WHY INVEST IN

TURKISH

AUTOMOTIVE

INDUSTRY?

• Executive Summary

• Turkish Automotive Industry Outlook

• Suppliers and Engineering in the Industry

• Growth Drivers in Turkey

• Success Stories

2

Content

Turkey - A strong production and engineering hub for the global automotive value chain

Turkish

automotive

industry

Growth

drivers in

Turkey

Suppliers and

engineering in

the industry

• Strong macroeconomic growth with increasing income per capita and a bourgeoning middle-class

• Favorable demographics with a dynamic, young, and skilled labor force supporting the industry

• Cost-competitive labor and energy prices

• Strong government support through incentives

Strong

international

presence

• Giants of global automotive value chain benefit from Turkey’s location, cost, and competitive

advantages

• Because of their profitable business in the country, companies in Turkey continue to invest in the

country’s future

Executive

Summary

3

• Quality products with high export rates

• Hundreds of Tier 1 companies working directly with OEMs

• Center of excellence in automotive engineering and R&D, in which new technologies are developed

• High level of integration into the global automotive industry

• 14th major automotive producer in the World, with 78% average export rate

• Vehicles of Turkish origin hold the leading position among the vehicles coming from outside of EU

• Production, export, and engineering hub of global brands for international markets

• Executive Summary

• Turkish Automotive Industry Outlook

• Suppliers and Engineering in the Industry

• Growth Drivers in Turkey

• Success Stories

Content

4

511603 640

577634

733791

951

1143

359

491549

496492

437

568

535

553

2009 2010 2011 2012 2013 2014 2015 2016 2017Passenger Cars Commercial Vehicles

8%

Source: Automotive Manufacturers Association, Automotive World Production Databook

Production

Development of Vehicle Production

Thousand Units

Performance in Recent Years

Thousand Units

298

784

1,214

1,696

1990_1999 2000_2009 2010_2016 2017

CAGR

2009-2017

5

Turkey has become an important part of the global value chain of international OEMs in the last 25 years

Average Production of Period

➢ 9 R&D centers support not only the local

operations, but also the operations in other plants

of parent companies.

➢ Ford Otosan’s R&D department is one of Ford’s 3

largest global R&D centers.

➢ R&D center in Bursa is the only center of Fiat

outside of Italy serving the European market.

➢ For Courier, Ford’s new light commercial vehicle, the

Yeniköy plant is the sole production center in the

world.

➢ Toyota’s C-HR Hybrid is produced in Turkey for

World markets

➢ Daimler R&D is the center of competence for some

parts and carries global responsibility.

➢ With more than 40 thousand employees,

automotive OEMs are one of the major employers in

the manufacturing industry.

İzmit - Sakarya

Bursa

Ankara _Aksaray

İzmir

Adana

OEMs in Turkey

6

The engagement of 15 OEMs is not limited to production. They are also benefiting from the engineering skills of Turkey

1,696

1,420

1,002

690

505

376 359

190

Source: OICA

Automotive Production in 2017

Thousand Units

World Auto Production in 2017

Million Units

0 10 20

Russia (15)

Turkey (14)

UK (13)

Thailand (12)

Canada (11)

France (10)

Brazil (9)

Spain (8)

Mexico (7)

S. Korea (6)

India (5)

Germany (4)

Japan (3)

USA (2)

China (1)

Turkey in CEE &

the World

7

Turkey, the leader of CEE in vehicle production, climbs theranks in the World Auto Production list as well

#1 in CEE

#5 in Europe

#14 in the World

800,000

1,250,000

1,650,000

2,000,000

2000 2006 2012 2017

Source: Automotive Manufacturers Association of Turkey, ACEA

Investments

OEM Investment Stock - Billion $

Development of Production Capacity

Automotive Plants in Europe

8

Almost $14 Billion invested between 2002-2017; OEMs developed their R&D skills as well as manufacturing capabilities

2,10

3,943,61

4,33

2002_2005 2006_2009 2010_2013 2014_2017

Source: Automotive Distributors Association of Turkey, OICA

Change in Vehicle Sales

Thousand Units

Market

Top Emerging Vehicle Markets

Million Units

9

359

642

873

994

2000_2004 2005_2009 2010_2015 2016_2017

14%

CAGR

2001-2017

2,86 2,84

2,30

1,51

1,16

0,83 0,82 0,780,67

Annual Average Sales

(2005-2017)

The increase in the purchasing power of Turkish people pavedthe way for record levels of sales in the recent period

