light vehicle outlook - foley & lardner...market sizing. will thailand be the new china?”...

Confidential. © 2020 IHS Markit®. All Rights Reserved.© 2020 IHS Markit. All Rights Reserved.

For Foley-Lardner

February 4, 2020

Michael RobinetExecutive Director, Automotive Advisory

Light Vehicle Outlook:Industry at a Crossroads

Confidential. © 2020 IHS Markit®. All Rights Reserved. 2

Automotive AdvisoryLeveraging Analysis and Insight Into Unique Engagements

Market Sizing

Will Thailand be the new China?”“Will there be a market for low cost LIDARs in North America?”

Unparalleled combination of industry-leading SMEs, ongoing forecasts and analysis integrated into critical client engagement. Structured to drive actionable insight amidst our shifting automotive environment.

Confidential. © 2020 IHS Markit®. All Rights Reserved.

Speed, Expertise and Insight

Automotive M & A – Access to a Breadth of Unique Capabilities

3

•What is the sector competitive landscape and capacity – regional/global?•Value analysis – what drives sustained profitability? Scale, technology, system integration?•Are there key alignments driving differentiation and advantages?

Competitive Structure, Capacity and Value

Analysis

•How will the expected journey of specific systems alter over time?•What are the sector impacts and timelines of the growth of electrification and autonomous technologies? Are there tangential competitors or alignments (J/Vs and acquisitions) shifting the value equation?

System Evolution Analysis

•What is the detailed revenue forecast utilizing the world’s most recognized industry forecast source?•What is the pipeline and customer/product mix versus competitors in the same sector?

Revenue Forecasting and Opportunity Targeting

•What is the total addressable market for a developing technology? Are there competing technologies given select triggers and market forces?

•How do the future market dynamics shape the prospects for a supplier?

CIM Buildout & TAM –Total Addressable Market

Analysis

How does the Investment Community engage with IHS

Markit Automotive?• Industry-leading experts in all

major facets of automotive analysis

• A collection of real-time detailed global forecasts and databases enables a head start for any engagement

• Access to a network of decision-makers throughout the automotive value chain to drive insight


Agenda

• Global & NA Market Overview• Supplier Strategy

4


Economic growth is slowing in advanced countries and emerging markets

5

-4

-2

0

2

4

6

8

10

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023

Perc

ent c

hang

e

World Advanced countries Emerging markets

Real GDP

Source: IHS Markit © 2020 IHS Markit Emerging markets regain growth mode into the next decade


Deficits Problematic, Oil Long-term Stable

• Softening global demand growth is restraining commodity prices. Oil supply will stabilize long-term pricing.

• With core inflation calm and downside risks prevailing, near-term monetary policies will be accommodative.

• The US dollar will appreciate moderately in the near term, based on favorable rates of return and risk aversion.

• Downside risks include the US-China war, new trade conflicts, Middle East hostilities, a hard Brexit, and rising debt levels.

• Relatively low interest rates and sizable fiscal deficits in many countries leave little room for policy stimulus in the next recession.

Monetary Policy Drives Fiscal Issues

6

-6-5-4-3-2-101

Perc

ent o

f GD

P

2017 2018 2019 2020 2021

Federal budget balances

0

25

50

75

100

125

150

2000 2004 2008 2012 2016 2020 2024 2028

Dol

lars

/bar

rel

Current US dollars2018 US dollars

Structurally, Oil Stable for Years to Come

Oil prices will not drive technology change – legislation and consumers will.


201894 Mn

2030108.9Mn

1.7%Greater China

3.3%South Asia

3.2%Middle East/Africa

2.9%South America

0.6%Europe

-0.1%North America

-1.1%Japan/Korea

6.34 Mn

-0.33 Mn

4.30 Mn

7

Source: IHS Markit

Global sales walk 2018 to 2030

© 2020 IHS Markit

Global + 1.2% CAGR

Global Sales Moderates Through Still Rises

North America sales will be flat through 2030

1.93 Mn-0.86 Mn

1.60 Mn

1.93 Mn

China growth amid shifting players


Global LV Production Outlook80%+ of Total Growth from Emerging Asia/China – 2019 Volume Reset

