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TRANSCRIPT
Record profits versus increasing volatility
November 2014
Global Automotive Supplier Study
2 280115_Vortrag T Schlick Roland Berger.pptx
Contents Page
2
The current status – Supplier profitability at an all-time high
A. The short-term challenge – Uncertainty rises as record profitability is expected to come to an end
B. The long-term challenge – An industry structure fundamentally changing
C. The conclusion – Key actions for automotive suppliers
D. Contacts – Roland Berger and Lazard Automotive teams
E.
3 280115_Vortrag T Schlick Roland Berger.pptx
A. The current status – Supplier profitability at an all-time high
4 280115_Vortrag T Schlick Roland Berger.pptx Source: Company information; analyst forecasts; Roland Berger/Lazard
After an excellent 2013, 2014 is expected to be yet another record year for automotive suppliers globally
1) EBIT after restructuring items 2) EBIT after restructuring items/capital employed
Key supplier performance indicators, 2005-2014e (n=~600 suppliers)
148137132
118
99
116119109
100
14e
~155
13 12 11 10 09 08 07 06 05 14e
~7.5
13
7.2
12
6.9
11
6.5
10
7.0
09
1.8
08
2.1
07
6.5
06
5.7
05
6.0
14e
~14.0
13
13.2
12
12.5
11
12.9
10
13.4
09
2.9
08
3.0
07
12.5
06
9.3
05
11.1
Revenue growth EBIT1) margin [%] ROCE2) [%]
Indexed [2005=100]
Y-o-Y [%]
58
4
12
20
-15
-3
99
5 280115_Vortrag T Schlick Roland Berger.pptx
5
Key drivers of these results are nicely growing vehicle production volumes in the main markets
1) Incl. light commercial vehicles 2) Excluding CIS and Turkey
11.9
+5%
17.0 16.2 15.4 13.1
WORLD
NAFTA Europe2) China
South America
Japan/ Korea
+4%
17.9 17.1 16.9 18.1 17.5
+9%
16.8 22.9 20.9
18.2 17.3
4.0 4.5 4.3 4.3
-12%
4.2
84.7 81.5 88.0
+4%
74.4 76.9 13.8 14.0 13.5 12.5 13.3
+2%
Source: IHS; Roland Berger/Lazard
2010 2011 2012 2013 2014e
Global light vehicle production volume1) by region, 2010-2014e [m units]
2010 2011 2012 2013 2014e 2010 2011 2012 2013 2014e 2010 2011 2012 2013 2014e
2010 2011 2012 2013 2014e 2010 2011 2012 2013 2014e
CAGR: 9.3% CAGR: 0.5% CAGR: 8.0%
CAGR: -1.1% CAGR: 4.3% CAGR: 0.8%
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Major decline in Brazil and Russia – Chinese manufacturers and premium OEMs are fueling this year's growth
Top 20 by country and by OEM group, light vehicle production1)
Source: IHS; Roland Berger/Lazard
1) Incl. light commercial vehicles 2) Year-on-year growth rate
-20
-15
-10
-5
0
5
10
15
20
25
30
11 9 10 7 23 3 1 6 5 0 8 4 2
Russia
Thailand
Germany Japan
China
France
Czech Rep.
Slovakia
UK
Brazil
Canada
USA Italy
Turkey
India South Korea
Mexico
Iran
Spain
Indonesia
Production ∆ 2014e vs. 2013 [%] 2)
-20
-15
-10
-5
0
5
10
15
20
25
30
6 8 5 10 1 9 4 11 3 7 0 2
PSA
GM Mitsubishi
Suzuki
Toyota
Geely
Ford SAIC
VW Honda Mazda
RN FCA
BMW
Fuji Heavy Hyundai
Daimler BAIC
Dongfeng
Changan
Avg. 3.9%
By production country By OEM group
Total production 2014 [m units]
Winners
Losers
Winners
Losers
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OEM and supplier profitability (EBIT margin), 2001-2014e [%]
Source: IHS; Factset; company information; Roland Berger/Lazard
2014e 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
~7.5
1.8
~6.0
5.3
7.0
4.9
5.7
6.7
2.1
5.5
6.5
-0.9
2.3
6.5
5.8
7.2
4.9
6.0
4.7
6.0
5.8
5.1
5.4 5.3
5.1
Suppliers
OEMs1)
6.9
3.6
3.2
+1.4% +2.4% +5.7% +4.5% +3.3% +5.0% -5.0% -3.2% +13.6% +4.3% +5.1% +4.6%
1) Aggregated data for 14 European, North American and Asian OEMs (incl. results from financial services business)
0.0% +3.0%
Y-o-y change in global light vehicle sales
Recent supplier performance adds up to a 5-year plateau of record margins – Gap between suppliers and OEMs remains constant
8 280115_Vortrag T Schlick Roland Berger.pptx
8
1
Region
> NAFTA suppliers significantly improved their performance since the auto crisis to almost 8% EBIT
> Performance of Europe- based suppliers partly impacted by weak home market in 2013 (but positive trend in 2014)
> Chinese suppliers still very strong, but with gradually decreasing margin levels
> Japanese suppliers on average remain at a weaker profitability level
2
Company size
> Suppliers with >EUR 10 bn revenues maintained their strong profitability level of above 7% EBIT
> Lower midsized suppliers (EUR 0.5 to 2.5 bn revenues) remained above average
> Upper midsized suppliers (EUR 2.5 to 10 bn revenues) remained below average
> Small suppliers (below EUR 0.5 bn revenues had the lowest profitability (~5%)
3
Product focus
> Tire-focused suppliers maintained their strong margins
> Also powertrain suppliers remained above average
