omotoso

Drive Green 2020 - Alternative Powertrain Forecast

Michael Omotoso Senior Manager Global Powertrain Forecasting

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2016/2025 CAFE Standards

U.S. Market Forecast Consumer Attitudes Towards Alternative Fuel Vehicles

HEV and BEV Sales Forecast

Global Forecast

Conclusions

2

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

CAFE Standards 2025 Scenarios 2011 model year: 27.3 mpg Fleet Average 2.0 mpg Increase Over the 2010 Model Year 30.2 mpg for Cars, 24.1 mpg for Light Trucks

2016 model year: Car: 27.5 → 39 mpg Truck: 23.5 → 30 mpg Fleet: 24.6 → 35.5 mpg Cost = $1,300 → $4,000 per vehicle

3

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

YEAR

4% annual increase

6.4% annual increase

2016

35.5

35.5

2017

36.9

37.8

2018

38.4

40.2

2019

39.9

42.8

2020

41.5

45.5

2021

43.2

48.4

2022

44.9

51.5

2023

46.7

54.8

2024

48.6

58.3

2025

50.5

62.0

What Will Happen to Gas Prices?

Year

2009

2010

2011

2012

2014

2016

2018

2020

2025

World oil price, Brent crude spot, $pb

$61.57 $79.55 $84.39 $85.62 $94.73 $102.20 $113.47 $127.83 $154.37

Pump prices $/gallon regular

$2.05

$2.65

$2.81

$2.85

$3.16

$3.41

$3.78

Source: Oxford Economics

 Consumer behaviour changes according to gas prices, not CAFE

standards Crude oil prices are expected to remain below $100/bbl until 2016  Assuming no major increase in taxes, pump prices remain below $3.50/gal in the medium term  We already experienced $4-4.50/gallon in summer 2008 – people’s behaviour changed Sustained gas prices over $4/gallon will lead to permanent change in the vehicle fleet from a size and powertrain perspective.

But in our baseline scenario, nothing dramatic before 2020 © 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

$4.26

$5.15

Saving Gas Money Can be Costly Fuel Cost of Driving 12K Miles/YR for 5 Years 30,000

Total Fuel Cost

25,000

$24,000 $2.00

20,000

$3.00

$18,000

$4.00

15,000

$14,400

$5.00

$12,000

$12,000

10,000 5,000

$6.00

$10,141

$9,000 $7,200

$8,000 $6,000

$4,800

20

25

$5,070

$4,000

$3,380

30

35.5

0 15

$7,200

$6,000

$6,000

$3,600 $2,400 50

$3,000 $2,000 60

Miles per Gallon

 At $6/gallon, going from 35.5 mpg to 60 mpg saves almost $6000  At $3/gallon, you only save $2000  Are the fuel savings obtained by going from 50 to 60 mpg worth the expense?  Spending $10-15k on a Li-ion battery only makes sense to replace a sub 25 mpg vehicle @ $6/gal © 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

United States – Rules and Regulations REGULATION TIMELINE g/mi CO2

MPG

38

350

36

300

34 250 32 30

200

28

150

CAFE mpg g CO2/mile

26 100 24 50

22 20

0 1985 1990 1995 2000 2005 2011 2012 2013 2014 2015 2016 Year

TAX CREDITS

Vehicle type

GOVERNMENT TARGETS

Credit

Electric vehicles $7,500 Plug-in hybrids, ER-Evs $7,500 Clean diesel $900-2200 Hybrid Expired March 31, 2010 was $250 to $3400

Examples

Nissan Leaf, Tesla Roadster Chevrolet Volt, Toyota Prius PHEV BMW 335d, VW Jetta TDI Toyota Prius, Honda Insight

Some individual states also provide additional tax credits. For example, California will provide a $3.7 million fund for electric vehicle tax credits. Up to $5000 per vehicle will be provided. So potentially the first 740 BEVs sold in California will qualify for the credit on top of the $7500 federal tax credit.

The state of Oregon provides a $750-1500 tax credit for BEVs, FCEVs and PHEVs. The state of Oklahoma will provide tax credits for alternative fuel vehicles starting on January 1, 2015.

