Dyer at kearny presentation

Dr. Stephen W. Dyer Partner A.T. Kearney (Shanghai) Management Consulting Co., Ltd.

October 2012

China-U.S. Clean Truck and Bus Summit

The future of commercial vehicle powertrains

Global trends and China situation

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Agenda

• Global trends in clean commercial vehicles

• China clean commercial vehicle situation


Converging interests of multiple stakeholders are driving the development of the alternative energy automotive industry

EV/HEV customer buying criteria and key influencing stakeholders and drivers

Source: China Consumer Surveys; A.T. Kearney analysis

Customer decision

Safety (11-13%)

Functional Perform-ance (17-

26%)

Convenience (9-11%)

Total Cost of Ownership

(15-35%)

Image (13-20%)

Reliability (13-17%)

Vehicle manufacturing

players

Government

Energy Providers

Stakeholders Description / role Needs / motivation Key drivers

• Governments have actively promoted alternative powertrain, especially for electric vehicles

• Energy security • Environment protection • Industry/ economic

leadership

• Financial/non financial subsidies (purchase, R&D, infrastructure)

• State owned enterprises

• It includes energy companies and infrastructure operators (e.g. grid)

• Driven by market opportunities and Government pressure, they are heavily investing in EV/HEV business

• Profit • Sustainable business • Image/ political

• Energy cost • Infrastructure availability

• It includes all companies operating on the EV/HEV value chain: vehicle OEM and all upstream suppliers

• Profit • Sustainable business • Image/ political

• Technology performance • Technology cost/ price • Production capacity

(%) represent “% importance” for passenger car

buyers


72

75

151

122

Maximize the accuracy of fuel consumption monitoring 122

Minimize the unpleasant odor in new vehicles 122

Minimize necessity to replace complete assemblies 123

Maximize f reshness of air in vehicle interior 123

Maximize accuracy of monitoring fuel / operating costs 125

Minimize time for fault diagnostic and repairs 125

Minimize accoustic noise in vehicle interior 126

Minimize cost of periodic maintenance 128

Maximize the predicability of component failure 132

Minimize labor and parts cost of repairs 138

Maximize useful life of brake system 141

Minimize fuel consumption

Minimize chance of luggage compt. door handle failure

Maximize alignment of luggage compartment doors

…

Minimize time to evacuate vehicle during emergency 116

Minimize the chance of A/C ducts leaking water out 119

Maximize the useful life of tires 120

Minimize corrosion of vehicle chassis 120

Minimize vehicle skidding or loss of control

Commercial vehicle buyers have a much more clear and rational focus on TCO than passenger car buyers

Source: quantitative survey results; A.T. Kearney

Innovation opportunity scores for long-distance coach purchaser desired outcomes Desired outcome opportunity map

72

75

116

119

120

120

122

122

122

123

123

125

125

126

128

132

138

141

151 >150

101-120 <100

121-150

Recent VOC case example

Over-delivered

desired outcomes

(cost reduction

opportunities)

Under-

satisfied

desired

outcomes 0

10

20

30

40

50

60

70

80

90

100

Importance (%)

100 90 80 70

Satisfaction (%)

60 50 40 30 20 10 0

Minimize labor and parts cost of repairs

Maximize useful life of braking system

Minimize fuel consumption


A recent global A.T. Kearney study assessed the future of alternative powertrains for commercial vehicles

Approach

• Global study on the future of commercial vehicle powertrains

• Conducted by A.T. Kearney • > 70 interviews with fleet customers, OEM,

suppliers and associations • Supported by TCO calculations, third party

data research, etc.

Scope

• Vehicle segments: Truck (LD, MD, HD), Bus (LD, MD, HD)

• Technologies: Diesel, Gasoline, HEV, HHV, CNG

• Regions: Europe, NAFTA, Japan, China • Timeframe: Today - 2020

Results

• Forecast of global powertrain shares per vehicle segment in 2020 (scenario based)

• Description of the related key drivers: customer demand (e.g. TCO, functionality, image), OEM perspective, technology development and regulation

Study approach and results

1) GVW: >15t 2) GVW: 9-15t 3) GVW: 6.4-8.9t 4) GVW: 2.7-6.3t Source:; A.T. Kearney

Long-haul

HD Distrib.

