansion plans by material (anode material) Material Company Location Completion Comments

Anode Mitsubishi Chemical Sakade 3,000 MT/yr 4,000 MT/yr May 2011 Add 5,000t each by Dec '10 and May '11

material China (Tsingtao) - 4,000 MT/yr Mar 2012 100% subsidiary established Oct '10; start ops by Mar 2012

24,000 MT/yr By 2015 Targeting total 35,000t by 2015

Tokai Carbon Hofu 3,000 MT/yr 12,000 MT/yr 2015 Targeting 5x current capacity (15k tons) by 2015

Nippon Carbon Shiga 3,000 MT/yr 3,000 MT/yr 2012 Targeting auto Lib market; start production from around Fall '12

Showa Denko Nagano 1,000 MT/yr 2,000 MT/yr 2012 Expand "SCMG" capacity to 3,000t by de-bottlenecking

Nagano / other - 5,000 MT/yr Around 2013 Developed new low-cost material ("SCMG-BR"); also considering overseas plant

Hitachi Chemical Hitachi ?? ?? Dec 2010 Total capex 10bn yen in multiple phases (first phase 2bn investment)

Nippon Power Graphite 200 MT/yr 1,800 MT/yr 2015 60:40 JV betwn Nippon Coke & Eng. / Sumitomo Corp.

Kureha Iwaki 600 MT/yr 1,000 MT/yr Jan 2012

Kureha/Itochu US (Midwest) 1,000+ MT/yr 2013 Plan to supply to Enerdel

Kureha/Kuraray - 4,000 MT/yr 2013 Initial M.P. of plant-derived hard carbon ("Biocarbotron") in 2013 @1k MT/yr

JX Nippon Oil & Energy Korea - 4,000 MT/yr Mid-2012 JV with GS Caltex; initial capacity 2,000t with plans to increase to 4,000t

Aekyung Petro - - ?? ?? MOU with SK Energy; developing hard-carbon anode materials

Posco Chemtech - - ?? ?? Targeting M.P. in 2013-2014 (artificial graphite); also developing LTO






Figure 35: Capacity expansion plans by material (separator) Material Company Location Completion Comments

Separator Asahi Kasei Moriyama/Hyuga 55 mn sqm/yr By Jun 2011 Begin M.P. by June 2011 in 3 phases

Hyuga 50 mn sqm/yr Spr. 2013 Begin M.P. by spring 2013, investing approx. 6bn yen

Korea - - By 2H 2011 Back-end processing plant (import original separator from Japan)

Mitsubishi Chemical 12 mn sqm/yr 60 mn sqm/yr By 2015 "Dry" type; 27mn sqm/yr by sum. 2012, eventuall target total 72mn sqm/yr by 2015

Toray Korea 30 mn sqm/yr 40 mn sqm/yr 2H 2012 Expand Korea plant by investing approx. 5bn yen

Sumitomo Chemical Niihama 25 mn sqm/yr 25 mn sqm/yr FY2012

Ube Industries Ube/Sakai ?? ?? By FY2014-end Add auto-LiB dry separator capacity at Sakai (new; M.P. FY13-) & Ube (expansion)

Sakai ?? ?? FY2010 Created JV w/ Hitachi Maxell (51% Ube); will sell own products as well as JV's

Teijin Asan (Korea) - ?? From Jun 2012 Manufacturing JV w/ CNF; sales target Y2bn ('12), Y10bn ('15), Y20bn ('20)

SK Innovation Chung Joo 58 mn sqm/yr 72 mn sqm/yr 2010 For small LIB　　　　Mkt share target of 30% in 2013,

Jeung Pyoeng - 72 mn sqm/yr 2012 For auto LIB　　　　 40% by 2015

W-Scope Ochang (Korea) 70 mn sqm/yr 40 mn sqm/yr Mar 2012 Wet-type for auto-use LiBs; total capacity 110mn sqm w/ 3rd line completion

80 mn sqm/yr Apr 2013 Total capacity 190mn sqm w/ completion of 4th, 5th lines (each 40mn sqm/yr)