> Interior-focused suppliers saw margins decline and had the lowest profitability level overall of around 5%
4
Business model
> "Product innovators" had stable above-average margins of ~8%, further positive trend in 2014
> Margin of "process specialists" stayed stable, below average since 2007
Financial performance of suppliers varies greatly depending on region, company size, product focus and business model
Profitability trends in the global automotive supplier industry – 2014e vs. 2007
Source: Company information; Roland Berger/Lazard
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NAFTA-based suppliers are currently more profitable than their European peers – China-based suppliers recently on the decline
> Europe-based suppliers in principle benefit from leading technology positions in many segments and favorable customer mix – some large suppliers with weaker performance in 2013 vs. 2012 (and 2014) impacted the regional average
> NAFTA-based suppliers still benefit from substantial restructuring of their business during the 2008/2009 auto crisis
> China-based suppliers are still leading edge, but margin levels are gradually decreasing due to intensified competition
> Japan-based suppliers trapped by dependency on their home market and respective OEMs
Key supplier performance indicators by region, 2013/2014 [%]
EBIT margin trend 2014
EBIT margin 2013
NAFTA
7.7
Korea
6.5
Japan
6.6
Europe
7.0
China
9.4
Revenue CAGR 2007-13
11.7% 1.9% 4.5% 0.4% 14.6%
Avg.=7.2
1 Region
Source: Company information; Roland Berger/Lazard
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Very small and midsize suppliers lag behind in terms of EBIT margin – Large globally operating suppliers are top of the class
> Leveraging scale on the cost side clearly paid off in recent years
> Large multinational suppliers continued to benefit from the ongoing globalization
> Midsize suppliers (EUR 2.5-10 bn revenues) "stuck in the middle" – performance remaining below average
> Many very small suppliers suffered from the growing cost of going global in recent years
Key supplier performance indicators by company size (sales in EUR bn), 2013/2014 [%]
EBIT margin 2013
1.0-2.5 2.5-5.0
7.9
>10.0
6.6
0.5-1.0
6.4
5.0-10.0
7.6 7.6
<0.5
5.4
Avg.=7.2
EBIT margin trend 2014
Revenue CAGR 2007-13
3.8% 5.2% 3.9% 3.0% 4.8% 3.2%
2 Company size
Source: Company information; Roland Berger/Lazard
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Powertrain and tire-focused suppliers currently achieve the highest profitability – Interior suppliers remain significantly below average
Key supplier performance indicators by product focus, 2013/2014 [%]
Electrics/
Infotainm.
5.5
Interior
5.6
Exterior
7.2
Powertrain
7.6
Tires
9.4
Chassis
7.0
> Powertrain margins reduced by intensified competition in this growing business – still on a high level
> Exterior suppliers improved in recent years, partly due to growing lightweight focus
> Chassis suppliers developed around the industry average for quite some time – future development increasingly driven by active safety
> Tire suppliers clearly benefited from their strong aftermarket business in recent years
> Interior suppliers continue to struggle with high commoditization pressure
EBIT margin trend 2014
EBIT margin 2013
Revenue CAGR 2007-13
Avg.=7.2
2.7% 3.7% 6.5% 1.7% 3.0% 2.3%
3 Product focus
Source: Company information; Roland Berger/Lazard
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Product innovators clearly outpace process specialists in terms of profitability
> Innovative products feature higher differentiation potential and greater OEM willingness to pay
> High entry barriers through intellectual property in many innovation-driven segments
> Competitive structure more consolidated in innovation-driven segments
> Higher fragmentation in many process-driven segments drives price competition
Key supplier performance indicators by business model, 2013/2014 [%]
Process specialists2)
6.4
Product innovators1)
8.1
EBIT margin trend 2014
EBIT margin 2013
Revenue CAGR 2007-13
4.3% 3.2%
4 Business model
Avg.=7.2
1) Business model based on innovative products with differentiation potential 2) Business model based on process expertise (while product differentiation potential is limited)
Source: Company information; Roland Berger/Lazard
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Five key success factors have been applied by most of these players
Strong efforts to maintain/increase USP and technological differentiation 1
Focus on product segments with above-average growth rates and margin potential 2