Garbage

Construction

Coach

MHD Distrib.2)

MLD Distrib.3)

City Bus

LD Truck

Small Bus

Truck

Bus

LD MD HD

Focus

segments


Factors and scenarios impacting the 2020 powertrain landscape

We applied a scenario based-approach using customer and OEM strategies to model future powertrain developments

Customer

needs What do

customers want?

• Total costs of

ownership

• Functionality

• Image

OEM

strategies What do OEMs

plan to offer?

• Technology

strategy

• Development

status

• SOP/ramp-up

planning

Regula

-tion

Tech-

nolog

y

Fuel

prices

Boundary conditions How do macro parameters impact

powertrain developments?

1. Example MD Upper Distribution profile 2. Only vehicle technology related reduction; additional targets might include biofuels, speed limitation, etc. Source: A.T. Kearney

Perspective Parameter

Scenarios

“Low” “Mod-erate”

“High”

Customer

Fuel price increase, e.g.

• Crude oil price 2020

[$/barrel]

Limited

70

Moderate

140

Signif-

icant

210

OEM Component cost reduction,

e.g.

• HEV Li-ion battery cell

costs 2020 [$/kW]

Limited

26

Moderate

18

Aggre-

ssive

9

Technology OEM‟s drive to introduce

alternative powertrains, e.g.

• Avg. SOP HEV for HD

Long-haul, Europe

Limited

2018

Moderate

2016

Strong

2014

Regulation Maturity of new drivetrain

technology, e.g.

• HEV battery lifetime 2020

[years] 1)

Low

4

Moderate

6

High

8

Focus of this presentation


Fleet customer‟s evaluation TCO 2020 (Europe)

TCO p.a. [k €]

Mileage p.a. [k km]

TCO

• Clear TCO advantage of HEV for most usage profiles

Functionality

• Additional volume of alternative powertrains critical (could lead to passenger loss if top-load is not possible)

• Limited e-only driving capability (1-5 km) of HEV is beneficial

Image

• HEV is seen as the "greenest" of all available powertrains

50

60

70

80

90

40 45 50 55 60 65 70

HEV ser. CNG Diesel

€ 5,800 p.a. TCO advantage

for HEV vs. Diesel

Average mileage

~60% of all vehicles

1. 2020 HEV data: 210 kW e-engine, 14 kWh battery; avg. fuel saving cp. to Diesel: 23%; only powertrain related TCO considered Source: Fleet customer interviews,, A.T. Kearney

City Bus: Customer need

Due to comparably high annual mileage with major urban driving share, City Bus HEV has a strong TCO case


• MB Citaro • (Small) series

City bus will be the segment with the overall highest HEV shares in 2020

• MAN Lion‟s City • (Small) series

1. Avg. OEM perspective based on current status and strategy (example Europe) Source: OEM interviews, third party publication research,, A.T. Kearney

Expected portfolio penetration1): • Avg. SOP: 2012-2014

Expected portfolio penetration1): • Avg. SOP: in series

City Bus: OEM strategy

Almost all OEMs globally show clear plans towards HEV City Bus – including China

CNG HEV

• Orion VII • In series

• Hino Blue Ribbon • In series

• Dongfeng EQ6122 • (Small) series

• New Flyer C30LF • In series

• FUSO Aero Star • (Small) series

• King Long CNG bus • (Small) series


Customer„s evaluation TCO 2020 (Europe)

TCO p.a. [k €]

Mileage p.a. [k km]

TCO

• Solid TCO advantage of Hybrids for customers with average mileages (but lower than for HD Long-haul)

Functionality

• Limited weight impact of Hybrids due to downsizing of ICE (+80 kg); CNG weight more critical (+350 kg)

