China Powertrain Trend in The New Environment. Tianshu Xin Director of Global Powertrain Forecasting

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1 China Powertrain Trend in The New Environment Tianshu Xin Director of Global Powertrain Forecasting

2 Presentation Outline What challenges are we facing in China? How does legislation address energy and environmental concerns? How will China respond to the challenges? What impacts will the government s latest development plan have on the market? Will EV achieve breakthrough in China?

3 What Challenges Are We Facing? Nation Challenges Environmental concerns Lack of oil resources Traffic jam Auto Industry Challenges Irrational industry structure Lack of technology knowhow Weak independent R&D capabilities Incomplete market demand/incentive policy

4 Legislation Addresses Energy and Emission Concerns. But It Might Not Be Enough Sustainable Growth can only be achieved with appropriate regulatory guidance 2005 New Official Vehicle Classification System New Local Content Regulation Auto Distribution Regulation Phase I Fuel Consumption Standard Hybrid Standards 1994 Auto Industry Policy 2007 National Climate Change Programme Euro III Emission Standard Govern Alternative Fuel vehicle development 2004 Overloading Restriction New Auto Industry Policy EURO II Emission Standard Implementation Auto Loan Policy 2006 New Consumption Tax New Fuel Price Policy 2008 Phase II Fuel Consumption Standard Revised Consumption Tax

5 Strength 30% fuel efficiency 25% better torque 30% less CO2 emission Mature diesel technology Weakness Higher initial cost Can Diesel Cars be the Solution in China? Opportunity Uncertain market: Dieselisation or Hybridisation? Lack of oil resource Increasing consumer fuel economy awareness Fuel Price Feb-03 May-03 Jul-03 Dec-03 Mar-04 May-04 Aug-04 Mar-05 May-05 Jun-05 Jul-05 Mar-06 May-06 Jan-07 Nov-07 Jun-08 May-09 Threat Poor customer perception Hybrid technologies No difference on fuel price Poor diesel quality Lack of government s financial support

6 Diesel Solution is Unlikely to Be the Winner 2.0% Jetta was and still is the only diesel sedan with mass production. 1.3% 1.3% 1.0% 0.9% 1.2% 1.3% 1.3% 0.7% 0.6% 0.9% 0.8% 0.0%

7 Can Gasoline Technologies Provide the Solution? Gasoline Engine Power Density (kw/l) The power density gap has been closing very quickly The localisation of advanced engines help to reduce the gap of power density between locally produced and imported gasoline engines. Technical support from the independent engineering houses such as AVL and FEV also assists local OEMs in designing more advanced gasoline engines. Local Engine KW/L Imported Engine KW/L

8 Is the Evolution of Gasoline Technologies Significant Enough? 8% Gasoline turbocharger will rise due to trend of downsizing 60% 7% 6% 5% Variable valve train will become popular 50% 40% 4% 30% 3% 2% 1% 0% Gasoline direct injection will only achieved modest growth due to poor fuel quality and higher cost % 10% 0% Turbocharger Gasoline DI VVT

9 But Chinese OEMs Are Still Behind Gasoline Engine Power Density kw/l China is behind Japan for more than 10 years Japan 50 >10 years China 45 4 years Japan USA W. Europe World China

10 More Drastic Changes are Needed 2005 New Official Vehicle Classification System New Local Content Regulation Auto Distribution Regulation Phase I Fuel Consumption Standard Hybrid Standards 1994 Auto Industry Policy 2007 National Climate Change Programme Euro III Emission Standard Govern Alternative Fuel vehicle development 2004 Overloading Restriction New Auto Industry Policy EURO II Emission Standard Implementation Auto Loan Policy 2006 New Consumption Tax New Fuel Price Policy 2009 Fuel Tax Development Plan to Aid Auto Industry Stimulus Package for New Energy Vehicles 2008 Phase II Fuel Consumption Standard Revised Consumption Tax 2010 Euro IV Emission Standard Government subsidies on alternativepowertrain Emission Tax Stricter Fuel Consumption Standards Euro V/VI Emission Standards

11 Impact of Fuel Tax on Consumers is Marginal 18,000 6 Fuel Price Structure Fuel Cost and Road Maintainence Cost rmb/year 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 rmb/l Tax:1 Tax:0.8 Gasoline Diesel Fuel consumption: Excelle 1.6L MT 8L/100km; CR-V 2.0L 2WD AT 10L/100km Road Maintenance Fee: 1200 RMB/Year Gasoline Price: 5.2 RMB/L, including 1 RMB/L fuel tax Advantage Disadvantage 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 30,000 km/year 1.6L with fuel tax 1.6L with RMF SUV with fuel tax SUV with RMF