Anti-cyclical efficiency improvement efforts (overheads, plant locations, …) 3
Strong increase of production and engineering footprint outside Triad markets 4
Good organization of processes and structures in globalized setups
5
Top 5 key success factors of top performers
Source: Roland Berger/Lazard
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B. The short-term challenge – Uncertainty rises as record profitability is expected to come to an end
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15e 16e 14e
~7.5
13
7.2
12
6.9
11
6.5
10
7.0
09
1.8
08
2.1
07
6.5
06
5.7
05
6.0
Source: Company information; Roland Berger/Lazard
Supplier global revenue and margin outlook, 2015/2016
Short term, we expect slower growth with profit margins still remaining at a high level – Downside risks outweighing opportunities
15e
~155
99
08 12
116
16e 09
118
10 11
132 137
13
148
14e
119
05 07
109 100
06
Revenue growth [2005=100] EBIT1) margin [%]
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Uncertainty about the market development in 2015 stays at the top of the supplier CEO agenda
Source: Roland Berger/Lazard
Note: Excluding product segment specific technology and operational issues
Supplier CEO radar screen for 2015 and beyond
Car buyers
OEMs
Competition Supply base
Capital markets/ financing
Technology/ legislation
Long term Short term
1
2
3 4
5
6
Investors' view of automotive supply sector
Volatility of capital markets Basle III
Zero casualties
Rising energy
cost
Availability of skilled workforce
Insolvencies in supplier base
Factor cost inflation
Selective consolidation
BRI volatility
Rising star OEMs
Maturing China
Global localization
Price pressure
Volume bundling
Emerging market
investors/ suppliers
New growth regions
Continued outsourcing
ADAS/ autonomous
driving
Further emissions reduction
Comfort features
New players
Exchange rates
Demotorization
Connected vehicle
Stagnation in Triad Russia/Ukraine
crisis
17 280115_Vortrag T Schlick Roland Berger.pptx
2016e
94.3
91.2
3.1
2014e
88.0
2011
76.9 0.4
87.6
2011 ➔ 2014 2014 ➔ 2016
Global light vehicle production is expected to continue its growth over the next two years – But at a much slower pace than before
Source: IHS; Roland Berger/Lazard
Light vehicles production volume by region, 2011-2016 [m units]
1) Conservative estimate assumes lower actual level in 2014 compared to IHS forecast 2014 (but still assuming stable macroeconomic environment) 2) Assuming a still stable political environment
Annual growth by region [CAGR, %]
Europe
NAFTA
Japan
China
Russia
<0
+9
+6
+10
-21) to 0
0 to +2
+2
-7 to -8
+6 to +8
India 0 +4 to >10
Brazil -21) to <0 0 to +7
0 to +22)
Note: Total bar size reflecting IHS volume forecast
Car buyers
Conservative estimate (reduction)
1
~4.5% p.a 2.0% to
3.5% p.a.
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Import embargos would negatively impact all sides – Introduction currently not likely but still possible
Russia crisis: Summary of impacts and conclusions of potential sanctions
Scenario 1: Increase of import duties
Scenario 2: Embargo on CBU imports (< EUR 30 k)
Scenario 3: Embargo on all CBU imports
Budget impact for Russia
Profit loss for EU/US OEMs
EUR +55 m
EUR -100 m EUR -175 m
EUR -465 m
EUR -550 m
EUR -1,420 m
Conclusions
> Limited impact of an increase in duties for EU/US OEMs only – most likely not worth the effort
> Greater short-term and long-term self-damage to Russia through import embargos:
– Short-term: budget revenue shortages higher than "punishment" effect
– Long-term: strengthening of Chinese/Asian brands as direct competitors to Russian brands
Source: Roland Berger Study: Russian automotive market update: what would be the real cost of sanctions? (Sept. 2014)
1 Car buyers – Russia/Ukraine crisis
19 280115_Vortrag T Schlick Roland Berger.pptx Source: Press; Roland Berger/Lazard
Key drivers of increasing OEM margin pressure
OEMs are facing higher margin pressure – Impact of pricing and warranty cost increasing
> Growing difficulties to maintain end customer price levels – especially in Europe and China
> Increasing cost of product proliferation and shortening replacement cycles
> Rising warranty cost driven by a growing number of high-volume recalls
> Increasing complexity and variety of new automotive technologies
"The automotive industry faces fierce competition and high pressure on earnings!"
Martin Winterkorn, Volkswagen Group, October 2
Price levels in Europe are "still not where BMW expected them to be". "This is really tough competition with the corresponding consequences for prices."
Norbert Reithofer, BMW, October 2
"The discount battle remains tough."