8

Region 2019 2020 2021 2022 2026 2027 2031 CTG2019-27

CAGR2019-22

CAGR2023-31 Notes

Europe 21.0 M 20.7 M 21.3 M 21.6 M 21.9 M 21.9 M 22.0 M 11% 0.7% 0.7% • Tier 3 & 4 city growth

Greater China 24.6 M 24.5 M 25.6 M 26.8 M 28.1 M 29.4 M 30.5 M 48% 2.1% 2.6% • Lack of NEV success & Trade

Japan/Korea 13.1 M 12.9 M 12.6 M 12.5 M 12.8 M 12.8 M 12.9 M -2% -1.2% 0.0%• Slow domestic

markets, production co-location

Middle East/Africa 2.0 M 1.9 M 2.1 M 2.3 M 2.5 M 2.7 M 2.8 M 5% 3.5% 1.7% • Focus of more attention by OEMs

North America 16.3 M 16.7 M 16.5 M 16.7 M 16.8 M 16.9 M 17.0 M 7% 0.6% 0.3%• New capacity

(Mex), D3 re-alignment

South America 3.3 M 3.4 M 3.8 M 3.8 M 4.0 M 4.1 M 4.3 M 9% 3.6% 3.7% • Well below 2013 record of 4.5 mil

South Asia 8.4 M 8.4 M 9.0 M 9.5 M 10.0 M 10.4 M 10.9 M 22% 3.0% 4.6%• India domestic &

export weakness, ASEAN rise

Grand Total 88.8 M 88.6 M 90.9 M 93.1 M 96.1 M 98.3 M 100.2 M +15.7 M 1.2% 1.7%

CTG – Contribution to Growth – Where is the growth occurring?Source: IHS Markit Light Vehicle Production Forecast

Production is increasingly co-locating to in-region sourcing

Volume Play: China & SEATechnology Play: EU & China

Confidential. © 2020 IHS Markit®. All rights reserved.

201988.74 Mn

202088.28 Mn

United States

Mexico

Canada

EU-28 TurkeyJapan S. Korea

China

India

Brazil Russia ASEANRoW

Challenging conditions persist into 2020 but backloaded recovery possible as legislative hurdles ease and trade environment stabilizes

9

Source: IHS Markit

Global production walk 2020

© 2020 IHS Markit

Global-0.5%

+0.5%+0.7%

-1.2% -3.8%-0.2%

-0.9%-4.1%

+3.8% -3.7% +2.9% -0.8%

-12.9%

-1.6%+4.2%


Top OEM Cooperative Groups by Production Volume 2026OEM Partnerships Enable Greater Scale, Risk Reduction and Cost Savings

-

2

4

6

8

10

12

14

16

18

20

Toyota+Mazda+Suzuki+Subaru

VW Ren/Niss/Mitsu

FCA+PSA Hyundai GM+SAIC

Ford Honda Geely+Proton

Daimler BMW Changan Tata Great Wall

Milli

ons

Global Production Volume

10

Toyota maintains strong Domestic OEM partnerships

VW & Ford: EU scale & AVAudi &SIAC renew JV

10

Ford & VW partnership in AV & EV

Honda & GM partnership in AV & Fuel Cells

BMW & JLR e-motor JVBetter relations w/Daimler

Tata (JLR) urgently seeking partners

FCA & PSA drive scale

R-N-M alignment redefines

Honda & GM expand alignment

Geely & Volvo consolidate engines

Minicar JV w/GeelyMoving closer w/BMW & away from Nissan

Shift to EV and AV drives OEMs to moderate risk and shift capital

Confidential. © 2020 IHS Markit®. All Rights Reserved. 12

2030 Snapshot, and one region is truly alone

© 2020 IHS MarkitSource: IHS Markit

MHEV - Mild

FHEV - Full

ICE & ICE S/S

PHEV – Plug-in

BEV - Batt

21%

19%10%4%

46%

Europe

22%

23%9%4%

41%

China

39%

11%8%

21%

20%

Japan/South Korea

65%10%

7%

6%

12%

North America

IHS Markit October 2019 Production Powertrain forecast

Global Propulsion Design Islands

Europe, China and Japan/Korea Extend into Electrification – NA follows behind

Europe and China will be the global leads for electrification beyond mild (MHEV).