• Limited e-only driving capability (1-5 km) of HEV is beneficial

Image

• HEV is seen as the "greenest" of all available powertrains 22

24

26

28

30

32

34

36

38

35 40 45 50 55 60 65

CNG HEV / HHV Diesel

€ 950 p.a. TCO advantage for

Hybrids compared to Diesel

~60% of all vehicles

1. 2020 HEV data: 60 kW e-engine, 72 kW battery; avg. fuel saving cp. to Diesel: 12%; only powertrain related TCO considered Source: Fleet customer interviews, A.T. Kearney

MHD Distribution: Customer need

High urban driving share and comparably high annual mileage also leads to a winning HEV TCO case for MHD distribution

Average mileage


Examples

Example

Example



1) Avg. OEM perspective based on current status and strategy (example Europe); Source: OEM interviews, desk research, Bosch, A.T. Kearney

• International Durastar CNG • Prototype

• FCCC HHV Walk-in Van Chassis (MT55)

• Initial prototypes


• Mercedes Atego HEV • 5 vehicles in first trial; second

trial will be started end of 2010

• Hino Ranger HEV • In series

• Peterbilt Model 335 HEV • Early fleet testing

MHD Distribution will see the highest Hybrid shares of all truck segments in 2020

MHD Distribution: OEM strategy

MHD Distribution is currently the top focus focus segment for hybridization of powertrains

CNG HEV

HHV


Long-haul

85%

15%

Upper MD

73%

5%

22%

Van

78%

5% 15%

2%

City bus

45%

20%

35%

Heavy Duty Medium Duty

Light Duty Bus

Heavy Duty

• Hybrids will find inroads into all HD segments except construction

• CNG will gain some share in HD niches

• Garbage with highest HD Hybrid and CNG shares

Medium Duty

• MHD Distribution (9-15t) with higher alternative powertrain shares than MLD Distribution (6.4-9t)

Light Duty

• Broadest spectrum of powertrains

• Alternative powertrains mainly for customers with high mileages and image driven purchase decision

Bus

• City bus with significantly higher share of alternative powertrains than coach

Diesel CNG Hybrids EV

Market summary Europe 2020: Powertrain shares

In Europe, hybrids will likely capture share up to 22% in truck segments and up to 35% for buses

Key findings Powertrain market shares [%]

Source: A.T. Kearney


Market summary NAFTA 2020: Powertrain shares

21%

Upper MD

77%

2%

Van

35%

43%

4%

16% 2%

City bus

58%

7%

35%

Heavy Duty

• Similar alternative powertrain shares as in Europe

• Higher annual mileages but less recuperation opportunities during long distance driving (more constant driving) and lower Diesel fuel costs

Medium Duty

• Slightly lower alternative powertrain shares than in Europe as low Diesel costs impact Hybrid and CNG TCO negatively

Light Duty

• Gasoline remains the dominating powertrain, however Diesel and other alternatives gain share

Bus

• Similar Hybrid share as in Europe

• CNG as niche application

Hybrids EV CNG Diesel Gasoline

In NAFTA, Hybrids will gain shares up to 21% in truck segments and up to 35% for buses in 2020


15%

Long-haul

85%


Light Duty Bus



89%

8% 3%

Upper MD

Van

100

66%

20%

5% 8% 1%

55%

20%

City bus

25%

Heavy Duty

• Overall low share of alternative powertrains for HD as focus remains on optimizing conventional Diesel engines

• Some CNG share for HD Distribution, Construction and Garbage

Medium Duty

• Increasing share of CNG applications and some first Hybrids

Light Duty

• Some Hybrid penetration in the LD segment supported by hybridization and full-electrification trend in the passenger car segment

Bus

• Strong drive towards Hybrids and CNG for city buses to support inner-city emission reduction

Diesel Gasoline CNG Hybrids EV

Market summary China 2020: Powertrain shares

In China, Hybrids will gain share up to 8% in truck segments and up to 25% for buses by 2020



Light Duty Bus

Long-haul

99%

1%



Agenda

• Global trends in clean commercial vehicles

• China clean commercial vehicle situation


The Chinese government desires to develop clean energy automotive to address industry development and energy issues