Celgard (Polypore) US ?? ?? By 2012? Expansion using DOE grants + new plant by 2012 to approx. 2.5x current capacity

DuPont US ?? ?? ?? Sales from 2011 (target: 20% of HEV/EV demand); proprietary nanofiber tech

JNC (Chisso subsid.) Ichihara - 15-20 mn sqm/yr 2013 Pilot plant from Mar 2011, aim for commercial shipment from 2013

New capacity TOTAL 952 mn sqm/yr




mn sqm/yr150


03 July 2012


Figure 36: Capacity expansion plans by material (electrolyte) Material Company Location Completion Comments

Electrolyte Mitsubishi Chemical Yokkaichi 8,500 MT/yr 5,000 MT/yr Feb 2012 Targeting total 50,000t by 2015, of which +5,000t from Feb 2012

UK - 10,000 MT/yr Fall 2011 Approx. 2.5bn yen capex; aiming to start operations in Fall 2011

USA - 10,000 MT/yr Sum. 2012 Approx. 2.5bn yen capex; aiming to start operations in Summer 2012

China (Jiangsu) - 10,000 MT/yr By 2012-end Approx. 2.5bn yen capex; aiming to start operations by end of 2012

6,500 MT/yr By 2015 Targeting total 50,000t capacity worldwide by 2015

Central Glass Ube/Kawasaki 500 MT/yr 5,000 MT/yr Spr. 2011 Full-scale shipment from FY12

China - 10,000 MT/yr Mid-2012 Integrated salt/electrolyte prd. process @JV. See below for details

Ube Industries Sakai 5,000 MT/yr 5,000 MT/yr Apr 2012 Expand to 2x with 1.5bn capex; additional capacity for auto LiB

[JV w/ Dow Chem] US - 5,000-10,000 MT/yr 1Q 2013 Build 5k-10k ton/yr plants in US/Eur/China via JV w/ Dow Chemical by 2013

[JV w/ Dow Chem] China - 5,000-10,000 MT/yr 1Q 2013 Build 5k-10k ton/yr plants in US/Eur/China via JV w/ Dow Chemical by 2013

[JV w/ Dow Chem] Europe (Spain?) - 5,000-10,000 MT/yr 2014 or later Plan by FY13; establish global 4-point production base by FY15






Figure 37: Capacity expansion plans by material (electrolyte salt, copper foil) Material Company Location Completion Comments

LiPF6 Stella Chemifa Osaka 1,300 MT/yr 1,300 MT/yr Expansion planned in stages

US / Europe - ?? ?? In discussions with Mitsubishi Chem regarding construction of joint plants / ops

Kanto Denka Kogyo Mizushima 1,300 MT/yr 700 MT/yr May 2011 Expand LiPF6 capacity

1,000 MT/yr Mar 2012 Expand LiPF6 capacity

Shibukawa - 150 MT/yr Mar 2012 First commercial LiBF4 plant

Morital Chemical China 1,200 MT/yr 4,800 MT/yr ?? Eventually expand to 6,000t

Central Glass China - Equiv. of 1,000-2,000 MT/yr? Mid-2012 Established 70% JV in China. Use original integrated salt/electrolyte prd. process

Daikin Industries Osaka 200 MT/yr 800 MT/yr Max expansion to 1,000t possible

Foosung Korea 1,000 MT/yr 2,000 MT/yr 2013 Capacity: 1,000t/yr (Dec'10) → 2,000t/yr(Sep'11) → 3,000t/yr(2013)

Honeywell US - ?? ?? Aim for M.P. in US using DOE grant ($27.3m) after pilot prdn.