Confidential. © 2020 IHS Markit®. All rights reserved.

Electrification portfolio – From Mild Hybrid P0 12V to BEV High performance

1313

Incremental cost vs. standard ICE

CO2 benefit vs. ICE

From 5 to 15% From 15% to 20% +70% +100%


Global Engine LaunchesDecline in New Engine Families post 2020

0

10

20

30

40

50

60

70

80

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

# of

Lau

nche

s

Asian 4 Detroit 3 German 3 Other OEMs

Moderates, minors and ‘top-end’ technology inclusions continue

Importance of Electrified Propulsion to Suppliers

Engines still in production with new technologies and improvements continuing. Transmissions following the same fate.

Traditional cadence eliminated –procurement and engineering are refocused.

Suppliers in the powertrain space will find it difficult to alter their trajectory without critical new technologies or shifting course.

14


North America Autonomous Sales Forecast

15

39% 37% 34% 29% 28% 26% 24% 23% 22% 20% 18% 18% 18%

41%33%

33%36% 36% 37% 37% 36% 35% 33% 34% 34% 34%

20%30% 33% 34% 35% 36% 37% 37% 38% 41% 40% 41% 41%

1% 1% 1% 2% 4% 5% 6% 7% 7% 7%

1% 1% 1%

0

2

4

6

8

10

12

14

16

18

20

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Milli

ons

L4L3L2L1L0

North America Autonomous Technology outlook

NA has higher penetration for Autonomous technology compared with global figures


Global Program Launch – By Region2019 was a peak year for new vehicle program launchesEventually, portfolio reductions may follow…

16

25 23 34 23 35 23 23 30 29 36 31 26 35 33 30 34 29

43 3747

4548

46 39 41 4146 60

51 43 55 46 38 41

3424

3023

3024 27

27 2721

3840 41 33

31 28 29

7165

9189

119

115150 130

167

215190

140

181

123 167 171201

33

30

54

45

38

41

2829

35

5779

70

58

6544

28

51

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

# of

Lau

nche

s Other

China

J/K

E.U.

N.A.

206

Launch Definition: New OEM+Platform+Program+Plant Combination

358375

267225

299

Declining cadence impacts resource allocation

398


-12

-9

-6

-3

0

3

-2,000

-1,500

-1,000

-500

0

500

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028

% o

f GD

P

Bill

ions

of d

olla

rs, f

isca

l yea

rs

Unified budget balance (Left scale) Balance as percent of GDP (Right scale)

Strong US Economic Buffeted by Rising Costs

17

0

2

4

6

8

10

-9

-6

-3

0

3

6

2007 2009 2011 2013 2015 2017 2019 2021 2023

Perc

ent o

f lab

or fo

rce

Ann

ual %

cha

nge

Real US GDP (L)

Unemployment Rate (R )

Despite Sustained GDP Growth – Deficits Rise US Economic Activity & Low Unemployment

Pressure on Auto PPI is Moderating

-2%-1%0%1%2%3%4%5%6%

98100102104106108110

May-13 May-14 May-15 May-16 May-17 May-18 May-19

Cha

nge

Y/Y

% (A

rea)

Aut

o In

dex

(Lin

e)

St. Louis FRED Data

• GDP growth is moderating and under pressure – driven by political and trade uncertainty.

• Positives still drive the base case – job growth/stability, credit availability and consumer confidence.

Longer-term - talent pools, deficits higher interest rates. Erratic exchange rates drives need for neutrality.