Karl Schlicht, Toyota Europe, October 2
"Germany is probably one of the toughest markets currently." Overall, the European market "is not really encouraging at the moment."
Dieter Zetsche, Daimler, October 2
OEMs – Price pressure 2
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Over recent years, actual retail prices have been continuously deteriorating in many major markets – Even in China
Snapshot of regional price discount patterns [% of retail price]
OEMs – Price pressure 2
Source: CAR Institute; iFind; CNW Marketing Research; Roland Berger/Lazard
Discount top 30 models1) Monthly incentives2) New car discounts
2013 2012 2014
YTD
14.9 14.5 13.9
2013 2012 2014
YTD
19.4 18.9 18.1
2013 2012 2014
YTD
7.5 8.0 6.4
1) Top 30 vehicle models with highest registration numbers 2) Total manufacturer, dealer and auto financing incentives to new car buyers across all main OEMs in the US
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Recent OEM cost reduction efforts and impact on supplier relations
Particularly European OEMs have kicked off additional cost reduction efforts, creating friction in their supplier relations
Source: Company information; press; IHS Global Study on OEM-Supplier relations October 2014; Roland Berger/Lazard
OEM
Recent OEM cost reduction efforts
> Reduce cost by ~EUR 7 bn, of which 5 bn in Volkswagen brand until 2018
> 1/3 by fixed cost reduction, 1/4 by sales and ~1/4 by R&D, and others
> Fewer models and additional product offers
> Deterioration of quality of OEM-supplier relationships
> Ambitious annual price reduction targets
> More aggressive ways to capitalize on their negotiation leverage with suppliers (reinforced "pay-to-play"; "pay-to-quote")
Scope and impact
> Reduce costs by several hundred million euros annually until 2020
> Reduce R&D budgets, flexibilize production
> Particular focus on Mini and 1 series
> Realign global production to reduce operating costs by 5-6% annually (in addition to already existing cost saving programs)
> Increased standardization, job shifts, reduced vertical integration and investment
> "Back in the race" turnaround plan, targeting lower production cost by EUR 1,100 per vehicle by 2018 – additional measures already announced
> Comprehensive set of measures, including reduced number of models, upgraded auto plants, boosted market share in growing markets, reduced jobs and lowered labor costs
> Raised the goal for combined alliance savings by 7.5 percent, accelerating cooperation efforts (save "at least" USD 5.8 bn by 2016)
> Stepped up joint projects in development, manufacturing, purchasing and human resources
OEMs – Price pressure 2
VW
BMW
Daimler
PSA
Renault-Nissan
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C. The long-term challenge – An industry structure fundamentally changing
23 280115_Vortrag T Schlick Roland Berger.pptx
Technology/ legislation
Automotive suppliers need to mange a broad variety of long-term challenges
Note: Excluding product segment specific technology and operational issues
Supplier CEO radar screen for 2015 and beyond
Car buyers
OEMs
Competition Supply base
Capital markets/ financing
Long term Short term
1
2
3 4
5
6
Investors' view of automotive supply sector
Basle III
Zero casualties
Rising energy
cost
Availability of skilled workforce
Insolvencies in supplier base
Factor cost inflation
Selective consolidation
BRI volatility
Rising star OEMs
Maturing China
Stagnation in Triad
Global localization
Price pressure
Volume bundling
Emerging market
investors/ suppliers
New growth regions
Continued outsourcing
ADAS/ autonomous
driving
Further emissions reduction
Comfort features
New players
Demotorization
Russia/Ukraine crisis
Connected vehicle
Source: Roland Berger/Lazard
Volatility of capital markets
Exchange rates
24 280115_Vortrag T Schlick Roland Berger.pptx
RoW markets do not have the momentum of BRIC, but growth is stable and selected RoW markets outperform in a global context
Sales Production
29%
16% 15%
30%
19% 16%
10%
6%
11%
37%42%
14%13% 13%
9% 9%
2013
83.3
4%
6%
RoW
Next gen.
growth
markets1)
2020e
102.8
2002
56.6
W.Europe
USA
Japan
BRIC
29%
15% 14%
21%
13% 12%
17%
11%7%
11%
36%41%
13%12% 10%
8% 14% 16%
W.Europe
USA
84.7
2002
57.1
2020e
105.0
BRIC
Japan
RoW
Next gen.
