Interactive presentation: Automotive sector outlook

Thomas Steinberger, PwC

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Automotive DisruptionTrends, Technology and Impacts

September 2018, Debtwire Conference

www.pwc.de

2

Global Growth

Automotive is still a growth industry – just not everywhere anymore

Source: Autofacts 2017 Q3 Forecast Release Triad = EU, NAFTA, Japan *Compound Annual Growth Rate

CAGR*09 – 23

3.4%

4.9%

5.2%

9.0%

CAGR*16 – 23

1.4%

5.2%

2.8%

5.1%

Total

Triad

China

ROW

+19.4m

+34.4m

Annual growth: 6.9%+4.9m per year

80

40

120

China2016 ROWROW Triad2009 Triad 2023FChina

155

3

111

14

58

92

8

8

Annual growth: 2.8%+2.8m per year

Global Light Vehicle Assembly: 2009 vs. 2016 vs. 2023 (millions)

Additional production volume

Additional production volume

4

China will be the global growth engine – SUVs as the main driver and the largest segment forwardLight Vehicle Assembly in Key Markets 2010 – 2024F (Index, Base year 2010 = 100)

China: Light Vehicle Assembly by Vehicle Concept 2017-2024F (millions)

Source: Autofacts 2018 Q1 Forecast Release

140

72

41

0

20

40

60

80

100

120

140

160

20142010 20162012 2018F 2020F 2024F2022F

0

5

10

15

20

25

30

35

40

2024F

14.6

2023F

14.8

15.0

14.9

5.25.2

14.1

5.0

0.6

2021F2020F

14.0

0.6

2022F

14.4

14.4

5.1

0.6

2017

4.2

0.5

10.6

11.8

0.5

11.9

0.6

12.0

4.5

2019F

13.2

2018F

13.7

12.8

4.84.6

13.6

0.60.6

Growth

17-24F:

2010 2024F

China 15,7 million 35,8 million

NAFTA 11,9 million 19,2 million

EU 16,3 million 21,1 million

Car:

+26,8%

Van:

+24,4%

Pickup:

+19,7%

SUV:

+41,4%

EU

NAFTA

China

5

User in thespotlight

It‘s gonna be so „eascy“ – the five dimensions of the automotive transformation

electrified

autonomous

shared

connected

yearlyupdated e

as

c

y

7

Would you use autonomously driving cars?

8

People would use autonomously driving cars...

... never

... now 7% 13%24%

72%Potential

Market54% 96%

46%28% 4%

Germany ChinaUSA

4%

9

Would you share cars with other people?

10

PwCAutomotive Trends - Debtwire Conference

11

When asked to share a car with others people would...

... don‘t share it

... share it26%

16%

36%

43% 36%

Germany ChinaUSA

16%

Missing percentage from people being undecided.

57%Potential

Market64% 84%

12

Which features should your next car have?

13

Features the next vehicle must have

Autonomous Drive

Electric Drive

Online Features

Germany ChinaUSA

19%10%

26%

10% 12% 37%

30% 29%56%

14

When do you expect relevant (+25%) marketshares for highly autonomus and electric vehicles?

15

Major impact from new technologies beyond 2025

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20172018201920202021202220232024202520262027202820292030

Europe: Autonomous levels2017-2030 (in %)

0 1 2 3 4 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20172018201920202021202220232024202520262027202820292030

Europe: Powertrain distribution2017-2030 (in %)

Verbrenner Hybrid ElectricAutonomous level

Combustion

16

How will shared services influence the size of thefuture car parc in Europe?

17

In Europe, the total car parc could decrease by asmuch as 29%

-29%

Sharing Services

286

273 187

16

2020 2025 2030

Car parc in million

18

What will happen?

Electrification and autonomous technologies driving the disruption in the industry

„Enablers oftransformation“

„Motivators oftransformation“

connected+

electric

autonomous+

sharedPull

Push

21

20

Engine Share by Configuration 2017 – 2024F (percentage share)

Electric

PHEV

2.0%

Hybrid

(Mild + Full)

Diesel 46.3%49.1% Gasoline

Starting in Europe, we will see significant changes within the combustion engine

Source: Autofacts 2018 Q2 Forecast Release

Less Cylinders

Smaller Engines

Less Diesel

Niche for alternative power train

41%

Diesel

Hybrid

(Mild + Full)

30%

Gasoline16%

Fuell CellElectric

0%

6%PHEV

7%

Vehicle Propulsion2017 vs 2024F (percentage share)

1,730

1,750

1,710

1,720

1,740

0

2017 2023F2019F 2021F

0%

25%

50%

75%

100%

2024F2021F2017 2023F2019F

Average Engine Displacement 2017 vs 2024F (cubic centimeters)

