Global Low Cost Truck MarketOpportunities Concealed Under Cloak of Threats

Sandeep Kar- Global Program Manager

Global Commercial Vehicle Research

Functional Expertise

• 10 years of global commercial vehicle technologies and markets expertise, which include particular focus on areas such as

- Global commercial truck industry growth opportunities, and market penetration and growth strategy development

- Advanced truck technologies- powertrain, chassis, safety, telematics and regulation compliance technologies

- Global research and consulting management, global business development and team-building, CXO level revenue and market share growth strategy development

Industry Expertise

� Experience base covering broad range of sectors, leveraging long-standing working relationships with leading industry participants’ and senior executives in areas such as:

- Global truck manufacturing and major tier-1 and tier-2 suppliers

- Governments, legislators, regulators, policy makers

- Leading companies in areas such as conventional and advanced powertrain, chassis, safety, and telematics

- Leading companies in the area of transportation, logistics, and commercial vehicle mobility

What I bring to the Team

• Comprehensive and in-depth expertise focused on the global truck manufacturing and trucking industry

Sandeep Kar

2M657-18

• Comprehensive and in-depth expertise focused on the global truck manufacturing and trucking industry

• Strong analytical skills encompassing all areas of truck manufacturing, operations, marketing and product-planning

• Cutting-edge research and development in heavy-vehicle dynamics, hybrid and electric powertrain technologies, driver informationand active chassis control technologies, mobile resource management technologies

• Global organizational development, effective utilization of global resources for effective and efficient product development andmanagement, ability to develop new revenue streams and accelerate revenue growth

Career Highlights

• Extensive expertise in commercial truck industry research and consulting, vehicle manufacturing (worked for a leading global truck manufacturer as an engineer), marketing of inter-modal freight movement solutions, global footprint expansion and development of sustainable and expanding revenue streams, global product development and marketing management

• Key strategic management positions in several leading global firms:

- Frost & Sullivan, Canada

- TATA Motors, Global

- Balmer Lawrie and Company, India

Education

• Master of Applied Science- Heavy-Truck Dynamics, Concordia University, Montreal, Canada

• Published technical papers and research thesis in renowned journals such as the International Journal of Vehicle Design

• Frequently published and reported in industry journals and publications such as Wall Street Journal, New York Times, CNN, Bloomberg, Thomson Reuters, BusinessWek, FleetOwner, Tuckinginfo.com, Herald Tribune, etc.

Sandeep KarGlobal Program Manager- Commercial Vehicle Research

Frost & SullivanGlobalToronto, Canada

Global Low Cost Truck MarketOpportunities Concealed Under Cloak of Threats

Sandeep Kar- Global Program Manager

Global Commercial Vehicle Research

$60,000

$80,000

$100,000

$120,000

Price Gaps of $5,000-$30,000 Exist in Developed Markets Offering Opportunities for OEMs Involved in Global Low-cost Truck Platforms

$15,000

$20,000

$25,000

$30,000

$30,000

$40,000

$50,000

$60,000

$70,000

LCV MCV HCV

$-

$20,000

$40,000

India China Europe South Korea

North America

$-

$5,000

$10,000

India Japan China South Korea

Europe North America

$-

$10,000

$20,000

$30,000

India China Europe South Korea

Japan North America

BENEFITS���� Market Presence, Market Access, Supply Network Enhancement, Local Market Defense, Sales Growth

TRADE OFFS���� Quality, Reliability, Image, Margin, Strategy Dilution

Voice of Customers: Global Economic Volatility and Rising Proliferation of Asian Truckmakers Influencing Fleet Managers

Voice of Customer: Top of Mind Issues

Customer Pull

Access to Wider Range

Of Options

TruckPrice

IncreasesChangesIn Fleet

Demographics

RisingFleet

Consolidations

Top of Mind IssuesOptions

Duty Cycle andOperating Expense Economic

Considerations

Changes inForeign Brand

Perceptions

Market Drivers Outweighing Restraints; Net Resultant Directing Market Towards Rapid Market Proliferation