growth
markets1)
2013
Source: IHS; Roland Berger/Lazard
Light vehicle (LV) sales and production, 2002-2020 [m units, %]
1 Car buyers – New growth regions
1) Argentina, Indonesia, Iran, Malaysia, Mexico, Poland, Slovakia, South Africa, Thailand, Turkey
25 280115_Vortrag T Schlick Roland Berger.pptx
Of all markets beyond Triad/BRIC, Mexico, Indonesia, Thailand, Iran and Poland make up ~85% of incremental volume
Top 10 LV production markets beyond Triad/BRIC by incremental volume [m units]
0.3
Mexico
0.2
2.0
2013
27.1
0.3
1.2
22.0
Thailand
0.3
Rest
negative
0.1
Iran Rest
positive
0.7
Argentina
0.6
Indonesia
0.7
0.0
Poland Malaysia
+5.1
2020e
0.9
South
Africa
Slovakia Turkey
~85%
7.7% 6.9% 7.5% 3.9% 9.2% 3.8% 0.4% 4.0% 3.8% 4.1% CAGR 2013-2020
1 Car buyers – New growth regions
Source: IHS; Roland Berger/Lazard
~45% ~40%
26 280115_Vortrag T Schlick Roland Berger.pptx Source: Roland Berger/Lazard
Major types of M&A motivation
Rationale
Technology access Market/customer access Economics-driven consolidation
> Achieving access to new or strengthening already existing technology/material or process capabilities to secure/establish USP
> Completion of existing portfolio to offer "one-stop shopping" from a
– horizontal (e.g. steel or aluminum and related process competencies) or
– vertical perspective (e.g. increased value add)
> Achieving access to regions or customers not served to date – via existing business or asset deals (e.g. capacity of production locations)
> In the past, typically driven by established market players, today, primarily led by emerging market players
> Optimization of highly fragmented and inefficient market structures, featuring a large set of market participants, of which many are rather struggling to survive based on achievable revenues, capacity utilization and margins
> Typically occurring in process-focused segments
> Rationale of many of the recent deals – easiest to communicate sustainable "value add" to investors
> Driver of many Chinese transactions
> Pure "expansion" deals without technology focus rather rare
> Driver of many cross-border transactions, e.g. from Japan
> Relatively low share of transactions
> Not favored by the OEMs
> Buyers often cautious about restructuring activities required
Empirical evidence in recent deals
Typically go hand in hand
Competition – Emerging market investors/suppliers 3
Most recent M&A deals were driven by technology and customer/ market access – Economics-driven consolidation still not picking up
27 280115_Vortrag T Schlick Roland Berger.pptx
Overview of main acquisitions, 2011-2014
Emerging market investors play a major role in supplier M&A nowadays – Most of the recent transactions technology driven
2012
Amtek / Kuepper Group
Amtek / Neumayer Tekfor
Bohong / Wescast Industries
2013
Wanxiang Group / A123
Ningbo Huaxiang / HIB Trim Parts
Huayu Automotive Systems / Yanfeng Visteon JV
2014
Shanghai Prime Machinery / Nedschroef
AVIC / Hilite AVIC / KOKI Technik
BorgWarner / Wahler
AUNDE / Fehrer
Mahle / Behr
Amtek / Kaiser
Gentherm / W.E.T. Automotive
MAHLE / Letrika
Tokai Rubber / Anvis
Grammer / Nectec
Gentex / JCI HomeLink
ZF / TRW
Lear / Eagle Ottawa
TMT / ZF Boge
Continental / Freudenberg molded brake parts
Tupy / Cifunsa Wuhan Iron & Steel Group / ThyssenKrupp Tailored Blanks
Key: Acquiror / Target
Group of Chinese investors / iee
Source: Thomson; Merger Market; press research; Roland Berger/Lazard
2011
Citic / KSM Castings
Bayraktarlar / Odelo
Ningbo Huaxiang / Sellner Ningbo Joyson Electronic / Preh
BHAP/ Inalfa
CQLT / Saargummi
Delphi / Unwired Technology ElringKlinger / Polytetra
Visteon / JCI Automotive Electronics bus.
Inteva / Arvin Meritor Body System bus.
Competition – Emerging market investors/suppliers 3
GKN / Getrag driveline business
Bosch / ZF Lenksysteme
Federal-Mogul / TRW valves business
Sensata / Schrader
Halla / Visteon Climate business
Wangfeng / Meridian Lightweight
Nidec / Honda Elesys
Bosch / SPX
Metalsa / ISE Automotive
Hebei Lingyun Industrial / Kiekert
Delphi / FCI MVL
Magna / Ixetic
Faurecia / ACH Interiors Grupo Antolin / CML
Lear / Guilford Mills
Nemak / JL French Automotive
Gestamp / ThyssenKrupp Metal Forming
Valeo / Niles
Iochpe-Maxion / Hayes Lemmerz
Samvardhana Motherson Group / Peguform Toyota Boshoku / Polytec Automotive Interior bus.
