Preparing for the Challenge: the Future of Automotive By ...... · Global Trend For Light Vehicles...

Preparing for the Challenge: the Future of Automotive2018 Automotive Workshop | Brazil Automotive BusinessAugust 2017

By Alberto TorrijosAutomotive Practice Leading Partner

Deloitte Mexico

Today’s topics

Automotive Market Overview

Global Automotive Consumer Study

Opportunities & Challenges

Q&A

Survey

© 2017 Deloitte Consulting Group, S.C. - 2 -

AUTOMOTIVE MARKET OVERVIEW

© 2017 Deloitte Consulting Group, S.C. 3

Global Trend For Light VehiclesSlow growth of global automotive industry over 2016-21 to force OEMs to be more cost effective by enhancing supply chain and invest in newer technologies

• Reduced sales tax in China spurred growthover 2012-16

• Pent-up demand in Europe and North Americaadded to the sales growth

• Rolledback of tax relaxations to slow growth in China

• Dried pent-up demand in Europe and the US leading to market maturity and sluggish auto sales.

CAGR (2012-16): 4.3% CAGR (2016-21): 2.8%

Historical Projected

1,4 1,4

3,8 2,54,9 3,611,7 14

15,2 18,1

27,236,4

2012 2016

Middle East & Africa Central & Eastern Europe Latin America

Western Europe North America Asia

Global passenger car sales – by región*(million units 2012-2016)

64.276.0

Global passenger car sales – by región*(million units 2017E-2021F)

78.187.3

1,4 1,7

2,6 3,33,9 4,914 15

18,5 19,6

37,642,9

2017E 2021F

Middle East & Africa Central & Eastern Europe Latin America

Western Europe North America Asia

Source: Charts IHS Automotive

© 2017 Deloitte Consulting Group, S.C.

Challenges Risks Mitigation strategy

4

Increasing regulations, costs, and competition are forcing OEMs to revamp the supplychain, restructure the organization, and forge partnershipsEmerging markets are key to OEMs sustaining success

• Lose competitiveness in keyregions against local players

• Focus on introduction of products and technologies compliant to environmentregulations

• Lose market share• Price wars• Lose market share• Price wars

• Expand horizontally to tap new revenuesources

• Expand product portfolio and introduce regional specific pre}ice-product mix

• Overhaul management structure

• Expand horizontally to tap new revenuesources

• Expand product portfolio and introduce regional specific pre}ice-product mix

• Overhaul management structure

• Lower margins and profitability

• Decline in total shareholder’svalue

• Lower margins and profitability

• Decline in total shareholder’svalue

• Re-structure supply chain for efficientprocurement of raw materials

• Exit from unprofitable markets and divest lossmaking segments

• Use of modular platforms to reduce costs

• Re-structure supply chain for efficientprocurement of raw materials

• Exit from unprofitable markets and divest lossmaking segments

• Use of modular platforms to reduce costs

• Slow realization of returnsimpacting the bottom line

• Slow realization of returnsimpacting the bottom line

• Strategic Partnerships with other OEMs, suppliers and tech players to leverage eachothers core competencies and share costs

• Restructure management for increased focuson new technologies and fast-pace decisión making and reduce go to market time

• Strategic Partnerships with other OEMs, suppliers and tech players to leverage eachothers core competencies and share costs

• Restructure management for increased focuson new technologies and fast-pace decisión making and reduce go to market time

Competition

Rising Input Costs & Capital

Investments

Rising R&D Cost

RegulatoryChallenges


Opportunities from emerging trends

Connected CarsAccording to BI Intelligence, the connected car market is projected to reach 92 million by 2020 at a CAGR of 45% from 2015-2020.

Autonomous VehiclesAccording to IHS, 21 million Autonomous cars are projected to be on a world’s roads by 2035, growingat a CAGR of 43% between 2025-2035.

Electric Vehicles (EVs)According to Bloomberg, electric vehicles sales is projected to reach 41 million by 2040, representing35% of new light duty vehicle sales

Shared MobilityAccording to BCG analysis, ~35 million drivers will use car-sharing services by 2021.