Stricter Regulations

Stoking Prices

Increasing demand for reliability

Rising labor and materials

costs

Lower

profit

margins

Urbanization

Emergence of Asian OEMs

Financing constraints

Economic uncertainty ����

capital risk model shift

Vehicle replacement

cycles

TCO considerations

Low-cost Truck Market (World): Rising Penetration of Low-cost Trucks: Over

29 Key Global Low-cost Platforms/Models Likely to Be Introduced by Global OEMs Between 2009-2016

HCV

2009 2016

12

TATA Prima

MN 25/40

U-Truck

Sinotruk Howo

AsiaMotorWorks

Daimler Brand X HD

IVECO LC HCVMAN Force

Sinotruk HuangHe

Hyundai HDDongFeng DFL

GAZ-FAW HD

2012

Kamaz LCT HD

VolvoDongFeng LCT HD

Low-cost Truck Market: Expected Vehicle Model Timeline (World), 2009-2016

MCV

LCV

291217

10

Source: Frost & Sullivan

7Volvo-Eicher VE

DongFeng Duo

IVECO’s Chinese Platform Based MD

Daimler Brand X MD

GAZ 3309c

Renault Kangoo

TATA Ace

GAZ Gazelle

JAC HaoYun

Fuso FG LCT

Ford Transit Connect-Global

ISUZU FTR

Foton LD Global

Hyundai Porter-Global

Foton MD15

Mahindra LCT-Global TR Platform

Navistar JAC LD

Do you have a plan or platform?

Benchmarking of Key India Based Global Truck Platforms: 6-9 Percent Margins

Possible Through Development of Global Market Focused Volume Driving Low-cost Truck Platforms

LCV MCV HCV MCV-HCV (Case Study)

Model TATA Ace Eicher VE 20.16 Mahindra MN25 Daimler (New Brand)

Underlying Partnership

TATA Volvo- Eicher Navistar-Mahindra Daimler

Engine TATA275 IDI NA, 700 cc , 16 hp

6 cyl. E483 TCI; 147 hp engine

210 HP 120-300 HP

Emission Regulation BS II/BS IIIEuro II/III

BS II/BS IIIEuro II/III

Euro III/IV Euro IV+

Category

Parameter

Transmission 4 speed, Manual 5 speed, Manual 6 Speed Manual 6-9 Speed

Wheelbase 2100mm 4800 mm 4250-5000 mm TBA

GVWR 1.55 Ton 16.2 ton 25 Ton 6-49 Tons

Payload 0.75Ton 10.3 ton 15.9 Ton TBA

Price (Estimated Global Weighted Price 2016)

$8,000 $35,500 $72,000 $35,000-80,000

Global Success Potential Rating

~ 6-8%Estimated OEM Margin ~ 5-7% ~ 8-9% ~ > 7%

Comparative Analysis of Global Low-cost Heavy-Duty Truck Platforms: $1,500

per GVWR Ton Seems a Key Design to Cost Target; Engine Downsizing, Manual Transmission Utilization, and Sub-5m Wheelbase Emerging as Key Design Attributes

OEM / Brand Name

Engine Transmission Wheelbase GVWRRated Payload

Retail Price

Priceper ton

Growth Potential Rating

TATA PRIMA

Cummins ISBE270, 270 hp

9 Speed Manual4000mm ~ 5000mm

40 ton 25 ton $48,383 $1,209 4.0

Mahindra Navistar MN25

MAXXFORCE 7.2L TCIC, BS III , 210 hp

6 Speed Manual4250 mm ~ 5350 mm

25 ton 15.9 ton $35, 212$1,408

4.5

CNHTC SINOTRUK D12 series, Smartshift

Low-cost Truck Market: Comparative Analysis of Major Low-cost HDTs (World), 2009

CNHTC HOWO A7

series, Turbocharged, Euro II

9 Speed,Smartshift AMT

3200 mm 25 ton 16.2 ton $40,000 $1,600 4.5

KAMAZ 55111

KAMAZ-740.51

engine,225 hp10 Speed Manual 4000 mm 40 ton 22.4ton $52,967 $1,324 3.0

FOTON AUMAN ETX

WD 618.42Q, 11.596 L, 420 hp

12 Speed Manual3300 mm ~ 4650mm

25 ton 15 ton$40,000~$45,000

$1,800 3.5

“The price difference between different HDTs are mainly dependent on gross weight and number of