Nisshinbo / TMD Friction
Martinrea / Honsel
Continental / Parker Hannifin MCS
28 280115_Vortrag T Schlick Roland Berger.pptx
In selected areas, traditional suppliers will face new competition
Overview of new entrants into the automotive industry – Connectivity example
Source: Roland Berger/Lazard
Traditional players New players
Answer client demand for services/connectivity, optimize vehicle design and usage, new revenues, …
Reach new customers and test models (PAYG, PHYD,
peer-to-peer, anticipation, …
Consolidate position on intelligence systems, data
analytics, avoid new entries, …
Capture connectivity and usage, extend business to security, etc. …
Extend the user intimacy universe, data collection and monetization opportunities, …
3 Competition – New players
Apple Samsung
T-Mobile Cisco
Covisint
Microsoft at&t Verizon
Deloitte
Accenture
amaguiz.com Coyote
Harman
Bosch
Continental
Ford
Audi
Toyota Hyundai
GM BMW Mercedes
29 280115_Vortrag T Schlick Roland Berger.pptx Source: Roland Berger/Lazard
Technology/legislation – Future developments
The ongoing technology shift is expected to generate new revenue and profit opportunities – But requires heavy upfront investments
1) Harvey ball indicating "confidence level" on the hypotheses; empty = low, full = high
> Full-scale vehicle connectivity with consumer devices emerging as a must-have feature in the near future – Innovation potential for the human machine interface, but also risk for established automotive suppliers to lose revenue and margin potential to non-automotive competitors
> Advanced driver assistance systems further grows in importance as main innovation area in the vehicle (alongside powertrain electrification and lightweight construction) – New (software) applications/solutions largely based on existing hardware
> In the long term, fully autonomous driving capability emerges on the horizon – Still various technological and legal obstacles to overcome
> Ongoing electrification of the powertrain – Focus on combustion engine optimization (in conjunction with further hybridization) through 2020, breakthrough of fully electric vehicles thereafter (driven by even tighter CO2 emissions regulations)
> Rising cost pressure on less-innovative (process-driven) segments – Resources to be freed up to fund innovations
Confidence1)
Technology/legislation 5
30 280115_Vortrag T Schlick Roland Berger.pptx
30
To support the reduction of road fatalities, the regulatory framework related to safety applications will become even stricter
Increasing safety regulations in Europe – Selected examples
> Within the last decade, the focus of regulations has shifted toward pedestrian protection – introduction within two phases:
– Phase 1 contains impact on adult head and lower leg form
– Phase 2 adds impact on child head and hips
> Shift toward active safety systems
> Further mandatory implementation of driver assistance systems currently under discussion
Source: EC; ETSC; Roland Berger/Lazard
1) November 2012 for new models; January 2014 for all new vehicles 2) November 2013 for commercial vehicles with >3.5t GMV; November 2015 for all newly registered vehicles
2005 2010 2015 2020
Tire Pressure Monitoring Systems1)
Lane departure warning2)
Electronic Stability Control
Autonomous braking2)
eCall
Daytime running light
Intelligent speed assistance systems
Pedestrian protection I
Pedestrian protection II
Regulation approved by EC Not finally decided
Pas
sive
sa
fety
A
ctiv
e sa
fety
Technology/legislation – ADAS/autonomous driving 5
EC661/2009
31 280115_Vortrag T Schlick Roland Berger.pptx
The evolution of ADAS systems will ultimately result in the introduction of full autonomous driving functionality
1) Highway pilot = Highway chauffeur + higher degree of automation 2) Tested – date of series production not available
~2013 ~2020 ~2016 ~2014 ~2015 ~2017 ~2018 ~2019
Lane change assist
Lane keep assist Emergency steering assist
"Parking with App"
Parking assist steering only
Valet park assist
Multiple lane assist
Construction zone assist2)
Highway pilot1)
High way chauffeur1)
Predictive emergency braking and predictive pedestrian protection
Emergency steer assist
Intersection assist
Fully auto valet parking (V2I)
Fully autonomous
system
(door2door)
Urban automated driving
Source: Press research, conference proceedings, Roland Berger/Lazard
ADAS – Innovation roadmap
~2025 >> 2025
Technology/legislation – ADAS/autonomous driving 5
32 280115_Vortrag T Schlick Roland Berger.pptx
Autonomous cars will become reality in the next 10 years – All major OEMs have launched their own initiatives