Cu foil Furukawa Electric Nikko / Taiwan 60 mn sqm/yr 120 mn sqm/yr Jul 2012- Front-load start of TW ops to Jul'12 as production cost (electricity) is cheaper

Mitsui Mining & Smelting Malaysia? - ?? ?? Currently testing at customers; aiming for entry into auto market by FY14

JX Nippon M & M - ?? ?? Currently testing at customers; will make capex decisions based on market

New capacity TOTAL 120 mn sqm/yr

New capacity EV unit equivalent 622 '000 EVs/yr




03 July 2012


Figure 38: Company valuations: battery makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ BATTERY MAKERS]6501 Hitachi N JPY 410 485 -15% 28,245 10.1 x 9.6 x 1.2 x 1.1 x 4.4 x 4.2 x 12.1% 11.6%

6502 Toshiba N JPY 350 302 16% 16,069 10.7 x 7.4 x 1.4 x 1.2 x 4.5 x 3.8 x 13.4% 17.0%

6674 GS Yuasa O/P JPY 410 371 11% 1,924 10.9 x 10.6 x 1.1 x 1.1 x 5.9 x 5.2 x 10.4% 10.0%

6701 NEC N JPY 180 125 44% 4,081 8.1 x 6.9 x 0.5 x 0.5 x 0.7 x 0.7 x 5.9% 6.6%

6752 Panasonic Corporation O/P JPY 700 629 11% 18,274 38.8 x 11.7 x 0.7 x 0.7 x 4.6 x 4.0 x 1.9% 6.1%

6758 Sony N JPY 1,750 1,117 57% 14,085 - 24.9 x 0.5 x 0.5 x 4.4 x 2.3 x -10.0% 2.0%

7011 Mitsubishi Heavy Industries - JPY n.a. 322 - 13,574 19.5 x 14.5 x 0.8 x 0.8 x 6.6 x 5.8 x 4.6% 5.9%

006400.KS Samsung SDI N KRW 140,000 150,000 -7% 5,966 22.0 x 23.1 x 1.1 x 1.0 x 7.2 x 7.4 x 5.0% 4.6%



1211.HK BYD Co Ltd - HKD n.a. 14.6 - 6,478 22.6 x 16.0 x 1.2 x 1.2 x 9.4 x 8.3 x 0.1 x 0.1 x

CBAK.OQ China Bak - USD n.a. 0.6 - 37 - - - - - - - -

JCI Johnson Controls O/P USD 39.0 27.7 41% 18,853 10.4 x 8.6 x 1.5 x 1.3 x 7.8 x 6.5 x 14.8% 15.4%

S1A.PA Saft Groupe - EUR n.a. 18.9 - 600 9.7 x 8.9 x 1.1 x 1.0 x 5.2 x 4.8 x 12.2% 12.4%

AONE A123 Systems - USD n.a. 1.3 - 185 - - 2.5 x 19.4 x - - - -

TSLA.OQ Tesla Motors - USD n.a. 31.3 - 3,292 - 49.2 x - - - - - -

AVERAGE 14.9 x 14.6 x 1.2 x 2.3 x 5.6 x 4.8 x 8.1% 10.1%

* ROE = net profit / common equity for global comparison purposes Source: Company data, Credit Suisse estimates

Figure 39: Company valuations: cathode material makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ MATERIAL MAKERS]