OtherElectricV8I4I3 I6/H6/V6

2017

2024F

1

21

Alternative drivetrains will be the most impor-tant growth area in the foreseeable future

Source: Autofacts 2018 Q2 Forecast Release *BEV = Battery Electric Vehicle, FCV = Fuel Cell Vehicle **excl. BEV/FCV

6,2901,178

1,254

2,743

0,2540,861

Increase

BEV/FCV*

Increase

Plug-In Hybrid

Increase

Full Hybrid

2017 Increase

Mild Hybrid

2024F

EU Powertrain: Alternative Engine Type Distribution2017 vs 2024F (millions)

4,9273,582

0,669

0,676

2024FIncrease

Gasoline

Hybrid

Increase

Diesel

Hybrid

2017

EU Powertrain: Hybrid Distribution**2017 vs 2024F (millions)

1

22

Powertrain will suffer a major disruption

Combustion Electric

~ 4.000 pieces ~ 320 pieces

7 employees 1 employee

Number of pieces powertrain

Number of employees in production

Air- and Fuel

-ManagementTank TransmissionGearshift ElectronicsBattery TransmissionMotor

1

23

The road to autonomous driving …D

rive

rA

uto

ma

tion

Driver tasks

System tasks

Longitudinal and

transverse

guidance

Monitoring n/a n/a

n/a

Longitudinal and

transverse

guidance

Longitudinal and

transverse

guidance

Longitudinal and

transverse

guidance

0 1 2 3 4 5

No

automation

Partial

automation

Conditional

Automation

Full

automation

Highly

Automation

Longitudinal or

transverse

guidance off

Remaining drive

task

Driver

assistance

Driving task

Monitoring

Reaction time

Other activities

Fallback level

Cases

Driver Driver and system System

Driver System

Approx. 1 sec A few seconds A few minutes

No other activity A few All including sleeping

Driver System

N/A Specific situations All situations

In production In development

Source: Strategy&, Verband der Automobilindustrie e.V. (2015, S.14), SAE International (2014a, S.2) und Ebner (2013, S.7), Bachelor thesis Julia Buettler (2016)

Never

2

24

12 seconds

At 150 km/h you were travellinghalf a kilometer during these 12 seconds

Comparison of driver assistance systems

Audi, Tesla and Mercedes are the current frontrunners in autonomous driving

ADAS-Level ADAS functionalities Audi A8Mercedes

S Class

Tesla

Model S

Enabling

technologies

Adaptive High Beams ✓ ✓ ✓

Predictive Automated Re-Routing

Traffic Sign Recognition ✓ ✓ ✓

Driver Monitoring ✓

Predictive Suspension Damping ✓

V2X Communication ✓

Level 0Pre-Collision Braking / Forward Collision Braking ✓ ✓ ✓

Cross-Traffic Alert ✓ ✓ 1

Level 1

Predective and adaptive Cruise Control ✓ ✓ ✓

Assistive Parking - driver assisted ✓ ✓ ✓

Lane Keeping Assist ✓ ✓ ✓

Blind Spot Monitoring ✓ ✓ ✓

Level 2

Assistive Parking - Remote Parking / Key Parking ✓ ✓ ✓

Automated Lane Change / Lane Changing Assist ✓ ✓

Traffic Jam Assistant ✓ ✓ ✓

Level 3

Emergency assistant ✓ ✓

Hands-off traffic jam assist ✓

Highway Autopilot (Single-Lane) ✓ *

Intersection Movement Assist

Level 4Fully Autonomous Valet Parking / Driverless Parking ✓ *

Urban Autopilot / Fully Autonomous Urban Driiving

Level 5 Full Autonomy

* Not allowed in Germany

A8 level 3 certification

in 2018/2019

2

26

Mercedes, TESLA and Audi leading in series driving assistance systems

2

1) Vehicle-related services

2) Digital ecosystem for the vehicle

Short-term Mid-term 2035+

OEMs control vehicle-related Services

Digital ecosystem players compete with OEMs for additional services

Digital ecosystem player control a growing share of the user experience

Full autonomous vehicles – disruptive change

New Services

OEM Operating Model Shift

Security

Well-beingSemi

autonomous

Driving

Vehicle-

management

Entertainment

Mobility-

Management

Home-

Integration

Autonomous

Driving

Pay per use

models

Adapted

infrastructure

“Intelligent”

Vehicles

27

The segemt heatmap shows clear winners and loosers in the upcoming transformation