1) Project to investigate autonomous cars, cars drove 1,000 km autonomously in Paris 2) Mercedes test vehicle autonomously covered the approximately 100-kilometer stretch between Mannheim and Pforzheim, while negotiating dense traffic and complex traffic situations 3) According to Google's self-driving car project director, Chris Urmson 4) Study: "Autonomous Vehicles" (Q3 2013) by Navigant Research (global research institute) 5) Study: "Emerging Technologies: Autonomous Cars ‒ Not If, But When" (2014) by IHS Automotive
Autonomous driving ‒ Development and outlook
Source: Navigant Research; IHS Automotive; Volvo; Roland Berger/Lazard
> Concept car
> Autonomous journey made from Mannheim to Pforzheim
A Mercedes S500 "Intelligent Drive"
> Start of production in late 2017
> Tests in Michigan and Tokyo already executed
Toyota Lexus LS B
> Significant lowering of the incidence of car accidents through autonomous cars – Thus lower insurance premiums
> Claims increasingly less prevalent but more expensive in the future (as with real estate insurance)
> Predictive models for drivers becoming less significant – Customer loyalty/retention, damage processing, etc. more important
> New competition (e.g. from OEMs/Google offering autonomous vehicles combined with warranty and insurance)
1994:
EUREKA1) field testing
2035:
Large proportion of cars autonomous4)
2050:
All cars autonomous5)
2013:
Mercedes-Benz: "Bertha"2) test drive in 100km of dense traffic
Current players & highlights Implications for the car insurance business model
2035: Autonomous cars completely transformed traditional car value chains – However, legal issues still not resolved at this time
Technology/legislation – ADAS/autonomous driving 5
2020:
Introduction of the first self-driving car 3)
BMW Toyota Volvo Audi
Nissan Daimler
Continental
Autoliv Delphi
TRW
Bosch
Denso
33 280115_Vortrag T Schlick Roland Berger.pptx
Connected vehicles business models are based on vehicle and journey data – Market players already positioning themselves
1) Introduction of "M1" by Siemens makes wireless machine-to-machine communication possible
Connected vehicles ‒ Development and outlook
Key players (extract) Highlights
Mid 1990s:
M2M communication1)
2011:
Internet-based infotainment
2015:
Introduction of eCell
2020:
Complete vehicle interconnectedness
Technology service providers:
IT/Telco:
Supplier:
OEM: BMW Connected Drive
> In-car information and entertainment services and apps, e.g.: – E-mail, organizer and calendar functions – Different entertainment apps – Access to social media
Hyundai Blue Link
> Integrated in-car solution; Bluetooth connection to smartphone content: – Automated SOS calls in emergencies – Roadside assistance – Vehicle location in the event of theft
A
Need for interconnecting living environments – OEMs offering ever-increasing innovative "connected vehicle" solutions
B
Technology/legislation – Connected vehicles 5
Source: Roland Berger/Lazard
Continental Bosch TRW
Google Apple Telefonica
BMW Daimler Audi
OCTO Airbiquity
34 280115_Vortrag T Schlick Roland Berger.pptx
Regulatory requirements push improvements in most regions – In Europe, the US and Japan, there is also a strong customer pull
Assessment CO2 emission/fuel consumption regulation and customer pull
Source: FAW; EPA, EU; Inovar; Roland Berger/Lazard
Customer pull3)
75
127
-41%
2025 2021
951)
2013
Customer will only buy cars with most efficient/lowest
CO2 emissions technology (medium term)
Customers do not consider CO2 emissions/consumption
in purchase decision (medium term)
1) Average weight-dependent CO2 emissions target 2) Example for passenger car 3) End customer pull for low CO2 emission/low fuel consumption powertrain and/or alternative powertrains 4) No decision made yet
> Corporate CO2 emissions target [g/km]
> Fuel efficiency targets [km/l]
≙ 15.1 km/l
≙ 20.3 km/l
> Inovar – Auto energy efficiency increases [MJ/km]
≙ 2.07 MJ/km
≙ 1.82 MJ/km
> Potential4) corporate CO2 emissions targets [g/km]
> Additional potential fleet xEV target share
105
154
2013
t.d.b.
2020 2025
-32%
95116
169
2025 2013
-44%
2020
145166
-13%
2025
t.b.d.
2020 2013
Technology/legislation – Further emissions reduction 5
> CAFE2) [g/mi] > Additional ZEV regulation
CARB
≙ 213 g/mi
≙ 163 g/mi
101132
178
2025 2013 2020
-43%
≙ 286 g/mi
35 280115_Vortrag T Schlick Roland Berger.pptx
In Europe, all OEMs focus on ICE optimization and road load reduction to comply with 95 g target – Minor xEV also required
1) Full hybrids; PHEVs/REEVs; EVs ICE = Engine and other powertrain improvement, RL = Road load reduction (weight reduction, tires, aero), Fleet – Change in vehicle segment shares
> Assessment is based on potential CO2 emissions reduction in each car model of an OEM
> ICE optimization is the most cost-efficient lever for CO2 emissions reduction, followed by road load reduction, xEV least efficient cost/benefit ratio
> Assumed changes in fleet structure – Limited shift toward smaller
vehicle segments – No change in average
vehicle power – No active shift in fuel
shares in a model line