Cathode materials

4005 Sumitomo Chemical O/P JPY 330 250 32% 5,135 11.4 x 7.9 x 0.8 x 0.8 x 6.6 x 6.3 x 7.1% 9.5%

4080 Tanaka Chemical - JPY n.a. 483 - 77 - - - -

4092 Nippon Chem Indl - JPY n.a. 122 - 137 - - - -

4094 Nihon Kagaku Sgy - JPY n.a. 570 - 148 - - - -

4100 Toda Kogyo - JPY n.a. 420 - 255 7.3 x 8.2 x - -

4188 Mitsubishi Chemical Holdings O/P JPY 470 352 34% 6,520 13.7 x 7.3 x 0.7 x 0.6 x 5.3 x 4.3 x 4.8% 8.5%

5232 Sumitomo Osaka Cement N JPY 260 262 -1% 1,371 15.6 x 13.5 x 0.8 x 0.8 x 6.0 x 5.7 x 5.2% 5.7%

5563 Nippon Denko O/P JPY 480 306 57% 424 9.8 x 8.6 x 0.6 x 0.6 x 3.3 x 3.0 x 6.2% 6.8%

5706 Mitsui Mining & Smelting O/P JPY 220 177 24% 1,271 8.5 x 6.4 x 0.7 x 0.7 x 5.2 x 4.7 x 8.4% 10.2%

5713 Sumitomo Metal Mining O/P JPY 1,080 895 21% 6,319 6.9 x 6.6 x 0.7 x 0.6 x 4.4 x 6.2 x 10.1% 9.8%

AONE A123 Systems - USD n.a. 1 - 185 - - 2.5 x 19.4 x -1.6 x -3.8 x - -

UMI.BR UMICORE ORD N EUR 46 36 26% 5,209 14.9 x 13.5 x 2.4 x 2.1 x - - 14.9% 14.9%


009830.KS Hanwha Chemical U/P KRW 23,000 21,350 8% 2,615 12.1 x 8.4 x 0.6 x 0.6 x 7.2 x 5.2 x 5.1% 6.9%

600884.SS Shanshan Co - CNY n.a. 12 - 769 - - 1.3 x 1.4 x 7.1% 10.2%

AVERAGE 11.1 x 8.8 x 1.2 x 2.6 x 4.8 x 4.0 x 8.6% 10.3%


Figure 40: Company valuations: anode material makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ MATERIAL MAKERS]

Anode materials

4004 Showa Denko K.K. - JPY n.a. 158 - 2,971 9.9 x 8.0 x 0.8 x 0.8 x 5.4 x 4.8 x 9.7% 11.8%

4023 Kureha O/P JPY 490 345 42% 744 14.4 x 8.2 x 0.7 x 0.6 x 5.1 x 4.1 x 4.5% 7.5%


4217 Hitachi Chemical O/P JPY 1,760 1,247 41% 3,263 12.0 x 9.9 x 0.9 x 0.8 x 3.9 x 3.6 x 7.3% 8.3%

5301 Tokai Carbon O/P JPY 580 348 67% 934 10.3 x 8.4 x 0.7 x 0.6 x 3.6 x 3.0 x 6.4% 7.5%

5302 Nippon Carbon N JPY 230 194 19% 277 8.8 x 6.8 x 0.7 x 0.6 x 3.4 x 2.8 x 7.8% 9.2%


009830.KS Hanwha Chemical U/P KRW 23,000 21,350 8% 2,615 12.1 x 8.4 x 0.6 x 0.6 x 7.2 x 5.2 x 5.1% 6.9%

006840.KS AKP - KRW n.a. 26,800 - 208

003670.KQ POSCO CHEMTECH - KRW n.a. 133,500 - 688 7.8 x 7.3 x 2.0 x 1.6 x 4.5 x 4.0 x 25.6% 22.8%

[Unlisted] JFE Chemical -

AVERAGE 10.6 x 7.8 x 0.9 x 0.8 x 4.8 x 4.1 x 9.4% 10.6% Source: Company data, Credit Suisse estimates

03 July 2012


Figure 41: Company valuations: separator makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ MATERIAL MAKERS]

Separators

3402 Toray Industries O/P JPY 710 544 31% 11,136 13.3 x 11.4 x 1.3 x 1.2 x 6.9 x 6.3 x 9.8% 10.6%

3407 Asahi Kasei N JPY 480 431 11% 7,569 9.3 x 8.2 x 0.8 x 0.7 x 3.5 x 3.3 x 8.6% 9.1%

4005 Sumitomo Chemical O/P JPY 330 250 32% 5,135 11.4 x 7.9 x 0.8 x 0.8 x 6.6 x 6.3 x 7.1% 9.5%


4208 Ube Industries N JPY 200 182 10% 2,299 8.5 x 7.6 x 0.8 x 0.8 x 4.8 x 4.6 x 10.0% 10.2%

PPO Polypore Intl - USD n.a. 40 - 1,879 16.9 x 13.1 x 3.2 x 3.0 x 20.3% 31.7%


DD Du Pont N USD 57 51 13% 47,983 11.8 x 10.3 x 4.3 x 3.4 x 7.7 x 7.0 x 37.3% 33.6%

000973.SZ FSPG Hi-Tech - CNY n.a. 5 - 676 - - 2.2 x 2.1 x

002407.SZ DFD Chemical - CNY n.a. 21 - 724 - - 3.0 x 2.8 x 7.1% 9.1%

AVERAGE 11.4 x 8.9 x 1.6 x 1.4 x 5.7 x 5.2 x 13.9% 15.7%


Figure 42: Company valuations: electrolyte makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ MATERIAL MAKERS]