axles. The low cost HDT in most cases use MDT's chassis” – Chinese OEM

“We have be receiving interest in those downsizing the baby-eights to explore the higher-end 7’s. The downsizing/right-

sizing trend is definitely out there”- NA Class 8 Vocational Truck Manufacturer

Source: Frost & Sullivan

Example of the Supply Chain for TATA Prima: A Key Global Truck Platform from TATA Shows Reliance on a Global Supply Chain

Engine : Cummins and Fiat Powertrain

Cab Styling : Italy

Various functional and aesthetic components for interiors and exteriors.:

Tata Auto Comp System

Seating systems :

ISRI – TJC (JV of Tata Johnson Controls and ISRI)

Outer Rear View Mirrors :

Tata Ficosa Automotive

Radiator and Intercooler:

Retail Price (Global)- $70-80K (approx)

Retail Price (India)- $50K (approx)

Air braking systems for truck and trailer :

Knorr Bremse

Transmission : 9 speed manual

ZF

Chassis : Mexico

Suspension: TandemBogie suspension:

TACO Hendrickson

Entire wiring harness, fuse relay box and bulk head for interconnection connectors between front and dash wiring harness :

Tata Yazaki Auto compHeadlamp cluster :

Tata Visteon

Radiator and Intercooler:

Tata Toyo

Major OEM Brand Alliances Worldwide Set to Expedite Development and Marketing of Low-Cost Trucks Globally

Region OEM Global PartnersLow-Cost Truck

Production Capability

Low-Cost Market Success

Projection

Europe

Daimler Mitsubishi FUSO, KamAZ, Foton, GAZ

Volvo Dongfeng, Eicher, MACK

IVECO SAIC

Volkswagen/Scania/MAN

Force, CNHTC (Sinotruk), WangpaiAN (Sinotruk), Wangpai

KamAZ Tatra,Foton, LongSeen

North AmericaNavistar Mahindra, Caterpillar,

JAC, Otokar

PACCAR DAF

Asia

TATA Daewoo

Nissan DongFeng, AshokLeyland

S

T

R

E

N

G

T

H

Low-cost Truck Markets and Production Hot-Spots: By 2016 North America and Europe Will Emerge as Fastest Growing Markets for Low-cost Trucks

2009

2009

2009

2009

2009

2016

2016

2016

2016

2016

44,090

185,274

616,947

233,933

487,274

1,061,465

1,413,642

150,063

197,247

176,766

322,528

129,728

North America

Europe(incl. Russia)

China

South Korea

Source: Frost & Sullivan.

2009

2009

2009

2016

2016

2016

5,232

32,205

Brazil

India

Japan

Mature Asian markets of Japan and South Korea have heavy export reliance.

Chinese manufacturers have largest total growth expected

India to see largest percentage increase in region as development gains speed.

High Growth

ModerateGrowth

“Our driver to enter this market is to participate in the global growth segments” U.S. Truck OEM

1,790,721

3,199,571

2,000,000

2,500,000

3,000,000

3,500,000

Pro

du

ctio

n U

nit

s

HCV MCV LCV

81%

51%

22%

83% 75% 79%

39%

9%

13%

20%

17%

11% 8%

35%

10%

36%58%

0%15% 13%

26%

0%

20%

40%

60%

80%

100%

China India Japan S. Korea E.U. N.A. Brazil

2016 Production by CV Category

Global Low-Cost Truck Market to Grow at CAGR of 8.6% Amounting to Production of 3.2 Million Trucks by 2016

1,413,642

487,274

322,528 197,247

616,947

129,728 32,205

1,790,721

-

500,000

1,000,000

1,500,000

2009 China India Japan S. Korea E.U. N.A. Brazil 2016

Pro

du

ctio

n U

nit

s

China India Japan S. Korea E.U. N.A. Brazil

2016 Production by Geographic Location

Aggressive Cost Reduction Strategies Implemented by Low-Cost Truck Manufacturers Delivering 19-29 Percent Reduction in Cost Savings