6

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Policy Target

CAFE

Emissions

MY2011

2016

Miles per gallon

27

35.5

Grams of CO2 per mile

326

250

MY 2012-14: 0.01 g/mi

0.01 grams/mile

N2O CH4

A/C leakage credit Flex fuel vehicle credits

Target: 0.03 grams/mile

R-134a refrigerant

6.3-13.8 g/mi for cars, 7.8-17.2 g/mi for trucks

1993-2014 model years

1.2 mpg

MY 2015

1.0 mpg

MY 2016

No credit

U.S. Hybrid-Electric Vehicle Market: 26 Models Cadillac Escalade Two-Mode

Chevrolet Malibu hybrid

Chevrolet Silverado Two-Mode

Chevrolet Tahoe Two-Mode

Ford Escape hybrid

Ford Fusion

GMC Sierra Two-Mode

GMC Yukon Two-Mode

Honda Civic hybrid

Honda Insight

Lexus GS450h

Lexus HS250h

Lexus LS600h

Lexus RX450h

Mercury Mariner hybrid

Mercury Milan hybrid

Nissan Altima hybrid

Saturn Aura Green Line

Tesla Roadster BEV

Mercedes-Benz S400h

BMW X6 Active hybrid

Mercedes-Benz ML450h

Saturn VUE Green Line

Toyota Camry hybrid

Toyota Highlander hybrid

Toyota Prius As of 9/30/10.

7

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Q4 2010 Hybrid and EV Forecast Update Hybrid sales peaked at 353,000 units in 2007 Sales dropped to 291,000 in 2009 with collapse of auto market (10.4m LV sales) Hybrid and EV sales expected to drop to 273k units in 2010. Share drops below 2.4% of light vehicle sales (forecast 11.5m) Toyota Prius continues to dominate, accounting for 50% of hybrid sales New Honda Insight has not posed a challenge to the Prius. Honda CR-Z (sales start 8/24/10) is only expected to sell 10-15k units p.a.

Hybrid sales are highly correlated to gas prices, and gas prices have been below $3/gallon all year Long term, we expect hybrid sales to exceed 1 million units by 2014 2016 CAFE requirements will help hybrid sales reach 1.4m units by 2016, representing 8.3% of light vehicle sales Over 100 HEV and PHEV models will be available by 2014 Less than 100k BEVs by 2015, but over 140k PHEVs. Unfortunately we won’t reach the government’s goal of 1 million EVs until much later Overcapacity in EV and battery production already?

8

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Q4 2010 U.S. Hybrid and Electric Vehicle Forecast Millions

20

IC ONLY

HEV/BEV

12%

Hybrid and EV share

18 10%

16 14

8%

12 10

6%

8 4%

6 4

2%

2 0

0% 2009

9

2010

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2011

2012

2013

2014

2015

2016

2017

2020

Investment Dollars Are Flowing Michigan: The Midwestern state is providing tax breaks for companies willing to build hybrid and electric vehicle batteries GM: $106 million for battery packs for the Chevrolet Volt EREV GM: $105 million for second generation rear wheel drive electric drive systems Ford: $63 million for electric drive transaxles Ford: Partnership with Magna to build an electric version of the Ford Focus in Michigan 10

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Chrysler: $83 million to build a new vehicle electrification technology and manufacturing center in Michigan Chrysler: $365 million for a nationwide demonstration fleet of PHEVs for use by select customers and partners

Johnson Controls: $299 million for nickel cobalt metal battery cells A123 Systems: $249 million for nano-iron phosphate cathodes Fisker: $529 million to manufacture the Karma PHEV and the lower cost Nina PHEV Tesla: $465 million for the construction of an electric vehicle manufacturing plant in California

Nissan: $1.6 billion dollars for manufacture of the Nissan Leaf and EV batteries in Tennessee