Electrolytes

4044 Central Glass N JPY 340 317 7% 833 9.2 x 8.3 x 0.5 x 0.5 x 5.3 x 4.7 x 5.9% 6.2%

4183 Mitsui Chemicals N JPY 210 203 3% 2,555 17.7 x 8.5 x 0.5 x 0.5 x 7.8 x 6.5 x 3.1% 6.2%


4208 Ube Industries N JPY 200 182 10% 2,299 8.5 x 7.6 x 0.8 x 0.8 x 4.8 x 4.6 x 10.0% 10.2%


1211.HK BYD Co Ltd - HKD n.a. 15 - 6,478 22.6 x 16.0 x 1.2 x 1.2 x 9.4 x 8.3 x 5.3% 6.8%


[Unlisted] Tomiyama Pure Chemical -

AVERAGE 13.7 x 9.2 x 1.2 x 1.1 x 6.5 x 5.5 x 7.6% 9.6%


Figure 43: Company valuations: electrolyte salt / copper foil makers CS Px Target Current Market P/E (x) P/B (x) EV/EBITDA (x) ROE (%) *


[ MATERIAL MAKERS]

Electrolyte material (LiPF6)

4044 Central Glass N JPY 340 317 7% 833 9.2 x 8.3 x 0.5 x 0.5 x 5.3 x 4.7 x 5.9% 6.2%

4047 Kanto Denka Kogyo - JPY n.a. 256 - 185 22.6 x 10.5 x 0.8 x 0.8 x 3.0% 7.2%

4109 Stella Chemifa N JPY 1,400 1,392 1% 215 12.4 x 10.1 x 0.8 x 0.8 x 5.2 x 4.7 x 6.5% 7.5%


[Unlisted] Morita Chemical

[Unlisted] Ulsan Chemical (Korea)