Aut

omot

ive

Meg

atre

nds


Mexico


Source: AMIA Mexico & IHS Automotive

1,6

2,0 2,0 2,1

1,5

2,3

2,6

2,9 2,9

3,2 3,4

3,5

2,2

1,2

1,5 1,6 1,7

1,2

1,9

2,1

2,4 2,4 2,6

2,8 2,8

1,8

-

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD

Production Exports

Mill

ions

of Veh

icle

s

2009 - 2016 CAGR Production 11.2%Exports 11.2%

Global ProductionMexico | Industry Production and Exports

Forcasted 4.0 million units


427

523

610655

579 593

227

325

482

644 667

854919

978 978

1.0961.132 1.140

1.1001.026

755820

906988

1.0631.135

1.352

1.604

865

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD

Thou

sand

s of

Veh

icle

s

2009 - 2016 CAGR National Sales 9.8%

Local MarketMexico | National Sales

Source: AMIA Mexico & IHS Automotive

Forcasted1,625 units


Source: AMIA and Deloitte’s industry analysis

IHS Data Base

30% 31% 31% 30%33%

36% 37%

27%29% 28% 29% 26% 25% 24%

18%17% 17%

19% 19% 20% 19%

18% 15% 15% 14% 14% 13% 13%

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016

Sport

Minivan

Luxury

Pick Up

SUV

Compact

Sub-compact

• Still, as a maturing market, the preferences of the Mexican consumer appear to be shifting from low-cost options (sub-compact) to more equipped, higher-value vehicles.

• With over 60% of the total volume (Sales), the Mexican Auto Industry is heavily oriented towards the “small car” segments (sub-compact & compact).

Mexico Local MarketSales Segment Composition


Some aspects that the August 2017 renegociations between NAFTA countries involve:

1. It seeks to eliminate unfair subsidies, enhance reciprocal market access, and reduce the trade deficit.

2. It strives to secure commitments not to impose customs duties on digital products (e.g., software, music, video, e-books).

3. It seeks horizontal disciplines regarding transparency.

4. Proposes to eliminate NAFTA Chapter XIX and to remove the exclusion of Canada and Mexico in all U.S. global safeguards under the WTO.

5. Seeks to promote a more assertive use of third country dumping to jointly face unfair competition from others. It requests, as well, the establishment of an early warning import monitoring system for this.

6. Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.

7. Bring the labor provisions into the core of the Agreement rather than in a side agreement.

10

NAFTARenegotiations


Brazil


Source: ANFAVEA Brazil & IHS Automotive

2009 - 2016 CAGR Production -4.5%

Exports 3.7%

Mill

ions

of Veh

icle

s

Global ProductionBrazil | Industry Production and Exports

2,0 2,0

2,4

2,6 2,62,7

2,6

2,83,0

2,5

2,0

1,8

2,5

2,7

0,60,5 0,5 0,5

0,30,4 0,4 0,4

0,5

0,3 0,30,4

0,6 0,6

-

0,50

1,00

1,50

2,00

2,50

3,00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Production Exports

Forecasted


Local MarketBrazil | National Sales

Source: ANFAVEA Brazil & IHS Automotive

2009 - 2016 CAGR National Sales -5.5%

Thou

sand

s of

Veh

icle

s

569 535605 600

911

1.135

1.416 1.429

1.605

1.246

1.036

1.2051.318

1.243 1.2161.315

1.440

1.633

2.086

2.341

2.644

2.857 2.902

3.1153.041

2.795

2.123

1.688

2.084

2.250

0

500

1000

1500

2000

2500

3000

Forecasted


Primary agreements:

• Mercorsur entered into force January 2003

• March 2015 Brazil and Mexico reached an agreement to amend the Agreement of Economic Complementation 55 (ACE 55).

• ACE 55: Annual cuotas, tariff free goods and from 2006 auto parts were included.

• Majority of the consumers in Brazil trust traditional car manufacturers the most to bring self-driving technology to market

Trade Agreements Mexico & Brazil

Source: Bloomberg & AMIA Mexico

542.471600.614

720.713

886.776

100000

300000

500000

700000

900000

2013 2014 2015 2016

Imported in Mexico from MERCOSUR(all countries, ~10% Brazilian origin)

137.443

102.828

59.42846.046

0

20000

40000

60000

80000

100000

120000

140000

2013 2014 2015 2016

Exported from Mexico to Brazil


Global Automotive Consumer Study:Future of Automotive Technologies


• Survey performed since 2009

• Explores consumer interest in advanced vehicle technologies: self-driving technology, advanced safety and powertrain systems, cockpit technologies and more.

• Highlights which technologies consumers desire most and how much they are willing to pay for those features.

• Focuses on six focus countries, the United States, Germany, Japan, South Korea, China, and India, and compares and contrasts consumer sentiment in these markets as a proxy for consumers worldwide.

• It is also performed in Mexico and Brazil (2nd time)

Global Automotive Consumer StudyMethodology

17

Desirability for vehicle automation higher compared to neighboring countries

2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights

© 2017 Deloitte Consulting Group, S.C 18

Consumers’ desirability for advanced to full self driving vehicle automation is higher in Brazil when compared with US and Canada

61%

74%

52%

47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Basic automation Advanced automation Limited self-driving Full self-driving

US Mexico Canada Brazil

Note: Percentage of respondents who strongly agreed or agreed have been added together.