U.S. Diesel Sales Outlook 12

US Diesel Car Share

3

% of US LT Sales

% of US Car Sales

3.5

2.5 2 1.5 1 0.5 0

2008 2009 2010 2011 2012 2013 2014 2015

% of US LV Sales

6 4 2 2008 2009 2010 2011 2012 2013 2014 2015

 Light Truck share is significantly higher than car

US Diesel LV Share

8

US Diesel Light Truck Share

8

0

9

share; volumes 3-6x higher

7

 Light duty pickups will be largest diesel segment, followed by SUV/CUVs

6 5

 DPF and urea add to upfront costs, but 2016 CAFE forces the issue

4 3

 Detroit 3, Nissan and Honda all delayed their diesel programs in 2009/10

2 1 0

10

2008

2009

2010

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2011

2012

2013

2014

2015

2017

2020

 Our forecast is less optimistic than a year ago, but still bullish. 7.3% share in 2016

Consumer Attitudes To Alternative Fuel Vehicles

12

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Single Greatest Benefit of a Hybrid-Electric Vehicle - Among Hybrid-Electric Non-Considerers 29%

Lower fuel costs 26%

Better fuel economy 16%

Decrease U.S. dependency on foreign oil

15%

Better for the environment 6%

Lower emissions 4%

Tax credit

“Decreased dependency on oil no matter where it comes from.”

– Chevrolet Caprice owner

2%

Improved carbon footprint

“It is a win-win because it provides a lower yearly fuel cost and it is better for the environment and reduces dependency on foreign oil.” – Chrysler PT Cruiser owner

1%

Social status of being an HEV owner Able to drive in HOV lane

*

Ownership of cutting edge/new technology

*

“Lower fuel cost and usage, plus environmental and tax benefits.”

– Kia Sorento owner

2%

Other 0%

10%

20%

30%

40%

Even non-considerers recognize the potential of cost savings in terms of increased fuel economy from a hybrid-electric vehicle, while environmental benefits are once again seen as less important.

Note: Sum may not add up to 100% due to rounding 13

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

* Indicates less than 1%

Why Are You NOT Considering a Hybrid-Electric Vehicle?

43%

Cost premium of HEV I don't know enough about it

35%

Desired vehicle not available with HybridElectric powertrain

30%

Cost of ownership

29% 26%

Concerned about performance Longevity of battery life

23%

Unproven technology

17% 15%

Never thought about it

% Considering

14%

Not a significant increase in fuel economy

HEV – 62% FFV – 43%

Battery makes vehicle unsafe

3%

Other

CDV – 16% None – 19%

6% 0%

20%

40%

60%

Concerns with the price of the vehicle, as well as general lack of knowledge regarding the technology itself are among the most mentioned reasons as to why consumers are not considering a hybridelectric vehicle. Performance concerns and worries regarding the relative newness of this powertrain also hinder interest.

Multiple Mention 14

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

All-Electric Mileage Range Expected Plug-In Hybrid-Electric Version of Vehicle Considered

- Among Plug-In Hybrid-Electric Initial Considerers Expected Average Hours for Full Charge

Conventional

80.7

STUDY AVERAGE

78.0

5.8

Pickup

77.0

5.8

Utility

76.9

6.5

CUV

75.6

6.0

Sporty*

73.8

5.8

Basic

72.1

5.5

Van*

69.8 0

20

40

5.7

5.4

60

80

100

Mileage Range Expected

Highlighting a potential issue regarding education on PHEVs, PHEV initial considerers on average expect vehicles’ utilizing this technology to run 78 miles in all-electric mode. Consumers expect this to be possible with an average plug-in charge time of 5.8 hours. * Caution: Small sample size 15

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Three out of four consumers feel that increased fuel economy warrants consideration of a clean diesel vehicle, while one-half specifically mention lower fuel costs. Traditional benefits of this powertrain regarding performance are among the least mentioned reasons for consideration.

Why Are You Considering a Clean Diesel Vehicle?

76%

Better fuel econom y 50%

Low er fuel costs 44%

Better for the environm ent

% Considering

43%

Vehicle's range on one tank Decrease U.S. dependency on foreign oil

35%

Low er em issions

35%

HEV – 62% FFV – 43%

32%

Higher engine pow er/torque

16%

Tax credit Social status of being Clean Diesel ow ner

Multiple Mention © 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

None – 19%

21%

Tow ing capability

Other

CDV – 16%

3% 1%

0%

20%

40%

60%

80%

As with clean diesel considerer concerns, higher fuel costs is the greatest contributor to lack of consideration for this powertrain, followed closely by lack of knowledge and lack of thought

Why Are You NOT Considering a Clean Diesel Vehicle?