17.1

15.6

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

2

4

6

8

10

12

14

16

18

20

2000 2005 2010 2015 2020 2025

Mill

ions

%∆ Y/Y Base (45%) Optimistic (20%) Pessimistic (35%)Source: IHS Markit

US light vehicle sales

© 2020 IHS Markit

US Light Vehicle SalesReaching a saturation point

18

Economic Issues

• 2019 sales off 1.6% - 2020 off another 1.9% (Base case)

• US consumer outlook remains broadly supportive

• Pessimistic case has a 35% likelihood

• Used vehicles/ off-lease start to impact

• Increased competition where launch performance

• Vehicle development costs rising:• Regulatory compliance• Consumer contenting• Pressure on traditional systems

Downside case still a real possibility


North American Light Vehicle Production OutlookDeclines Ahead Before Growth Returns

19

North America Light Vehicle Production

© 2019 IHS MarkitSource: IHS Markit

17.817.1 17.0

16.3 16.7 16.5 16.7 16.8 16.9 17.0

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

2

4

6

8

10

12

14

16

18

20

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Shar

e of

Mar

ket

Mill

ions

Production SUV Share Pickup Share Non-NA Export Share

New Decade Growth Focused on Emerging Players

Increased competition underscores selective underperformance: Incentives rise Fleet supports volume Segment, content and OEM shifts

Impact of Extraneous Events Growth due to localization and

portfolio expansion into CUVs Export growth muted though used

to justify investments S/CUVs approach 50% share of

production by 2021.Shifting regions, emerging players new engagement strategies


10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

Mill

ions

Europe LV Production

Production Outlook: Europe – Light VehicleRecovery quickly gives way to saturation

• Trends• Uncertainty within EU about further

destabilization – Hard Brexit and slow growth

• Maintaining exports become crucial to support overall growth

• Significant vehicle sales collapse in Turkey – directly impacts EU prod

• Currency neutrality and focusing more resources on BEVs for the EU will pressure volumes

• Long-term• Localization will remain a competing trend

to exports; Shift of volume to Middle East and Central/Eastern Europe - expansion

5.3%

26.3%

39.8%

15.9%

11.2%

1.5%

1.2%

28.3%

42.7%

15.9%

11.0%0.9%

A B C D E FF

Segment Breakdown

2018

W

0%5%

10%15%20%25%30%

VW FCA/PSA R/N/M Daimler BMW

2026 Production Share

EU OEMs need to shift capital quickly – pressures on ICE offer opportunity for supplier re-sourcing

2030

22


20

22

24

26

28

30

32

34

36

Mill

ions

China LV Production

Production Outlook: China – Light Vehicle

• Trends• Sales growth in China broke trend in 2018,

posting 2 years of under-performance• Top 5 OEMs declined as a group by 15%

last year – next five – only 10%.• New OEMs continue to emerge though

patience and capital will be in short supply.

• Long-term• The number of domestic OEMs is likely to

decrease as winners emerge and scale rises in importance.

• Long-term growth opportunities remain strong – A significant opportunity for vehicle sales growth exists in still “untouched” regions within China.

23

1%

11%

49%19%

5%15%

1%8%

45%28%

6%

12%

A B C D E FF Combined

Segment Breakdown0%

5%

10%

VW GM Geely R/N Toyota

2026 Production Share

20182030

23

Outlook will shift with Coronavirus Impact


Agenda

• Global & NA Market Overview• Supplier Strategy

25


Trade Dynamics &

Currency Neutrality

Reacting to Extraneous

Events

Erratic Launch Volume

Structural Change EV & AV

Talent Gaps & Organization

Transformation

Shifting Channel

Strategy & Relationships

Capital Availability &

Risk Tolerance

Navigating the Shifting Landscape – Strategy Formation is Critical

26

Suppliers at a Crossroads


Navigating the Shifting Landscape – Seeking Sustainable Differentiation

27

UAJC / July 2018

Mega Tier 1s:Multiple System

Capability & Global

Midsize T1 & 2:Super-regional or Solo multi-region

Small & Start-up:Specialty Players

Multiple systems, global capability – focused on

next generation differentiation

Limited system capability, major region coverage or significant regional player

Specialists - Closely-tied to a specific capability –with limited capital risk

Seeking consolidation opportunities …• Expanding capabilities into EV and AV• Strengthening ‘systems’ capability in key sectors• Exerting leverage & global capability

Able to pivot quickly ….• Lack of inertia – can shift to new sectors/capabilities• Ability to assume higher risk profiles• Multiple channels strategies are possible

Searching for optimal channel strategy as markets evolve …• Lack multi-system leverage and true global capability• Possible strategic lethargy – difficult to pivot• Seeking sustainable differentiation and channel strategies


Secular Forces – Significantly Impacting the Vehicle/Supplier Ecosystem

Some conventional platforms can

implement batteries, but

cannot change the

overall architecture

to form a battery driven

vehicle assembly.