4

6

8

10

Pe

rce

nta

ge C

os

t S

avin

g/

To

tal V

eh

icle

Co

st

• Downsizing of engine with/without turbocharger

• New Materials• Basic aftertreatment • Low-speed manual

transmission

• Optional A/C• Limited infotainment• Analog displays/integrated

cluster• Integrated headrest• No central locking/power

window

• Basic networking architecture

• Low-cost multiplexing

• Minimum to no discounts

• Lesser warranty protection

5-8%3-4% 3-4%

1-2% 1-2% 1-2% 1-2%

4-5%19 ~ 29%

0

2

Powertrain Chassis Comfort and Convenience

Safety Electronics Marketing and Sales

Margins Others

Pe

rce

nta

ge C

os

t S

avin

g/

To

tal V

eh

icle

Co

st

• Lower axle ratios • Lower priced chassis

construction materials, • Basic brake, steering and

suspension technologies

• All safety features except regulated systems optional

• Low-channel ABS, Sensor fusion

• Distribution through existing dealership networks

• Advertisement cost/budget reduction

• Design changes (narrow cabins, cheaper materials, manufacturing design etc.)

1-2% 1-2% 1-2% 1-2%

Total Potential Cost Savings

29%

“The engine is the major driver of technological adoption. Once it is in place you then need the rest of

the vehicle’s systems to accommodate its performance – transmission, brakes, etc.” – Global

Drivetrain Supplier

Key Focal Points and Best Practices of Leading Low-cost OEMs and Suppliers

Strategy Importance

Low-cost Production Location

Design to cost

De-contenting

Material sourcing

Standardization

Core

Focal

Points

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low HighStandardization

Manufacturing Processes

R&D

Marketing and Sales

After-sales Service

Management Expenses

Auxiliary

Focal

Points

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

Low High1 2 3

“We see this as an opportunity to cater to OEMs from both established markets and from emerging economies. We are now targeting Western OEMs

who are struggling to find low-cost yet high-quality truck electronics modules” Japanese Tier-1 Supplier

Cost Breakdown of Tata Ace- A Low-cost LCV From India Targeted at Global Markets

Low-cost trucks Market: Cost Breakdown Analysis – Tata Ace (India), 2010

Power train

Chassis and Comfort*

29.2%

• The high net profit margin of well-established models such as the Tata Ace is because of incremental gains from a project beyond break-even point, large economies of scale, only variable costs and minimal additional investments that result from a phenomenal level of sales

• The dealer margin is significantly less for low cost trucks like Ace, but the dealers are compensated by the high volumes of sales

Safety ElectronicsOthers

Gross Margin

Excise Duty

LogisticsMarketing

WarrantyDealer Margin

15.0% 1.2%4.0%

16.5%

9.8%

12.0%4.6%

2.7% 1.3%3.7%

Total Retail PriceUS $4,890

Source: Frost & Sullivan

*The chassis and cabin shell are one single unit

• Tata Motors has already proposed it will use an electric Ace to foray into thetougher United States market

• In India Ace is powered by 16bhp diesel motor which complies Bharat II andBharat III emission norms. These Aces are built on Indian platform and arecurrently being exported to many countries like Brazil, Africa etc.

• Considering tougher European norms, Tata Motors has worked in collaborationwith the technical support of Archimedes Energy Inc. and Ecolori SpA to develop

TATA Ace Elektro – Low-cost Base Platform Can Enable Creation of Cost-Competitive Electric Ultra-Low GVWR LCVs: Targeted at Launch in European

Market Offering Strategically Priced Electric City Trucks.

CASE STUDY

with the technical support of Archimedes Energy Inc. and Ecolori SpA to developan electric heart for the ace.

• Ace Elektro is powered by asynchronous motor which produces 30KW of peakpower and a maximum speed of 120 km / hr.

