BRIC = B R I C? Study on future automotive growth markets and implications for suppliers. May 2014

Transcription

1 BRIC = B R I C? Study on future automotive growth markets and implications for suppliers May 2014

2 Contents A. Looking back: BRIC countries were the main automotive growth drivers of the past 10 years 3 B. Looking ahead: Specific challenges for automotive suppliers in BRIC markets 10 C. Beyond BRIC: New growth regions for the automotive industry 32 D. Conclusions 36 2

3 A. Looking back: BRIC countries were the main automotive growth drivers of the past 10 years 3

4 BRIC markets were the major growth driver of the global automotive industry over the past decade Light vehicle (LV) sales and production, [m units, %] Sales CAGR Production CAGR % RoW % 23% +3.5% % 100% +4.6% RoW 22% +5.9% 27% Triad 68% 41% -1.6% Triad 67% 39% -1.7% BRIC 11% 36% +16.4% BRIC 11% 34% +15.7% Note: Triad including Western Europe (excl. Balkan states), Japan, USA; "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 4

5 Within BRIC, China accounted for more than 70% of the additional production volume during that period Light vehicle production in BRIC by country, [m units] 27% 73% B R I C 2012 Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 5

6 Of the world's top 10 OEMs, Volkswagen and Hyundai benefited most from the BRIC countries between and 2012 LV sales: BRIC incremental volume and world market share with and w/o BRIC growth Incremental volume in BRIC, [%] World market share with and w/o BRIC growth Other 53% Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 22.5 m vehicles 11% Volkswagen 7% Hyundai 6% 5% Chevrolet Toyota 5% Nissan 2% 4% 2% Ford 3% 3% Fiat Honda Renault Kia World market share 2012 (sales) without BRIC growth [%] Lost global market share driven by BRIC growth (-2012) World market (sales) 2012 [%] Gained global market share driven by BRIC growth (-2012)

7 However, three of the BRIC markets reached a turning point in, with China the only exception Light vehicle sales in BRIC, - [m units] Brazil Russia +10% 3.6-1% % 2.9-6% > Unstable economic environment > Reduced local customer demand > Weakness in macroeconomic conditions > Political uncertainty India China +15% 3.3-7% % % > Lacking infrastructure > Limited economic growth > Reduced macroeconomic growth > High customer demand for vehicles Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 7

8 Based on this market development, suppliers have to respond to a set of questions Key questions from the supplier's perspective Bild 1. What will be the future development in the BRIC markets? 2. Where will additional future growth come from? > How long will the downturn be in India and Brazil? Is there a positive market outlook? > Given the current political uncertainty, how stable will Russia be in the future? What are the major OEMs doing? > Will the Chinese market grow over the long term as well? What influence will the government have? > Are adjustments to global activities necessary to participate in the new growth markets (GLOCAL)? > What are the technology and product requirements in these new markets? Source: Roland Berger 8

9 Based on this market development, suppliers have to respond to a set of questions Key questions from the supplier's perspective BRIC market development > How will the individual BRIC markets recover/ develop in the short/medium/long term? > More specifically: > How long will Brazil's recovery take and how will the political environment develop? > Will India get back on the growth path after the elections? > What will happen in Russia due to recent turbulences and how will the market develop over the medium term? > Is China stable or is there a significant risk of the market collapsing? > What do these market trends mean for the individual supplier's capacities/investment policies? Source: Roland Berger Development of new growth markets (outside BRIC) > To what extent will markets outside the Triad (Nafta, W. Europe, Japan) and BRIC contribute to the future growth of the automotive industry? > Which of these markets should auto suppliers focus on? > What are the specific challenges for auto suppliers in these markets? > What do these market trends mean for the individual supplier's capacities/investment policies? 9

10 B. Looking ahead: Specific challenges in BRIC markets for automotive suppliers 10

11 From a global and long-term perspective, BRIC markets will further increase their world market share to over 40% by 2019 Light vehicle (LV) sales and production, [m units, %] Sales Production 100% % RoW 21% 23% 22% RoW 22% 27% 25% Triad 68% 41% 35% Triad 67% 39% 33% BRIC 11% 36% 43% BRIC 11% 34% 42% Note: Triad including Western Europe (excl. Balkan states), Japan, USA; "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 11

12 But we expect growth rates to slow down significantly by 2019 Light vehicle sales in BRIC, [m units] Brazil Russia +9% % % % 2.8-1% +4% India China +13% % % % % % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 12