Annual Average Sales

370

510594

556

665587

726 757 723

2009 2010 2011 2012 2013 2014 2015 2016 2017

187

251271 261

228 220

286251 258

2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Automotive Distributors Association of Turkey 10

Market

Passenger Car Sales

Thousand Units

Commercial Vehicle Sales

Thousand Units

Sales by Engine Size (2017)

96%3%

1%

<1600cc 1601cc-2000cc >2000cc

Consumer preferences of Turkish drivers seem to shift towards passenger cars. Small engine cars dominate the market

The markets around Turkey –From Western Europe to Central Asia - have a combined annual sales volume of over 25 million vehicles

11

Markets Around

Turkey

A Market of 25 Million Vehicles: from Western Europe to Central Asia (2017)

Source: OICA

Europe

21 M

North

Africa

1 M

Middle East

& Central

Asia

3 M

Source: Automotive Manufacturers Association of Turkey, ACEA

4,418

11,122

12,397

18,847

2001_2005 2006_2010 2011_2016 2017

16%

CAGR

2001-2017

Development of Vehicle Exports

Million $

Exports

Deliveries to the EU Market

985,434 units

577,703 units

403,007 units

263,498 units

217,967 units

12

Turkey is the largest export base of global OEMs in the region outside of the EU, with an average export rate of 78%

Turkey (1)

Japan (2)

S. Korea (3)

USA (4)

Morocco (5)

Average Exports of Period

• Executive Summary

• Turkish Automotive Industry Outlook

• Suppliers and Engineering in the Industry

• Growth Drivers in Turkey

• Success Stories

Content

13

9

105

BURSA

İZMİT&SAKARYA

İZMİR & MANİSA

80

36

İSTANBUL

97

o Engine

o Body&Structural

o Interior

o Transmission

o Axles, Driveshaft's

o ClimateControl&Engine

Cooling

o Suspension

o Electric Components

o Braking

o Steering

o Wheels&Tires

o FuelSystem

o Audi&Telematics

o Plastic Components

o Exhaust

o BodyGlass

o Die-castingParts

o ForgingComponents

o RawMaterial

o Small/GeneralParts

Component

Manufacturing

400+ Tier 1 suppliers working directly with OEMs contribute

greatly to the high localization rates of the cars

manufactured in the country

##

# of suppliers in the city

965

2,382

3,8053,990

2001_2005 2006_2010 2011_2015 2016_2017

Source: Turkish Statistical Institute (TurkStat)

49

50

52

64

124

136

151

176

183

211

218

283

285

344

868

Japan (15)

Holland (14)

Slovenia (13)

Czech Rep (12)

Iran (11)

Russia (10)

Poland (9)

Romania (8)

Spain (7)

USA (6)

Belgium (5)

England (4)

Italy (3)

France (2)

Germany (1)

15

Component

Exports

Development of Component Exports

Million $

Top 15 Export Markets (2017)

Million $

In line with global developments, component exports haveincreased by 13% CAGR over the past 16 years, reachingdiversified markets all around the World

13%

CAGR

2001-2017

Source: Social Security Institution (SGK)

16

Global Suppliers

There are more than 250 global suppliers using Turkey as a

production base. 28 of them are among the 50 largest global

suppliers

İzmit - Sakarya

Bursa

İzmir

37

191

2008 2016

Employment (x1000)

*Employment data includes all the firms in motor vehicle industry

Rank Major Suppliers Products

2016 Revenue

(Million $)

1 Bosch Brake systems, boosters, power limiters & regulators, repair kids,

brake shoes, wheel brake cylinders, drum & disk brakes901

2 Brisa

Tires, batteries, coverings458

3 CMS Wheels336

4 Yazaki GroupElectrical and electronics components

330

5 Maxion-İnci Wheels

309

6 Goodyear

Tires309

7 Delphi Cables, electrical/electronic architecture systems and components,

fuel pumps, fuel injectors, nozzles, valves 298

8Steering wheels, seat belts, air bags

286

9 Beyçelik Gestamp Molds, chassis systems, lock technologies

238

10 Hema Drivetrain components, engine components

224

Source: Istanbul Chamber of Industry: Top 500 Industrial Enterprises Study

Major Suppliers 10 automotive suppliers with USD 200 Million+ revenue in 2016

18

Automotive industry leads the country in R&D

and patent applications R&D

32%

24% 24%

15% 14%

12% 12%

10% 10%9%

8% 8%7%

6%5%

Share of Automotive in R&D Spending (Selected Countries)

119

735

Automotive Others

R&D Centers (2018)

R&D Employment

2015: 4088

Change (2010-2015): 96%

Patent Applications

2016: 1325

Change (2010-2016): 165%

Source: Automotive Manufacturers Association of Turkey (OSD), Ministry of Industry, Science & Technology, Turkish Patent Institute (Turkpatent)

R&D employment data consists of OSD members

Company Description Operations in Turkey

AVL ❖ Established by Hans List in 1948 in Austria.