Consumers’ level of agreement with different automation levels, 2016

Source: 2016 and 2014 global automotive consumer survey, Deloitte.Sample size – [US: N= 1,722 ; Mexico: N= 1,228; Canada: N= 1,220; Brazil: N= 1,232]

Automation that allows the driver to be in complete control with

vehicle performing specific automated tasks

Automation that combines at least two functions such as adaptive

cruise control and lane centering technology

Automation that allows vehicle to take over all driving functions under

certain traffic and environmental conditions

Automation that allows the vehicle to take over all driving functions for

an entire trip

Represents significant difference between Brazil and US and Canada

19

Not only the desirability, but the willingness to pay for advanced vehicle technologies has also decreased since 2014…



20% 18%32% 29%

46%

55%67%

49% 60%

46%

25%15% 19%

11% 8%

Alternative engine Safety Full/partial self drive Connected Cockpit

Not willing to pay anything Up to BRL 1,600 BRL 3,200 or more

Consumers’ least willing to pay for cockpit technologies

BRL 5.951

BRL 1.995

BRL 0

BRL 2.000

BRL 4.000

BRL 6.000

Overall

2014 2016

Average expected price and consumers’ willingness to pay by technology type, 2014 and 2016 (Brazilian Reals)

Source: 2016 and 2014 global automotive consumer survey, Deloitte.Sample sizes – [2014: N= 1,609, 2016: N= 1,250]

Wei

ghte

d av

erag

e pr

ice

(BRL)

Perc

enta

ge o

f co

nsum

ers

will

ing

to p

ay (

2016

) 2,779BRL

2,172BRL

2,194 BRL

1,637BRL

1,192BRL

Willingness to pay has decreased in 2016 compared to 2014

21

But, there is good news for automakers to be found among younger consumers…



Gen Y/Z consumers as desirable as other generations for various levels of vehicle automation

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

Basicautomation

Advancedautomation

Limited self-driving

Full self-driving

Percentage of consumers who agree or strongly agree with different levels of automation,by generation, 2014 and 2016

Gen Y/Z

Gen X

Pre/boomers

Sample sizes – [2014: Pre/boomers, N= 459; Gen X, N= 292; Gen Y/Z, N= 742] [2016: Pre/Boomers, N= 300; Gen X, N= 292; Gen Y/Z, N= 642]

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

Basicautomation

Advancedautomation

Limited self-driving

Full self-driving

2014 2016

Source: 2016 and 2014 global automotive consumer survey, Deloitte.

Gen Y/Z

Gen X

Pre/boomers

Year of birth for various Generations - Pre/boomers: Before 1964; Gen X:1965-1976; Gen Y/Z:1977 and later

Represents significant difference with Pre/boomers

23

Which technology features do Brazilian consumers find most useful?

Safety…Safety…Safety



And the forward technologies consumers in Brazil preferIt’s all about safety (and the building blocks of vehicle automation) and fuel efficiency…

Note: Break points for most, moderate and least preferred technologies are derived based on percentage of times a technology is rated the best.Sample size – [N= 1,261]

Rank Technology that… Category

Mos

t U

sefu

l

1 Recognizes objects on road and avoids collision Safety

2 Blocks driver from dangerous driving situations Safety

3 Informs driver of dangerous driving situations Safety

4 Takes steps in medical emergency or accident Safety

5 Enables remote shutdown of stolen vehicle Cyber security

6 Diagnoses and sends maintenance notifications Connectivity

7 Prevents theft by restricting unauthorized access Cyber security

8 Enables usage of alternative fuels Environment

9 Lowers the impact on the environment Environment

10 Prevents hacking into vehicle systems Cyber security

Mod

erat

ely

Use

ful

11 Enables vehicles-to-vehicle and road communication Connectivity

12 Coaches the driver to drive safely Cost efficiency

13 Monitors the physical health of the driver Safety

14 Helps enhance fuel efficiency Fuel efficiency

15 Enables use of advanced lightweight materials Fuel efficiency

16 Automates tasks for comfort and convenience Convenience

25

Consumers in Brazil trust a traditional car manufacturer to bring self-driving technology to market



Majority of the consumers in Brazil trust traditional car manufacturers more to bring self-driving technology to market

55%

22%

22%

1%

Traditional car manufacturer

Existing technology company

A new company that specializes in autonomousvehicles

Others

45%

Type of company consumers trust the most to bring fully self-driving technology to market

Sample size – [N= 1,259] Represents significant difference with non-traditional car manufacturer

27

Individual safety features rule, but how do consumers feel about fully self-driving vehicles?