13 Further growth in BRIC markets will be driven mainly by local sales rather than by exports/international trade Light vehicle net exports in BRIC, [m units] Brazil Russia India China Note: Net exports = Exports - Imports Source: IHS Automotive; Roland Berger 13

14 B.1 Brazil 14

15 Brazil We expect Brazil to return to growth after 2015, but local production will grow by only 2-3% per year Light vehicle sales and production forecast, [m units] Sales Production +9.0% % % % % % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger market model 15

16 Brazil Overall, however, the Brazilian market will be characterized by significant uncertainties Key factors influencing short-/medium-/long-term LCV sales and production Top five market drivers Short-term influence (2014) Medium-/long-term influence ( ) 1 GDP development > After reaching a low point in 2012/, low GDP growth of 2-4% expected with significant uncertainty > Long-term growth above 2014 level expected (>3%), but also considerable uncertainty 2 Disposable income > Disposable income development expected on GDP level at 2-4%, but also with considerable uncertainty > Further growth of disposable income on GDP level expected with uncertainties analogous to GDP forecast 3 Tax rates/import duties > High import duties for cars and parts, plus high IPI tax (with reduction for OEM brands with local presence) > Tax and import rates expected to remain high to protect local industry 4 Government incentives > Inovar-Auto (largely in place, but with further ramp-up after 2014, e.g. habilitation criteria) > High degree of government involvement with many short-notice actions and low predictability Other 5 > Strong impact of current Argentina crisis, > Need to develop additional export markets in especially on production combination with increased competitiveness > Steep price increases due to lack of OEM profitability and exchange rate effects Source: EIU; Roland Berger 16

17 Brazil Suppliers need to combat declining or stagnating margins in Brazil by focusing on cost reduction and operational excellence Actions suppliers must take in Brazil Product/customer strategy > Revise product portfolio > Evaluate new opportunities arising due to localization criteria and the promotion of energy efficiency within Inovar Auto Organization > Optimize overheads and cut costs in response to strong cost increases in many areas, e.g. due to fierce price competition, increasing labor costs, material costs as well as unfavorable exchange rates and freight costs Footprint > Adjust plant footprint in order to avoid high personnel and rental costs in former automotive centers, especially in the areas around São Paulo > Evaluate opportunities due to new installments of existing OEMs and newcomers within Brazil Other > Strive for operational excellence with a focus on three key areas: Achieve purchasing excellence Increase productivity, especially through higher automation Improve stock and working capital Source: Roland Berger 18

18 B.2 Russia 19

19 Russia Based on current political turbulence, we expect that Russia will not return to growth before 2015/2016 Light vehicle sales and production, [m units] Sales Production +8.5% % % % % % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger market model 20

20 Russia GDP growth is lower in BRIC countries Future geopolitical situation and Crimea crisis are adding significant uncertainty Key factors influencing short-/medium-/long-term LCV sales and production Top five market drivers Short-term influence (2014) Medium-/long-term influence ( ) GDP development Disposable income Tax rates/import duties Government incentives Other > Previously: approx. 3% GDP growth expected, negative impact from Crimea crisis > Previously: approx. 4% growth expected, negative impact from Crimea crisis > Reduction in import duties due to WTO entry > OEMs have to increase their localization rate up to 60%, incl. localization of engine/ transmission > Short-term-oriented subsidy strategy for local producers (as compensation for lower import duties and scrappage fee payment) > Long-term slow, yet solid GDP development of approx. 2-3% expected, but negative impact from the current crisis possible > Long-term disposable income growth of approx. 4% expected, but negative impact from the current crisis possible > Decreasing import duties for CBUs and increase in import duties on components make CBU imports in Russia increasingly attractive > The obligation of OEMs to achieve a certain amount of local content and capacity in Russia expires by July 2018 > Subsidy situation unclear 5 > Geopolitical impact: current market > Further geopolitical situation unclear participants expectations in light of Crimea crisis: >10% market decline in 2014 vs. Source: EIU; Roland Berger 21

21 Russia Given this environment, suppliers need to focus on key customers with high long-term potential And try to share the risks with them Implications for suppliers Product/customer strategy > Clear focus on selected large-scale customers: Avtovaz/Renault, VW, Kamaz > Focus on products which can be competitively produced in Russia over the longer term (even without subsidies) Organization > Lean local organization incl. only those functions necessary to manage client interface > Key functions (R&D, product planning, etc.) to remain in home country Footprint > Focus on regional clusters: Togliatti, St. Petersburg, Kaluga, Tatarstan > Low/no investment activities in other regions Other > Investment Careful, gradual investment approach in Russia Risk sharing with OEM customers recommended Source: Roland Berger 22