Higher fuel costs

45% 43%

I don't know enough about it Never thought about it

29%

Concerned about fuel availability

20%

Cost premium of Clean Diesel

FFV – 43%

13%

Concerned about emissions

11%

Cost of ownership

11%

CDV – 16% None – 19%

10%

Concerned about noise Not a significant increase in fuel economy

9%

Concerned about performance

6%

Other

3%

0%

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

HEV – 62%

18%

Desired vehicle not available with Clean Diesel engine

Multiple Mention

% Considering

20%

40%

60%

As pickup owners have traditionally found the most utility from diesel versions of a vehicle in their segment, these consumers are willing to pay the most for this technology. However, the increase in fuel economy expected is low, compared to other segment owners.

Fuel Economy Expected – Clean Diesel Version of Vehicle Considered Additional amount willing to spend for a Clean Diesel powertrain

- Among Clean Diesel Considerers Basic*

16.6

33.1 14.3

28.2

Conventional

$1,881

49.7

42.5

$1,684

42.4

$1,637

Sporty*

25.7

CUV*

25.4

13.4

38.8

$1,678

STUDY AVERAGE

25.3

13.3

38.6

$1,855

Utility*

22.3

Van*

22.9

0

Note: Numbers may not add up to total due to rounding Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

14.5 9.9

10

20

36.8

$1,832

32.8

$1,830

31.9

11.8

20.1

Pickup

* Caution: Small sample size

16.7

30

$2,173 40

50

60

Expected Fuel Econom y (MPG) of Segm ent Prim arily Considered (Avg) Additional Fuel Econom y (MPG) Expected from a Clean Diesel Version of Segm ent Prim arily Considered (Avg)

U.S. Light Vehicle Demand Breakdown by Fuel Type Hybrid 2.4% Diesel 2.6%

Flex 8.7%

Electric 0.02%

Hybrid 7.7% Diesel 6.8%

Flex 10.0%

Electric 0.50%

Flex 10.0%

Electric 0.90%

Diesel 8.1%

Gas 74.0%

Gas 86.0%

2010

Hybrid 9.5%

2015

Gas 71.5%

2020

Flex fuel vehicles currently have the highest share of the alternative fuel market, but consumers mostly power them with gasoline We expect about 1/4 light vehicles sold in the U.S. to be an alternative fuel vehicle by 2015 and 28.5% by 2020 Gasoline-electric hybrids are expected to grow at a faster rate than diesels Electric vehicle share is expected to remain below 1% until 2020

19

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Global Hybrid/EV Sales Millions

80

IC only

Hybrid/EV

Share

70

7%

60

6%

50

5%

40

4%

30

3%

20

2%

10

1%

0

0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2020

20

8%

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Global Hybrid/EV Sales by Region Millions

Asia-Pacific

North America

Europe Big 5

Europe Other

6,000

5,000

4,000

3,000

2,000

1,000

0 2009

21

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2010

2011

2012

2013

2014

2015

2016

2017

2020

Global Hybrid/EV Sales by Type Millions

BEV

EREV

FCEV

FHEV

MHEV

PHEV

6,000

5,000

4,000

3,000

2,000

1,000

0 2009

22

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2010

2011

2012

2013

2014

2015

2016

2017

2020

China – Hybrid/Electric Forecast HYBRID/EV ASSESSMENT • Battery electric vehicles (BEVs) are expected to significantly outweigh the rest of the hybrid and electric vehicle options, accounting for around three quarters of all the volumes by 2020.

• The total demand for hybrid/EV market is projected to reach 472,000 units by 2020, accounting for nearly 2.3% of total passenger vehicle sales.

• Note that micro hybrid vehicles with simple start/stop technology are not included.