❖ Employs 9000+ engineers in its 40+ affiliates.

❖ The world's largest independent company for the

development of powertrain systems with internal

combustion engines as well as instrumentation and

test systems.

❖ Has an office in Istanbul with 140+ engineers

❖ Aims to become a ‘global engineering hub’

❖ One of the two exporting affiliates of AVL

❖ Planning to establish 3rd R&D center and to employ more than

200 engineers by 2018

❖ started to work on Hybrid and autonomous car technologies.

(Electric car for 2018, autonomous car for 2020)

❖ is supported by Tubitak for its works on electric and

autonomous car projects

FEV GmbH ❖ Established in 1978 in Aachen, Germany

❖ Employs 4000+ researchers and developers

❖ Focusing on powertrain components engineering

(mainly engine design, turbo-charger and transmission)

❖ Expanded into Turkey in 2011 with 10 engineers working in the

Turkey office

❖ The main focus is design and R&D consulting of powertrain and

ICE for the automotive sector

❖ Works on design, simulation, software development, and

engine/Vehicle calibration with 50+ engineers

Idiada ❖ Established in 1973 with its headquarters in Santa

Oliva, Spain

❖ Employs 2100+ employees

❖ Present in 25 countries, focusing on design, testing,

engineering, and certification services in automotive

❖ Expanded into Turkey in 2000

❖ There are 4 full-time engineers in the Turkey

office

❖ Focus is on testing of R&D consulting for

automotive

Ricardo ❖ Established in 1927 with its headquarters in Shoreham-

by-Sea, England

❖ Employs ~3000 engineers

❖ Operating in 15 countries with focus on engines,

transmissions, and intelligent transportation systems

❖ Works together with Anova (a Turkish engineering house) for

powertrain development and R&D consulting in Turkey

19

Engineering &

DesignTurkey as a key location for automotive R&D andengineering

Source: Press Excerpts, ISPAT Team Analysis

• Executive Summary

• Turkish Automotive Industry Outlook

• Suppliers and Engineering in the Industry

• Growth Drivers in Turkey

• Success Stories

Content

20

100

120

140

160

180

200

220

240

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Source: TurkStat, OECD, World Bank, IMF, CIA World Factbook, PPP: Purchasing Power Parity

A track record of growth and a bright future…

13th largest economy in the world

Forecast

5.7

3.8

3.7

2.8

1.8

Average

Annual GDP

Growth

2003-2017

%

Actual

3.4

3.3

3.4

2.7

Average

Annual GDP

Growth

2017-2019

%

2.4

19,4

9,4

5,4

4,2

4,0

3,2

3,2

2,9

2,8

2,4

2,3

2,1

China (1)

US (2)

India (3)

Japan (4)

Germany (5)

Russia (6)

Indonesia (7)

Brazil (8)

UK (9)

France (10)

Mexico (11)

Italy (12)

Turkey (13)

23,1

Robust Economy

2017 GDP ($Trillion, PPP)

Turkey

Poland

Romania

Czech

Rep

Hungary

Real GDP Growth (Index: 2002=100)

21

Source: IMF, TurkStat, Euromonitor

Turkey’s economic growth has paved the way for the emergence of a sizeable middle-class…

$3,581

$10,597

2002 2017

High (>$55K)

Upper-middle ($25K – $55K)

Middle ($10K – $25K)

Low ($5K – $10K)

Poor (<$5K)

2016

Among countries

with population

over 50 million,

only 8 countries

have GDP per

capita over

$10,000

I n c o m e G r o u p s (Annual disposal income per capita)

Bourgeoning

Middle Class

GDP per capita in countries with population over 50 million (2017)Tripling Income per capita

(GDP per capita, current prices)

The Rise of Turkish Middle Class

2002

22

21.3 million

23 million

17.8 million

3.3

1

3

10.8 million

40 million

3.3

million

5

59,495

44,184

39,673

38,847

38,550

31,618

29,730

10,597

10,248

10,019

US (1)

Germany (2)

France (3)

UK (4)

Japan (5)