DamperStabilizer

Suspension

Frame, Engine Suspension

Steering

Wheel, Tire, Accessories

Brake

1

2

3

4

5

6

Total∑

Glazing& Cover

VehicleStructure

Fastening & Adhesive

1

2

3

Total∑

Door systems

Sealing

Exteriorlighting

1

2

3

Total∑

Cockpit

Seats

Cladding

1

2

3

Total∑

PositiveImpact on value contribution: Negative …

CombustionEngine

Fuel System

IntakeSystem

ExhaustSystem

Cooling

Transmission

Engine Management

EnergyStorage

Electric Motor & Generator

1

2

3

4

5

6

7

8

10

Power Electronics

9

Total∑

Powertrain Chassis

ElectricalSystem

Power Supply

Infotainment

Switch& AC Control

Driving Assist-ance System

Chassis Electronics

Body Electronics

1

2

3

4

5

6

7

Interior

AC System

8

10

Security System

9

Total∑

Electric Body Exterior Interior

ContentProvider

Frontend Provider

Cloud solutions

Backend Provider

Cyber security

ArtificialIntelligence

Infrastructure(Mobile Net-workOperator)

1

2

3

4

5

6

7

Total∑

Connected

28

Powertrain most negatively affected – connected and autonomous with huge growth potential

CombustionEngine

Fuel System

IntakeSystem

ExhaustSystem

Cooling

Transmission

Engine Management

EnergyStorage

Electric Motor & Generator

1

2

3

4

5

6

7

8

10

Power Electronics

9

Total∑

Powertrain

ElectricalSystem

Power Supply

Infotainment

Switch& AC Control

Driving Assist-ance System

Chassis Electronics

Body Electronics

1

2

3

4

5

6

7

Interior

AC System

8

10

Security System

9

Total∑

Electric

ContentProvider

Frontend Provider

Cloud solutions

Backend Provider

Cyber security

ArtificialIntelligence

Infrastructure(Mobile Net-workOperator)

1

2

3

4

5

6

7

Total∑

Connected

OEMs will compensateovercapacity by insourcing

All related segments affected similarly (Exhaust, Intake, Fuel)

Even in Powertrain huge growth potential for electric applications

Increase in totel value creationfrom currently 30% to 50% ofvehicle

Electric systems will migrate tohigh-voltage and bus systems

Connected services are the entrance gate for non-automotiveplayers

29

Development – Total Market1 Connected Car Market potential in billion € (2016 vs. 2021)

This is where the money goes …

Source: Strategy& 1) Cars without light commercial vehicles

Implementation of E-Call until mid 2018 as a key factor

Growing demand for infotainment services in cars

Transformation from non-connected cars to connected cars. (new and after-sales market)

Growing investments in connected cars services

Increasing awareness for safety services

Availability of wireless high speed networks, as well as cloud-based services and API‘s

A pioneer, able to create movement within the whole market or whole system. (Tesla for e-mobility)

15.0Security

Autonomous Driving

9.5

Home Integration

Entertainment

Mobility

Mgmt

Wellbeing

0.0

6.0

4.4

Vehicle

Mgmt3.62.0

Security

7.6

13.449.3

Entertainment

Wellbeing

39.6

Autonomous Driving

5.6

0.1 Vehicle Management7.1

Mobility ManagementHome Integration

∑122,6

∑40,3

30

Consequences ?

The reorganization of the sector will have drastic consequences beyond the supply chain

Focus

32

OEMs leading the way in the deals market –almost exclusively doing tech and content deals

2014 2015 2016 2017

Mehrheit oder AkquisitionMinderheit oder VC*Stand September 2017: Akquisitionen, Mehrheits- und

Kapitalbeteiligungen

33

Where does that leave the traditional automotive supply chain?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20172018201920202021202220232024202520262027202820292030

Europe: Autonomous levels2017-2030 (in %)

0 1 2 3 4 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20172018201920202021202220232024202520262027202820292030

Europe: Powertrain distribution2017-2030 (in %)

Verbrenner Hybrid Electric

Early and high

invest-ments

Overcapacity and Price Pressure

Delayedearnings potential

Bad investment

cases

Crisis and

Restructuring

Autonomous level

Combustion

34

For all stakeholders the automotive deals landscape will become more difficult

Automotive Deals

„New“Technology

„Legacy“ Technology

New „tech-players“ entering

Business modelchange of existing

players

Tier1 Corporate Portfolio

Reorganisation

Life span ofexisting business

models

„No way out segment“

Assessment ofnew business

models

Consolidation ofsupply segments

Adaption speed/Delayed

profitsRestructuring/ downsizing

needs

Valuation: Content vs.

Assets

Knowing the riskDebt providers

• Which business models will survive?

• Managing risk profiles and default!

Picking the winnersEquity investors

• Finding and picking the right technology despite staggering multiples!

• How to make money in run-off scenarios and consolidation?

Securing the supply chainOEMs

• Securing the parts supply at current price levels!

• How to avoid and fight opportunistic investors?

35

Thank you for your attention!

Thomas SteinbergerPartner, PwC GermanyHead of Automotive Transactions/ RestructuringTel. +49 89 5790-6443Email: thomas.steinberger@pwc.com