80 percent consumers believe that self-driving cars will be a positive experience and think it will free up their time. More than two-thirds are willing to try them if they have an established safety record and if they are offered by a brand they trust

80%

71%

61%

54%

Travelling in a fully self-driving car will be a positive

experience

A fully self-driving car will freeup my time so I can focus on

other activities

I would trust an autonomouscar to drive for me

Fully self-driving cars will notbe safe

Factors making consumers ride in fully self-driving vehicles

Note: Percentage of respondents who strongly agreed or agreed have been added together

74%

69%

62%

49%

An established track record ofself-driving cars being used on

the streets safely

Vehicle is offered by a brandyou trust

Government regulation /approval of self-driving cars

A friend or neighbor using one

Consumer opinion on fully self-driving vehicles

Note: Percentage of respondents who said ‘significantly more likely’ or ‘more likely’ have been added togetherSample size – [N= 1,173] Sample size – [N= 1,187]

Represents significant differences with other consumer opinions

29

Consumers are also concerned about the safety of their data…



8 in 10 consumers fear hacking as the biggest threat to data sharing. Majority of consumers would readily share their personal information with car makers if they get significant benefits in return

82%

79%

66%

58%

52%

With my car connected to the outside world, I fear someone hacking into my carand risking my personal safety.

I would share my personal information with the automotive manufacturer or dealerif I get significant benefits from it.

I would share my personal information with commercial third parties if I getsignificant benefits from it.

I would share my personal information with any one as long as I know what I’m sharing and am comfortable sharing it.

I believe personal data generated from my car is safe and secure from hackers.

Consumer opinion on personal data sharing and privacy

Sample size – [N= 1,188]

Note: Percentage of respondents who strongly agreed or agreed have been added together Represents significant differences with other consumer opinions

31

Ride-sharing not a threat for Brazilian car ownership…for now



64 percent of consumers in Brazil never or rarely use ride-hailing services…

21%

43%

36%

Ride-hailing frequencySample size – [N= 1,261]

Gen Y/Z consumer’s use of ride-sharing services is almost two times that of Pre/boomers

24%

46%

30%

Pre/Boomers

32%

41%

27%

Gen X

43%

42%

15%

Gen Y/Z

Sample sizes – [Pre/Boomers, N= 306; Gen X, N= 296; Gen Y/Z, N= 659]

Rarely At least once a weekNever

Represents significant difference with other options

Represents significant differences with other generations

*Ride-sharing is defined in this study as car sharing services wherein consumers hire a car/driver via the phone, or an app.



55 percent of consumers who use ride-sharing services, question their need of owning a vehicle in the future

Percentage of consumers who question their future vehicle ownership due to use of ride-sharing services, Brazil, 2016

Sample size – [N= 988]Rest percentage of the consumers haven’t thought about it.

Yes No

Overall

Sample sizes – [Pre/boomers, N= 211; Gen X, N= 216; Gen Y/Z, N= 561] Rest percentage of the consumers in each category haven’t thought about using it.

Gen Y/Z consumers are more likely to question their need to own a vehicle in future, when compared with Gen X and pre/boomers55%

24%

Yes No

40%

50%

62%

31%

25%21%

Pre/Boomers Gen X Gen Y/ZRepresents significant difference with the option “No” Represents significant difference with other generations for the option “Yes”


OPPORTUNITIES & CHALLENGES


Challenges & OpportunitesMexico & Brazil share main opportunity areas for the development of the sector

Mexico BrazilTrade AgreementsLabor CostGeographyInfrastructureLocal Market PotentialSkills & ExpertiseEase of Doing BusinessLabor availabilityPolitical Stability

Developed

In process of improvement

In need of improvement


Q&A


Survey

What is your perspective on ridesharing trends?a) I use it as my primary means of transportb) I use it as much as I can on weekends and special events and plan to stay that wayc) I plan on depending on them in the future but use them occasionally for the momentd) I never use it and never will. I don’t see the benefit

What matches best your perspective on self-driving cars?a) I don’t and won’t trust them with my safety and the safety of my datab) I’m expecting to test and adopt them as soon as I canc) I’m open to testing but would consider to adopt them as the technology matures and becomes more “normal”d) I would consider to test it but it would depend on the maker behind it

What is your biggest concern with autonomous cars?a) My safety during the rideb) Data safety and protectionc) Technology deployment and infrastructure

What trend are you most likely to adopt in the near future?a) Ridesharingb) Electric Vehiclesc) Autonomous Vehicles

1

2

3

4


Thank you

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Preparing for the Challenge: the Future of Automotive By ...... · Global Trend For Light Vehicles...

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