> Credits for low CO2 emitting vehicle are not considered
> Potential of ICE almost 100% leveraged – Further reductions need to come from xEVs
Volume OEMs Premium OEMs
92 3 95
129
2
CO2
emissions
Fleet
95
RL ICE 2012 2021
target
93
Gap for
xEV1)
123
8
136
98
106
10
111
ICE 2012 Fleet
143
RL Gap for
xEV1)
2021
target
101
CO2
emissions
Technology/legislation – Further emissions reduction 5
Source: Roland Berger simulation
DAIMLER PSA
BMW GROUP FORD
CO2 emissions reduction [g/km] – European example
36 280115_Vortrag T Schlick Roland Berger.pptx
To meet long-term regulation and customer pull, "new powertrain solutions" will be required – Electrification will likely be a main lever
Propulsion share 2020 and 20251) [% of sales]
1) Optimistic scenario: globally strict CO2 emissions/fuel consumption regulation; high energy cost; high cost reduction HV batteries; high investments in recharging infrastructure
Technology/legislation – Further emissions reduction 5
Source: Roland Berger simulation
7%
25%
5%
6%
100%
64%
2%
2025e
89%
2020e
2%
100%
20%
39%
3%
100%
0%
100%
2025
58%
2020
78%
0%
2%
8%
20%
4%2%
2025 2020
100%
75%
1%
90%
100%
1%
27%
4%5%
2025
100%
67%
93%
1%
2%
100%
2%
2020
Diesel/gas engines EV CNG HEV/PHEV/REEV
9% 31% 10% 24% 6% 32%
1)
22% 42%
37 280115_Vortrag T Schlick Roland Berger.pptx
D. The conclusion – Key actions for automotive suppliers
38 280115_Vortrag T Schlick Roland Berger.pptx
Key actions for automotive suppliers
Source: Roland Berger/Lazard
Drive smart efficiency improvements (indirect production, overheads,…) 1
Increase/maintain flexibility across the entire value chain (production, R&D, purchasing,…) 2
Keep key resources motivated and "available" for potential task forces 3
Closely manage investment decisions and one-time costs 4
Cautiously monitor market developments and signals for a possible downturn 5
Short term Long term
Maintain/sharpen unique selling proposition with clear technological or process differentiation 1
Focus on product segments with above-average growth rates and margin potential – actively leverage M&A opportunities
2
Balance regional and customer share – from a revenue but also value creation perspective (production, R&D, sourcing,…)
3
Establish best-in-class processes and structures to remain efficient and flexible in more complex globalized setups
4
Apply scenario techniques and regularly review/adapt defined strategy 5
Suppliers need to ride the next wave of efficiency gains, while getting prepared to benefit from the industry shift
39 280115_Vortrag T Schlick Roland Berger.pptx
E. Contacts
40 280115_Vortrag T Schlick Roland Berger.pptx
Roland Berger Automotive: More than 300 dedicated consultants globally
Key facts
> Global team of more than 300 dedicated automotive consultants
> Over 400 clients in the automotive industry
> More than 1,500 successful projects since 2000
> Proven leading-edge tools and methodologies
> Thought leadership in the worldwide automotive community, producing highly regarded studies and top quality research
Source: Roland Berger
China
3 Partners 40 Consultants
2 Partners 20 Consultants
India/S. East Asia South America
2 Partners 10 Consultants
USA
4 Partners 25 Consultants
Western Europe
15 Partners 150 Consultants
Eastern Europe
2 Partners 20 Consultants
Russia
1 Partner 15 Consultants
1 Partner 10 Consultants
MENA
Japan/Korea
4 Partners 20 Consultants
Roland Berger Automotive: A strong global team with more than 300 consultants dedicated to clients in the automotive industry
41 280115_Vortrag T Schlick Roland Berger.pptx
Asia Pacific/
Middle East
7 Managing
Directors
~15 bankers
Lazard Automotive Practice: Unparalleled coverage of the global automotive sector
Lazard Automotive: ~70 bankers with strong senior expertise in the automotive sector
1) In Latin America, JV MBA Lazard
Note: Strategic alliances for Central/Eastern Europe, Russia, Mexico and Korea
Source: Lazard
Americas1)
10 Managing
Directors
~25 bankers
Europe
11 Managing
Directors
~30 bankers
Selected Lazard transactions > ZF Friedrichshafen: Acquisition of TRW Automotive
> Wahler: Sale to BorgWarner
> Fiat: Acquisition of remaining equity in Chrysler
> Dongfeng: Acquisition of a minority stake in PSA
> Anvis: Sale to Tokai Rubber Industries
> A123: Sale to Wanxiang (out of Ch. 11)
> KPS Capital: Acquisition of Bosch's foundation brakes business
> Delphi: IPO of the company
> Honsel: Sale to Martinrea / Anchorage
> Hilite: Sale to 3i
> US Treasury: Sale of Chrysler stake to Fiat
> US Treasury: IPO of GM
> Cooper Standard: Restructuring
> Continental: EUR 1.1 bn capital increase
> UAW: Restructuring of OPEB liabilities of GM, Ford and Chrysler
> Volkswagen: Acquisition of a 49.9% stake in Porsche
> Opel: Advising the German Ministry of Economics on the Opel situation
> Metaldyne: Merger with AsahiTec