HYBRID/EV OUTLOOK Share

Sales

3.0%

500,000 BEV MHEV FCEV EREV PHEV FHEV LV Share

450,000 400,000 350,000 300,000 250,000

2.5% 2.0% 1.5%

200,000 1.0%

150,000 100,000

0.5%

50,000 -

0.0% 2010

23

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

2011

2012

2013

2014

2015

2016

2017

2020

Japan – Hybrid/Electric Forecast HYBRID/EV ASSESSMENT • Japan has been the global leader in hybrid vehicle development since the mid-90s when the first generation Toyota Prius was launched.

• In 2009, Japan overtook the US to become the top hybrid market in the world with almost 350,000 hybrid sales compared to less than 300,000 units sold in the US. • Mitsubishi and Nissan are already engaged in a price war for small BEVs in Japan, and we expect the market to grow as prices drop and more models are launched.

• Toyota plans to increase production by 7% in 2011 to 740,000 units globally..

Toyota’s cumulative hybrid sales in Japan exceeded 1 million units as of July 31, 2010. Cumulative global sales exceeded 2.68 million.

• The plug-in market should approach 60,000 units by 2015 and 100,000 by 2020.

24

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

HYBRID/EV OUTLOOK Sales

Share

1,000,000

FHEV EREV MHEV LV Share

900,000 800,000

25%

PHEV FCEV BEV

20%

700,000 15%

600,000 500,000

10%

400,000 300,000

5%

200,000 100,000

0%

2010

2011

2012

2013

2014

2015

2016

2017

2020

Competition/Threats To The Future Of HEV/PHEV/BEV What if Peak Oil is just a scare and gas prices remain below $4/gallon long-term? We might not need diesels or hybrids, let alone electric and plug-in vehicles Initial price premium for diesel: $1,000-4,000 Initial price premium of HEV: $2,000-10,000 (mild hybrid to full hybrid) Initial price premium of PHEV: est. $15,000 Initial price premium of BEV: $15-20,000 (over $50k for the Tesla Roadster)

Conventional powertrain technology has plenty of room for improvement Engines: GDI: 8-12% gain Turbocharging: 5-10% gain Ecoboost: 15-20% gain VVT: 1-3% gain Cylinder deactivation: 5-6% gain Micro- or mild hybrid (stop-start): 7-10% gain HCCI: 10-20% gain

Transmissions: DCT: 5-15% gain CVT vs. automatic: 3-5% gain Man-5 to Man-6: 1-2% gain 6/7/8 speed automatic transmission: 3-6% gain

25

Š 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Global and US Alternative Fuel Market Summary Economic, environmental, and security concerns continue to drive the growth of hybrid, plug-in and battery electric vehicle sales worldwide.

Global sales of hybrid and electric vehicles are expected to grow from 732,000 units in 2009 to over 3.4mn units in 2015 and 5.2mn in 2020.

Hybrid and PHEV sales grow from 728,000 units in 2009 to 2.8mn in 2015 and 3.9mn in 2020.

PHEV sales will exceed 335,000 units by 2020, while EREV sales will exceed 110,000.

BEV sales grow from less than 5,000 units in 2009 to almost 650,000 in 2015 and over 1.3mn in 2020.

HEVs: the US will regain the lead from Japan starting in 2012, and the US will account for 53% of global HEV sales in 2015 and 44% in 2020. Asia will account for 32% in 2015 and 33% in 2020.

U.S. consumers only consider fuel economy to be very important when gas prices are high Financial constraints will limit EV production and sales in favor of cheaper solutions to the fuel economy and emissions puzzles. This benefits diesels, hybrids and gasoline ICEs Fuel cell sales are expected to remain below 15,000 units p.a. for the next 10 years.

Lithium may become the new black gold; will ‘peak lithium’ replace peak oil?

2025: 45-50 mpg is a more realistic target than 62 mpg. Either way, we expect to see a significant increase in hybrid, diesel, diesel-electric, BEV and PHEV sales beyond 2020. Manufacturers will have gone through 3-4 generations of BEV/PHEV and achieved economies of scale and other cost reductions to make alt fuel vehicles more attractive to consumers. Oil prices are hard to predict, but the demand will be there in developed markets especially

26

© 2010 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.