Italy (6)

S. Korea (7)

Turkey (8)

Russia (9)

Brazil (10)

5 3 1 1 3 5

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90+

Female Male

5 3 1 1 3 5

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90+

Female Male

90

100

110

120

2014 2017 2020 2023 2026 2029 2032 2035

Europe

Turkey

Source: TurkStat, Eurostat, UN, 2016

Ag

e

Gr

ou

ps

(%

)

45

50

55

60

65

70

75

2014 2017 2020 2023 2026 2029 2032 2035

Europe

Turkey

...half of population under age 30A

ge

G

ro

up

s(

%)

Favorable

Demographics

Turkey’s Population Pyramid Europe’s Population Pyramid

Working Age Population (15-64)

Index: 2014=100

Total Dependency Ratio (%)

(Age 0-14 & Age 65+) / Age 15-64

23

Turkey’s education system has been upgraded to support a

skilled labor pool...

High School and

below 90%

University

10%

High School and

below 77%

University

23%

2002 2016

Electronics & Automation

Mechanical Engineering

Motor Vehicles, Ships, etc.

TOTAL47,530 177,437

515,465

2002 2016

Skilled &

Cost-competitive

Labor Force

Annual Number of University Grads in

Automotive Related Fields (2016)

Number of Grads from Vocational & Technical

High Schools

Labor Force by Education Level

24Source: Higher Education Council of Turkey, Turkish Statistical Institute

Required skills are readily available in Turkey with a competitive

cost advantage…

6,866,76

6,426,24 6,23

5,74

Tu

rke

y

Po

lan

d

Cz

ec

h R

.

Slo

va

kia

Ro

ma

nia

Hu

ng

ary

Availability of Qualified Engineers, 2015(10=Available; 0=Unavailable)

6,155,84

5,38

4,29 4,23

3,37

Po

lan

d

Tu

rke

y

Cz

ec

h R

.

Ro

ma

nia

Slo

va

kia

Hu

ng

ary

42,2 40,937,4

34,031,4

11,3 10,98,7 8,4 6,8

Ge

rma

ny

Fra

nc

e

US

A

Ire

lan

d

UK

Slo

va

kia

Cz

ec

h R

.

Hu

ng

ary

Po

lan

d

Tu

rke

y

19,421,3

19,221,2 20,6 21,1 21,7

20,418,2

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Skilled &

Cost-competitive

Labor Force

Availability of Competent Senior Managers,

2015 (10=Available; 0=Unavailable)

Labor Cost per hour in ManufacturingTurkey vs. USA (US=100)

Labor Cost per hour in Manufacturing ($)2015

Source: IMD World Competitiveness Yearbook Executive Opinion Survey based on an index from 0 to 10; Eurostat, OECD, BLS, TurkStat

25

26

Strong collaboration between industry and

education institutions...

Industry &

Education

İhsaniye Automotive

Vocational High School

In 2014, a 2-year automotive

vocational high school affiliated

with Kocaeli University was

established as a result of strong

cooperation of the university,

an OEM, a foundation, and the

local municipality.

Now, the high-school provides

the company and the whole

industry with qualified

employees having strong

capabilities.

There are many examples of

that kind of collaboration in the

Turkish automotive industry.

Qualified employees, qualified

products...

İhsaniye Automotive Vocational

High-School

Ford

Koç Foundation

Local Municipality

Kocaeli University

Source: Eurostat, All taxes and levies included

Electricity and natural gas prices in Turkey have been cost

competitive in comparison with the EU...

1 Peer countries include Romania, Slovenia, Hungary, Czech Republic, Poland

0,180,17 0,16

0,12 0,12 0,12 0,11

0,10 0,09 0,09 0,09 0,080,08 0,08 0,07

Ge

rma

ny

Ita

ly

Un

ite

d K

ing

do

m

Slo

va

kia

Gre

ec

e

Be

lgiu

m

Au

str

ia

Po

lan

d

Ne

the

rla

nd

s

Ro

ma

nia

Cz

ec

h R

ep

ub

lic

Bu

lga

ria

Fin

lan

d

No

rwa

y

Tu

rke

y

19,5

11,7 11,6 11,3 10,8 10,4 10,4 10,2 9,7 9,68,9 8,9 8,6 8,1 7,5

Sw

ed

en

Po

rtu

ga

l

Slo

ve

nia

Ge

rma

ny

Hu

ng

ary

Slo

va

kia

Po

lan

d

Gre

ec

e

Ne

the

rla

nd

s

Sp

ain

Cz

ec

h R

ep

ub

lic

Ita

ly

Be

lgiu

m

Bu

lga

ria

Tu

rke

y

Natural Gas prices, USD/Gigajoules (gross calorific value), 2015Electricity prices, USD/kWh, 2015