22 B.3 India 24

23 India India's growth is expected to return to high levels starting in 2015 Recovery speed depends on future government policies Light vehicle sales and production, [m units] Sales Production +13.0% % % % % % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger market model 25

24 India Revival of economic growth will boost industrial activity, increase incomes and rekindle consumption growth Key factors influencing short-/medium-/long-term LCV sales and production Top five market drivers Short-term influence (2014) Medium-/long-term influence ( ) GDP development Disposable income Tax rates/import duties Government incentives Source: EIU; Roland Berger > GDP growth expected at 4-5% > Target to return to 7-8% growth > Although incomes are rising, inflation has been high and is impacting all segments > Government has reduced tax rates by 2-6% across all vehicles > Interest rates to remain stable at current levels > Incentives and subsidies are provided by the different federal structures and compete against each other (provinces, regions) > Some minor incentives for electric vehicles expected > Tight monetary policy will control inflation > Tax rate benefit may be taken away; implementation of uniform GST (goods & service tax) across the country will help decrease overall tax burden > Interest rates should decline once inflation starts coming down > No major changes to incentives and subsidies in the various provinces or regions expected > Continued enhancement of emissions & safety regulations > Possible regulation of vehicle lifetimes 5 Other > The 12th Five-Year Plan ( ) of India's > Politicians are driving a strong mandate for Planning Commission has laid out an ambitious plan: USD 1 trillion needed for > Restart of investment cycle and industrial growth growth & development infrastructure, significant delay in execution will lead to greater demand for LCVs 26

25 India India's high share of low-cost vehicles requires a low-cost setup wherever possible, e.g. with low-cost parts/design centers Implications for suppliers Product/customer strategy > Extremely high share of low-cost vehicle fleet means strong price/margin pressure on the required parts Focus on low-cost products/technologies for suppliers > Focus on alternate materials and technologies to reduce weight and cost Organization > Low-cost design in local development center necessary to meet extreme cost pressure > Restructuring and optimization due to strong increase in costs and slowing growth in recent period Footprint > Profitability can often be reached only by utilizing a range of (local) subsidies which vary widely among the various federal regions/provinces in India > However, lean setup preferable due to overall poor infrastructure (e.g. production near the coast makes exporting easier) Other > Lack of infrastructure is a serious issue > Delays and corruption while dealing with government and other agencies; need for robust governance processes Source: Roland Berger 27

26 B.4 China 28

27 China After becoming the world's largest car market, China's growth rates are expected to drop to a moderate level of about 5% Light vehicle sales and production, [m units] Sales Production +19.5% % % % % % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger market model 29

28 China Stable single-digit growth is expected in China over the medium to long term, mainly due to increasing disposable income Key factors influencing short-/medium-/long-term LCV sales and production Top five market drivers Short-term influence (2014) Medium-/long-term influence ( ) 1 GDP development > GDP growth rates at 7.3% are still high in a global context, but historic growth rates can no longer be reached > By 2019, growth rates expected to drop further to approx. 6.2% 2 Disposable income > Disposable income is increasing strongly in China: 8.3% in 2014 > With 6.9% CAGR, disposable income expected to develop above GDP growth 3 4 Tax rates/import duties Government incentives Other > Increasing tax expenses: Taxes have been gradually raised, while tax breaks and subsidies are being phased out > Highly fragmented tax incentive landscape > Incentives for small cars and EV/PHEV expected > Further fast development of infrastructure > Air quality problems in big cities will accelerate new clean engine technologies > Tax on imported parts will increase to encourage local production > Electric mobility will be refunded by the government 5 > Further fast development of infrastructure > OEMs speeding up sales network expansion and penetrating new regions & lower tier cities > OEMs are continuously introducing new models & expanding production capacity Source: EIU; Roland Berger 30

29 China Suppliers need to also look at additional products and the aftermarket as well an intelligent mix of JVs and WOFEs Implications for suppliers Product/customer strategy > Focus on big 4 (SAIC, FAW, Dongfeng, Chang'an) while penetrating winning locals (e.g. Great Wall, Geely) > Participate in expected ramp-up of e-mobility, telematics and increasing share of electronics > Participate in growing IAM aftermarket, e.g. through partnerships with winning aftermarket chains Footprint > Leverage existing JV partnership, e.g. offer low- to mid-cost technology via localized R&D resources to enter Chinese OEMs outside JVs > Since many OEMs are expanding their capacities in China in different cities, suppliers should follow the "right" OEMs with new plants Note: WOFE = Wholly foreign-owned enterprise Source: Roland Berger Organization > Develop mid-end tier-2 suppliers and implement design-to-cost > Implement cross-functional cost reduction to secure margins > Extend cooperation (joint R&D, joint production) instead of full JV Other > Intelligent mix of WOFE and JVs depending on technology maturity 31