Platform is designed only for pure BEV applications. Skateboard

style architecture allows for

more battery capacity and more interior space with the same

vehicle size.

Con

vent

iona

l

Mul

ti-En

ergy

Batte

ry E

lect

ric

Initially designed to support both

BEV and conventional powertrain vehicles.

Structure is more flexible

than conventional

platform.

28


Driveline Electrical BIW ADAS Braking Thermal

System evolution drives consolidation & new channels

29

Today

2040

2030

Today

2040

2030

Today

2040

2030

Today

2040

2030

1. Driveline> Lightweight and compact e-axles improve packaging,

efficiency, and price of hybrid/electric vehicles.

2. Electrical> 48-Volt will enable key changes to overall vehicle design,

enhancing electrical capabilities to support other systems.

3. Body-in-White> Further breakthroughs in lightweighting will coincide with

improvements in packaging.

4. ADAS> Practicality of autonomy increases as OEMs breach the

L4/L5 threshold.

5. Braking> ADAS enabler with lightweighting & packaging benefits.

6. Thermal> Loss of ICE new sources required, thermal

management revision.

Today

2040

2030

Today

2040

2030


Exhaust Steering NVH Suspension Wheel/Tire Fuel system Seating

Today

2040

2030

Today

2040

2030

Today

2040

2030

Today

2040

2030

Today

2040

2030

Today

2040

2030

Today

2040

2030

7.Exhaust> Near-term improvements reduce part count,

EVs to force obsolescence.

8.Steering> ADAS enabler with lightweight and packaging

benefits.

9.NVH> Focus shifts. EV powertrains make other

system noises stand out in comparison.

10. Suspension> Autonomy increases focus on

comfort/stability, adaptive suspension required to remedy unsprung mass

11. Wheel & Tire> Shifts in wheel/tire market result. Less

emphasis on consumer desires.

12. Fuel System> Efficiency will reduce size of, or eliminate

need for, fuel storage.

13. Seating> L4/L5 ease requirements for major safety

measures and forward seating.

30

System evolution drives consolidation & new channels


Capital and Resource DecisionsLead, Fast Follower or Sceptic? Make a decision …..

31

Continue to refine

traditional technologies,

wait for capacity to evacuate &

define a new path?

Determine the risk tolerance

within the organization to lead technology & development

into new, unproven and patient-capital

areas?


Summary

• Shift of players (OEMs), platforms and structures are altering market opportunities, value chains and risk.

• BEV growth is driven by compliance and the need to drive technology leadership – not profitability.

• Global OEMs are shifting focus from new powertrains to top end modifications/packaging, incremental capital-driven technology (batteries, e-systems), autonomy alliances and reducing the ICE infrastructure.

• Number of launch opportunities is declining though content integration rises – propulsion, safety and ADAS.

3232

Consolidation of OEMs and Suppliers will accelerate

IHS Markit Ltd and its affiliates (“IHS Markit”) make no warranty, expressed or implied, as to accuracy, completeness, or timeliness, or as to the results to be obtained by use of the products and services described herein, and shall not in any way be liable for any inaccuracies, errors, or omissions therein. IHS Markit is a trademark of IHS Markit. All other company and product names, including [sub-brand] are trademarks of their respective owners and are used under license or with permission.

© 2020 IHS Markit. All rights reserved. Any unauthorized use, reproduction, or dissemination is strictly prohibited.

IHS Markit Customer Care:[email protected]: +1 800 IHS CARE (+1 800 447 2273)Europe, Middle East, and Africa: +44 (0) 1344 328 300Asia and the Pacific Rim: +604 291 3600

Thank You

Michael RobinetExecutive Director, IHS Markit AutomotiveAdvisory [email protected]

33

light vehicle outlook - foley & lardner...market sizing. will thailand be the new china?”...

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