Competitive

Energy prices

27

Lucrative

IncentivesAutomotive investments in manufacturing and R&D can

benefit from various lucrative incentives…

Source: Ministry of Economy 28

General Scheme

Regional

Large Scale

Priority

Strategic

Technology Level

Inve

stm

ent

Sup

po

rt S

chem

es

Sector & Product Investment Amount Region

Investment parameters

Region 1 Region 2 Region 3 Region 4 Region 5 Region 6

Regions

Tax Support

Social Security Support

Interest Support

VAT & Custom

Duty

29

R&D Supports Automotive investments in manufacturing and R&D can

benefit from various lucrative incentives…

R&D projects do enjoy a support

rate of 60%+.

*Overheadexpenses,

*Travel expenses

*Expenses for equipment and

tools, software, publications

*Supplies and consumables

*Purchase of consulting

services

Project Base Support

Easing innovation by providing the

right eco system

*Minimizing the cost of doing R&D

*Best platform for public private collaboration

*Ready and cost effective

infrastructure

Technoparks

Minimizing the cost of in-house R&D operations

of companies

*Deduction of R&D spending

from tax

*Tax support to minimize the

cost of personnel

R&D Law

Content

• Executive Summary

• Turkish Automotive Industry Outlook

• Suppliers and Engineering in Turkey

• Growth Drivers in Turkey

• Success Stories

30

• Operational in Turkey since 1992

• Production of Civic model started in 1997

• Izmit factory, 50,000 annual production capacity with over

1000 employees

• Invested almost $ 500 million since the beginning

• Exports ‘Civic’ to 46 countries throughout the World

• Stepped into Turkish market in 1990

• Started to manufacture in 1997 in Izmit factory

• Has production capacity of 245,000 vehicles annually

• 3000+ employees

• Positioned as the manufacturing hub for European

markets

• The facilitiy was established in 1968

• Has the capacity of 450,000 vehicles per year

• Employs more than 7000 workers

• Only factory in the country that manufactures both

passenger and light commercial vehicles

• R&D center in Bursa is the only center of Fiat outside

Italy serving the European market

• Foundation of first factory was laid in 1959

• Has total capacity of production of 415,000 cars per year

• Commercial vehicle manufacturing hub of Ford Europe

• Has Turkey’s largest R&D center located in a single

campus in Istanbul

• Exports worth $ 3.8 billion in 2016 to 83 countries

• One of the 3 largest R&D centers of Ford Global

• Operational since 1967

• First production in 1968, first export in 1970

• Has two facilities: Bus factory in Istanbul, Truck factory in

Aksaray

• Almost EUR 1 billion total investment with 6000

employees

• Invested almost $2 billion since entering the country

• Over 3500 staff, 280,000 annual production capacity

• Almost 85% of the production exported to more than

50 countries

• Started the production of first hybrid vehicle in Turkey,

C-HR, with an investment worth EUR 350 million

• The German giant began operations in Turkey in 1966

• MAN’s first factory outside Germany

• Largest integrated bus company of MAN Global

• Has 2000 annual bus production capacity, 2000+

employees

• Production base of premium Neoplan bus brand

• Exports to 41 countries including European ones.

Turkey as an international center of excellence for

automotive giants

• One of the biggest factories of Renault with annual

production capacity of 360,000 cars and 750,000 engines

• Total exports in last 15 years exceed $30 billion

• Flagship company in passenger car production for years

• 6300+ employees, almost 1500 of which are white-collar

Success stories

31Source: Company Websites, Press Excerpts

Strong international presence in Turkey...Success stories

32

Attached to the Prime Ministry

Private sector approach with public sector capabilities

Acting as your solution partner

OUR SERVICES

ISPAT assists investors before, during, and after their entry in Turkey, providing them with professional

consulting services including but are not limited to:

✓ General and customized business information

✓ Sectoral analysis and reports

✓ Site selection support to find appropriate location/land for your investment

✓ Arrangements of meetings with governmental bodies and other stakeholders

✓ Matchmaking with local partners and establishing business linkages

✓ Facilitating your investment at all stages

✓ Aftercare Services

✓ Project Launch Services

✓ Facilitating your visit to Turkey

33

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Contact:

automotive@invest.gov.tr

34