30 C. Beyond BRIC: New growth regions for the automotive industry 32

31 RoW markets don't have the momentum of BRIC, but growth is stable and certain RoW markets are outperforming the global market Light vehicle (LV) sales and production, [m units, %] Sales Production Next gen. growth markets RoW % 14% % 9% 13% 13% 100% Next gen. growth markets RoW % % 14% 15% 13% 10% 100% Triad 68% 41% 35% Triad 67% 39% 33% 36% 43% 34% 42% BRIC 11% BRIC 11% Note: Triad including Western Europe (excl. Balkan countries), Japan, USA; "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 33

32 Outside Triad/BRIC, 5 markets will account for over 80% of incremental growth up through 2019: Mexico, Indonesia, Thailand, Iran and Poland Top 10 markets outside Triad/BRIC by incremental vol. (LV production), -19 [m units] CAGR % 7.4% 3.7% 9.8% 10.4% 2.7% 3.2% 2.9% 4.2% 2.9% % Mexico Indonesia Thailand Iran Poland Turkey Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Argentina Slovakia South Africa Malaysia Rest positive Rest negative 2019 Source: IHS Automotive; Roland Berger 34

33 Of the growing RoW markets, Mexico and Thailand in particular continue to be strong export hubs Next generation growth markets by net exports and share of Triad OEMs Incremental prod. volume, [m units] Net exports, 2019 [m units] Share of Triad OEMs in local production, 2019 [%] Mexico % Indonesia % Thailand % Iran % Poland % Turkey % Argentina % Slovakia % South Africa % Malaysia % Note: "Light vehicle" includes passenger cars and light commercial vehicles (GVW < 6 to) Source: IHS Automotive; Roland Berger 35

34 D. Conclusions 36

35 Due to changed market dynamics in BRIC markets, suppliers have to rethink and adjust their local activities Summary BRIC markets: Status quo and outlook > In a departure from the past decade, BRIC is no longer driving global growth as a whole > In the future, China will still be the global volume driver in automotive, with high single-digit growth rates > The other three markets are plagued by significant uncertainty Russia is involved in the Crimea crisis and dealing with geopolitical developments Brazil's market is hard to forecast due to economic volatility and changing regulations India is expected to return to stronger growth, but at this point in time is uncertain and most players suffer from a lack of profitability Need for action by suppliers > Short term: address specific BRIC market conditions (starting in 2014 and onward): Brazil: Restructure cost base and increase productivity to avoid high cost of materials, personnel, freight, etc. Russia: Reduce risks India: Focus on low-cost parts and local low-cost design centers China: Capture market opportunities > Medium term: Adopt individual BRIC country strategy in line with reduced future market growth dynamics Source: Roland Berger 37

36 New growth markets beyond Triad and BRIC are emerging Suppliers need to address these markets with tailored approaches Summary Other up-and-coming growth markets: Status quo and outlook > Beyond BRIC there is a very fragmented set of further growth markets (production vol. of 1 m) > Most promising emerging markets are Mexico, Indonesia, Thailand, Iran and Poland > Further markets with significant potential include Turkey, Argentina, Slovakia, South Africa and Malaysia > As with other growth markets, they need to be viewed in a differentiated manner due to their diverse nature, especially regarding their function as production hubs for other markets, openness toward foreign OEMs (e.g. Triad OEMs) as well as CKD share Need for action by suppliers > Identify future global target market portfolio > Evaluate key success factors to enter the market > Define specific market entry strategy for additional attractive future growth markets (customer, product, technology, footprint) > Roll out strategy, including adjusted footprint (if needed) Source: Roland Berger 38

37 Your contacts Marcus Berret Dr. Thomas Schlick Peter Boekels Partner Automotive CC Partner Automotive CC Senior Consultant Automotive CC Löffelstraße Stuttgart Bockenheimer Landstrasse Frankfurt Mies-van-der-Rohe-Str Munich marcus.berret@ rolandberger.com thomas.schlick@ rolandberger.com peter.boekels@ rolandberger.com Tel Mobile Source: Roland Berger 39

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