China Government Objectives

Develop the domestic automotive

Industry (Increase global

competitiveness)

Protect the environment (decrease

“well-to-wheel” emissions)

Achieve energy security (increase

use of energy efficient technology and

local renewable energy sources)

Stimulate clean

energy automotive

development and

usage


Sales of city buses, the top commercial vehicle candidates for clean energy powertrains in China, will likely remain flat mainly due to subway expansion plans

‟14F

420 410

‟12F

399

‟13F

389

‟11

379

‟10

375

‟09

371

‟08

372

‟07

342

‟15F

431

‟16F

442

‟17F

+2.61%

+2.61%

China‟s City Bus Ownership Projection (‟11-‟17F) („000 units in operation)

1. 중국 교통운수협회 도시 지하철 교통 전문 위원회 책임자 인터뷰 Source: China Statistics Year Book, Media Search, JAMAM, A.T. Kearney Analysis

Key Growth Drivers

Increase of Alternative Transportation Means in China Rural Areas

Fast growth in mini truck and SUV, driving capabilities in bumpy roads surfaces (CAGR 34% over the next 5 years)

The largest motorcycles market in global is still a good source of transportation (23.4M units in ‟11)

2

Beijing subway carries 650K citizens daily, creating the infamous rush-hours nightmares (e.g. 19lines in Beijing and 13 lines in Shanghai in „12)

The government has a plan to expand its subway line with additional 96 lines through 166B KRW investment1

Metropolitan Public Transportation Policy by the Chinese Government

1


HEV city buses will increase share in China in the medium term due to increasingly mature technology and TCO advantages

Source: China Statistics Year Book, Media Search ,Dongxing Securities, . Kearney Analysis

99 98 96 94 9085

77

66

7

5

7 2

‟13F

100

‟15F

2

‟12F

100

3 1

‟11

100

2 0

‟10

100

1

‟17F

100

28

‟16F

100

18

5

100

12

3

‟14F

100

0

China‟s City Bus xEV Penetration Projection (‟11-‟17F) (Unit: %)

HEV BEV ICE and Others

CAGR (‟12F-‟17F)

49.9%

-4.8%

58.3%

HEV City Bus Key Growth Drivers

Strong Commitment by Central/Local Government for

Green City Bus Policy

1

xEV city bus penetration in top 10 cities ranges from 8% through 27% in ‟12

Clear TCO advantage for HEV Bus

3

Competitive TCO perspective with payback period for HEV buses will become popular as it does not require massive charging infrastructures

Immaturity of EV Ecosystem and Battery Technology

2

Neither of battery charging method provides an ultimate solution for BEV bus due to immature battery technology in China


HEV models have TCO advantages and equivalent payback periods for bus fleet operators with government incentives

1. Net purchase cost includes no purchase tax due to city bus exempt from tax, 2. Total energy cost is calculated based on assumption a 8-year lifetime with 240Km daily driving range that is applied 0.3L/Km with 7.46RMB per liter 3. Total maintenance cost is based on an industry expert and media search 4. HEV Premium is a difference that exceeds ICE purchase costs and HEV requires additional maintenance given the current technology maturity 5. //// 6. Payback period is calculated based on assumptions that a city bus carries 500 passenger per day with 1RMB fare under 365 operation days per year Source: Department of Commerce of China, Media Search, ATK Project IC, Industry Expert Interview, A.T. Kearney Analysis

Payback Period (‟12)6 (Unit: years)

HEV TCO Perspective (‟12) (Unit: „000 RMB)

ICE HEV BEV

: With Incentive

: Without Incentive

627 -25%TCO

Saving

1,602

16

550

1,569

2,135 64 30

Net Purchase

Cost1

Total Energy Cost2

Total Maint3.

ICE 8-year TCO

HEV 8-year TCO

HEV Premium4

HEV Add‟l Maint4.