12 Ambitious Target? Will China Become a Kei Car Market 80% 70% 60% Purchasing Tax Cut China 1.6L Japan 1.5L 50% 40% 30% Target 1.5L China 1.5L Japan 1.0L 20% 10% Target 1.0L China 1.0L 0%

13 Learn from Best Practice with an Opportunity to Leapfrog Legislation& Technology Stricter emission stand. Gasoline valve train Automatic Trans C02 Focus Diesel CMR Strong downsizing DCT GDI Strong downsizing Hybrid focus Small car CVT Downsizing Gasoline valve train European emission standards DCT Gasoline Diesel Non Plug-in Hybrid Plug-in Hybrid EV

14 There is No Shortage of Innovation FAW JAC GAIC Hafei Geely Liebao Lifan Chery BYD ZOTYE Bestun B50 Bingyue Concept car Saibao Panda Liebao 320 EV Tiggo 3 F6DM 2008EV ChangAn BAIC Concept car Kylin Greatwall 863 Kulla2 EV Fulwin Riich m1 e6 Wande Haima EV Jiexun me FC SAIC DFM Roewe 750 Shanghai EV Shanghai FCV Shuaike EV Aeolus Nissan Hyundai Toyota BMW Honda Suzuki Camry Hi-CT Prius Mini E BMW7 Insight Civic FCX Clarity Benz I-Car SX4 FCV S400 Nuvu AVANTE FCHV

15 Short Term Target with a Long Term View Government Target: Establish 500K production capacity for new energy vehicles (HEV+BEV+FCV) by 2011 AND sales of these vehicles account for 5% of Passenger car sales (425K) by K The fuel saving only accounts for about 1.4% of 2008 imported oil. The fuel saving is NOT significant enough to reduce China s reliance on oil import.

16 What Chinese Government Would Like to Achieve Build Infrastructure Quick battery recharging stations/swap stations Household charging facilities Reduce Cost Vehicle Battery Cost Infrastructure Industry Develop Industries Battery Motor Control system Standard Behaviour Foster Demand Consumer education Financial incentives Set up Standards Industries Technical

17 Actions From Chinese Government Subsidy on Public Use PCs and LCVs (rmb0000/unit) Vehicle Type Fuel Saving BSG* Maximum Electric Power Rate 10%-20% 20%-30% 30%-100% Hybrid 5%-10% 10%-20% %-30% %-40% Pure EV Fuel Cell >40% 100% 100% *Belt Starter Generator Note: Plug-in hybrid are covered in the maximum electric power rate over 30%

18 Cost is Too High for Consumers BYD F3 1.6AT Purchase Price: 68,000 RMB Combined Fuel Consumption: 12L/100Km Consider the following BYD F3DM Purchase Price: 149,800 RMB Government Subsidy: 50,000 RMB Electricity Consumption: 16KWh/100Km Adjusted Price Difference: 31,800 RMB

19 And Payback Period is Too Long, But if Assume 15,000 Km/year, 10% annual increase of gasoline price and 2% rise of electricity price Initial Outlay + Fuel (Electricity) Cost Thousands rmb Less sensitive to charge timing leads to more flexibility Economy of scale achieved if 200K units reached. The cost to the government will be 10 billion RMB Year 1.6AT+Fuel Cost DM+Peakhour Charging DM+Offhour Charging Cost Reduced DM+Peakhour Charging

20 And Cheap Oil Has Dried Up - Meanwhile, Competition is on for Fuel Efficiency WTI Oil Price (Annual Averages) Short term volatility and long term return to high oil price and pressure for Fuel Economy Gasoline Retail Price (Annual Averages) US$/barrel Tipping Point? rmb/litre

21 Hybrids and EVs Will Have a Significant Role to Play in China All Hybrid and Electric Passenger Car Sales 14.0% 12.0% 10.0% China has an opportunity to leapfrog in Plug-in Hybrid and EVs. 8.0% 6.0% 4.0% 2.0% 0.0%

22 Points to Take Away Chinese government is taking a greater step to meet its challenges and the focus will move to sustainable growth Conventional powertrain technologies will still play an important role in reducing fuel consumption and emission However, China presents a great opportunity for new energy vehicle development Develop your Winning Strategies - shift the attention from low cost to advanced technologies Bring the Global Powertrain to China Mr Fritz Henderson, GM CEO BYD Phenomena!!!

23 Thank You! Tianshu Xin Director, Global Powertrain Forecasting