• Melian Italy is the sole importer and distributor of Tata Motors in Italy

• Tata Ace uses Li-thio-polymers which means lighter battery and hence increasedmileage. Ace Elektro also makes use of advanced regenerative braking whichmeans it can recover energy while slowing down and braking

Expected Launch Price:

Between US$ 9,000 -

11,000

Voice of Top U.S. HD Fleet Managers: Low-cost Trucks Are Welcome, Fuel-Efficiency is Welcome; Compromises in Reliability and Uptime Are Not

Highest Ranking Benefits of Powertrain Technologies

(N=101)

29%

53%

44%

33% 32%

44%

40%

60%

#1 Rankings #2 Rankings #3 Rankings Total of Top Three Rankings

Q18: Please rank the top-three influences that impact your fleet’s purchase of powertrain technologies.Source: Frost & Sullivan

29%

19%

12% 11%

7% 6% 6%4% 3% 3%

1%

12%

18%

7%

15%17%

6% 7%5% 4% 3% 4% 3%

13%

7%

14%

6%

20%

9%

4% 4%

8%

3%

9%

4%

32%

21%

17%

13%15%

9%

14%

7%

0%

20%

Re

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bilit

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Virtual Global Low-cost HCV Platform: Recommendations for The Ideal Low-

Cost HCV for Global Markets; Target Median Price $65K in Relevant Markets

Transmission GVWR

PriceChassis Design

9 Speed

9 speed transmissions are appropriate today

but also enough to support the next

generation of low-cost HCVs.

Hydraulic power-steering, air drum

brakes S-cam, Inverted bogie suspension with

25-40 Ton

China and India markets will grow and

mature towards demanding higher GVWR engines.

$65,000

$65-70K is the base minimum necessary to

create a baseline platform that features

PowertrainOthers8-10 Liter, 240-280 HP

Need for smaller engines than comparable

conventional trucks.Cost advantage expected for western OEMs due to

in-house vertical integration.

bogie suspension with option for air

suspension, C-frame chassis,

It is important to accommodate the

features necessary for meeting local fleet

manager and driver demands and local

regulatory demands.Payload: 16-25 TonWheelbase: 3500 to 4500mm

platform that features globally harmonized

technologies/systems .

Market Attractiveness- North America: Market Offering Openings to Low-cost HCVs

Product Positioning

Target PriceRecommendation

•$16-20K for LCV•$32-40K for MCV •$70-85K for HCV

•LCVs with 1.8-2L engines and HP 120-140 with 5 Speed manual transmission.

•MCVs with 5 liter plus engines with 200+ HP and 6 speed transmission.

Reasons for Entry

Barriers to Entry

• Wide open price gaps in LCV, MCV and HCV segments. • Need for powertrain downsizing and lower HP engines. • Recessionary environment.

• Stringent emission and safety regulations• Strong position of local OEMs • Need for unique designs in MCV and HCV segment• Entry in HCV segment limited to intra-urban and intra-regional segments (day cabs, short-cabs, etc.)Steep regulatory barriers

transmission. •HCVs with 16-25 Ton GVWR, roughly 250-300 HP 8+ Liter 9 speed transmission (non long-haul type applications)

OEM

Supplier

What Now?

Conclusions and Recommendations

• Unique Approach

• Strategic Partnerships/Alliances

• Create New Brands

Diversify Supply Base

• Virtual Integration

• Innovative Supply Dynamics • Old Threat, New

Opportunity • Diversify Supply Base

• Low-cost Production Location/ Localization of Content

• Design to cost/ Decontent

• Strategic Relationships

• Diversify Manufacturing Base

• Outsource

• Local Sourcing

• Aftermarket Opportunities

Opportunity

• Asian OEMs Hold Strategic Advantage

• Guard Local Market, Attack Global Markets

• Short-Term Pain, Long-term Gain

• Innovation Will Pay Dividends

Next Steps

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For Additional Information

Sarah Saatzer

Corporate Communications

Automotive & Transportation

(210) 477-8427

sarah.saatzer@frost.com

Craig Hayes

Sales Director

Automotive & Transportation

(210)247-2460

craig.hayes@frost.com

Sandeep Kar

Global Program Manager

Automotive & Transportation

(416) 490-7796

sandeep.kar@frost.com