HEV Energy

Cost Saving5

9.32

3.84

5.84

3.183.01

2.30

5.48


China xEV bus market has evolved through the government-driven public project with local OEMs

1. There are 65 bus company operating in Shanghai city in „12 Source: China Statistics Year Book, Media Search, A.T. Kearney Analysis

Major City xEV Bus Market Penetration

300,429 (77%)

88,614 (23%)

389,043

5.0% 2.4% 4.9% 7.1% 13.9% 9.3% 26.9% 10.4% 16.8%

The “10 city – 1,000 units project” was a pilot project developed through local relationship, leaving closed sourcing system in China bus market

:Penetration

China Major City xEV Bus Market (July ‟12)

9,949

8,7206,726 5,177 4,535 2,647 2,795 3252,003

Shanghai

450

6,012 5,000

Wuhan Hangzhou

515 465

Guangzhou

835

7,241

3,620 3,120

Xiamen Zhengzhou

973

Changsha

9,170

Shenzhen

11,952

411

25,368

24,098

1,270

17,131

16,720

Beijing

China Total City Bus Ownership

Major 10 cities account for 23%

of total bus ownership

7%

Sunwin BAIC Wuzhoulong … GAIC … DFM King-Long

14% 18%

5% 4%

Yutong

5% 12%

Bus OEM-based in 10 cities – 1,000 units Pilot Project


Major cities‟ xEV bus Parc1 & proportion of local sourcing (Units, %)

Major cities‟ xEV taxi Parc1 & proportion of local sourcing (Units, %)

Xiamen 325

Shanghai 411

Guangzhou 450

Zhengzhou 465

Wuhan 515

Hangzhou 835

Changsha 973

Beijing 1,270

Shenzhen 2,003

Proportion sourced locally2

10

20

20

20

27

50

Baoji

Zibo

Yinchuan

Chengdu

Haikou

Shenyang

Xinxiang 100

Hangzhou 200

Beijing 450

Shenzhen 800 100%

100%

100%

100%

93%

100%

100%

0%

Proportion sourced locally2

100%

100%

1. Calculated by the number of xEV models in operation as of July, 2012 2. Manufactured locally, or from OEMs with local facilities manufacturing other models 3. Major supplier King-Long has >50% market share in ICE buses in Hangzhou Source: D1EV, A.T. Kearney Analysis

Local sourcing status for top public xEV vehicle fleets

100%

97%

100%

1%3

100%

99%

100%

100%

100%

Governments tend to source locally to support local OEMs and drive GDP growth by developing new energy auto industries


But, there exists a slight push to shift to from closed local sourcing to more open sourcing

Implications

China xEV Bus Sourcing Change

The current local designation of critical components have not contributed to local bus OEM‟s technological improvement, instead causing HEV integration issues

An integration of engine controlling, transmission/E-motor controllers, BMS, and power management system into one HEV single system is defined as state of arts

Chinese xEV buses have precedent cases of safety incidents: –A BEV bus of Shanghai caught

on fire in 2011 – An HEV bus of Urumqi caught

on fire while parking in 2010

HEV Integration Issue

Key Issues Faced by China xEV Bus Market

Public Safety Issue

Changes in Government Stance

In Favor of Component Designation

Local protection ―Through such practice, the

governments can effectively protect the market for their local companies and enhance local GDP

Open Sourcing Policy

Ministry of Industry and Information Technology & Ministry of Public Security have issued banning orders on changing core parts of buses on Sept.,2010

Source: Media Search, A. T. Kearney Analysis

Chinese OEMs have need to work with superior battery suppliers

The global players to address many issues and possess competitive advantages:

―Enhanced vehicle performance

―Reduced security risks

―Increased service life


China will clearly follow or lead global trends toward clean commercial vehicle usage, especially for city buses

Consistent trend toward clean

commercial vehicles Clear and rational focus on minimal TCO by commercial vehicle buyers

Current local sourcing trend may open up in future

City buses and MHD distribution truck applications have strongest TCO case

HEV bus applications in China will grow share quickly China will

experience similar clean vehicle share by 2020

Strong China government support for clean energy vehicles will continue



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