AVERAGE 14.7 x 9.7 x 1.3 x 1.2 x 5.2 x 4.7 x 5.6% 7.5%

Cu Foil

5801 Furukawa Electric O/P JPY 290 187 55% 1,659 11.8 x 9.8 x 0.8 x 0.8 x 6.8 x 5.9 x 7.2% 8.2%

5706 Mitsui Mining & Smelting O/P JPY 220 177 24% 1,271 8.5 x 6.4 x 0.7 x 0.7 x 5.2 x 4.7 x 8.4% 10.2%

5812 Hitachi Cable - JPY n.a. 172 - 808 - 9.0 x 0.7 x 0.7 x 4.3 x 4.1 x 6.4% 8.2%

103590.KS ILJIN ELECTRIC - KRW n.a. 4,445 - 144 26.5 x 7.3 x - -

AVERAGE 15.6 x 8.1 x 0.8 x 0.7 x 5.4 x 4.9 x 7.3% 8.9%


03 July 2012


Companies Mentioned (Price as of 02 Jul 12) 3M (MMM, $89.60, NEUTRAL, TP $92.00) Asahi Kasei (3407, ¥431, NEUTRAL, TP ¥480, MARKET WEIGHT) Automotive Energy Supply Corp. (Unlisted1) BASF (BASF.DE, Eu54.70, OUTPERFORM, TP Eu67.00) Blue Energy Corp. (Unlisted5) BMW (BMWG.F, Eu56.90, OUTPERFORM, TP Eu80.00) E.I. du Pont de Nemours and Company (DD, $50.57, NEUTRAL, TP $57.00) General Motors Co. (GM, $19.72, OUTPERFORM, TP $40.00) GS Yuasa (6674, ¥371, OUTPERFORM, TP ¥410, MARKET WEIGHT) Honda Motor Corp. (7267, ¥2,730, OUTPERFORM, TP ¥3,400, OVERWEIGHT) Kanto Denka Kogyo Co, Ltd. (4047, ¥256) LG Chem Ltd. (051910.KS, W291,000, OUTPERFORM [V], TP W465,000) Lithium Energy Japan Corp. (Unlisted4) Mitsubishi Chemical Holdings (4188, ¥352, OUTPERFORM, TP ¥470, MARKET WEIGHT) Mitsubishi Corp (8058, ¥1,603, OUTPERFORM, TP ¥1,900, OVERWEIGHT) Mitsubishi Motors (7211, ¥79) NEC (6701, ¥125, NEUTRAL, TP ¥180, MARKET WEIGHT) Nippon Carbon Co, Ltd. (5302, ¥194, NEUTRAL, TP ¥230, MARKET WEIGHT) Panasonic Corporation (6752, ¥629, OUTPERFORM, TP ¥700, MARKET WEIGHT) Primearth EV Energy Co. (Unlisted6) Robert Bosch GmbH (Unlisted2) Samsung Electronics (005930.KS, W1,174,000, OUTPERFORM, TP W1,700,000) Samsung SDI (006400.KS, W150,000, NEUTRAL, TP W140,000) SB LiMotive (Unlisted3) Sony (6758, ¥1,117, NEUTRAL, TP ¥1,750, MARKET WEIGHT) Stella Chemifa (4109, ¥1,392, NEUTRAL, TP ¥1,400) Toda Kogyo Corp (4100, ¥420) Toyota Motor Corp. (7203, ¥3,175, NEUTRAL, TP ¥3,200, OVERWEIGHT) Ube Industries (4208, ¥182, NEUTRAL, TP ¥200, MARKET WEIGHT) Umicore (UMI.BR, Eu36.37, NEUTRAL, TP Eu46.00)

Disclosure Appendix Important Global Disclosures Jun Yamaguchi, Masami Sawato, John Sung, A-Hyung Cho & Patrick Jobin each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

03 July 2012


Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.

Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for 051910.KS 051910.KS Closing

Price Target

Price

Initiation/ Date (W) (W) Rating Assumption 17-7-09 139000 140000 01-10-09 209000 209000 23-6-10 314000 380000 O 06-12-10 385000 450000 08-4-11 479000 570000 20-4-11 549000 600000 21-10-11 343000 530000 27-3-12 358000 490000 20-4-12 315500 465000 140000

209000

380000

450000

570000600000

530000490000

465000

O

134000

184000

234000

284000

334000

384000

434000

484000

534000

584000

Closing Price Target Price Initiation/Assumption Rating

W

O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered

3-Year Price, Target Price and Rating Change History Chart for 005930.KS 005930.KS Closing

Price Target

Price

Initiation/ Date (W) (W) Rating Assumption 07-7-09 650000 740000 20-8-09 740000 860000 23-11-09 759000 940000 05-1-11 942000 1100000 05-1-12 X 15-3-12 1250000 1490000 30-4-12 1390000 1610000 25-6-12 X 26-6-12 1139000 1700000 X

740000

860000940000

1100000

1490000

16100001700000

05-1-12 25-6-1226-6-12620000

820000

1020000

1220000

1420000

1620000


W


03 July 2012


3-Year Price, Target Price and Rating Change History Chart for 006400.KS 006400.KS Closing

Price Target

Price

Initiation/ Date (W) (W) Rating Assumption 22-7-09 104000 108700 N 01-10-09 142000 127000 U 28-4-10 144500 130000 28-10-10 158000 137000 30-5-11 177500 180000 X 29-7-11 170000 N 27-10-11 135500 140000 28-10-11 X 108700

127000 130000137000

180000

140000

30-5-11 28-10-11N

U

N

97000

117000

137000

157000

177000

197000


W


The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Outperform/Buy* 48% (59% banking clients) Neutral/Hold* 41% (57% banking clients) Underperform/Sell* 9% (51% banking clients) Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

03 July 2012


Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

The following disclosed European company/ies have estimates that comply with IFRS: MMM, 3407, BASF.DE, BMWG.F, 6701.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. • Jun Yamaguchi, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Japan) Limited. • Masami Sawato, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Japan) Limited. • John Sung, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited, Seoul Branch. • A-Hyung Cho, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited, Seoul Branch. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.

03 July 2012 Asia Pacific/Japan Equity Research

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