PwC Autofacts®

The Transformation of the Automotive Value Chain

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Research results on how the automotive transformation will impact value addOctober 2018

PwC Autofacts ®

DON’T PANIC: The automotive transformation will bring more vehicle sales, more value per car, and more business for the automotive value chain – still, there are challenges for OEMs and suppliers

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Technological Changes

More Sales

New forms of vehicle capabilities change the existing mobility structure, leading to an increase of demand for new types of mobility

Due to new usage patterns, new vehicle demand will increase structurally

More Value

Social and political impulses drive market demand for alternative powertrain technologies

Vehicle component and system costs will shift due to new technologies

Increase of Value Add

Electric drivetrains require newtechnologies and capabilities

Autonomous driving changesthe way vehicles are used and owned

Re-alignment of value-add between OEMs and suppliersReorientation of existing manufacturing processes

PwC Autofacts ®

As mobility is local by nature, so is the expected adaptation of new technologies and mobility patterns between Europe, the US, and China due to political, cultural and technical differences

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• Autonomous technologies may not be marketable before 2025, therefore mobility patterns are not expected to change notably until 2030

• Regulatory hurdles and consumer inertia due to large legacy vehicle parc may lead to delayed market adaption

• Autonomous Robotaxis with limited capabilities from 2025 on, wide-spread level 4/5 adoption after 2028

• Electric vehicle penetration increases due to legislative demands after 2020, and receives a significant boost as new mobility forms become established after 2025

• Electric vehicle penetration with significant lift due to legislative incentives

• Once available, autonomous technology will have strongest growth by attracting former public-transport users with low prices and high convenience

PwC Autofacts ®

The introduction of autonomous driving capabilities will trigger the transformation of individual mobility which will create new ways of using vehicles and increase overall mobility

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… Shared

… Privately Owned

Self-driven …

Autonomous …

… Privately Owned

Lifecycle Mileage Annual Mileage Usage Years

… Shared

42,000

93,000

13,500

59,500

6.0

3.1

15.4

1.0

252,000

286,000

208,000

60,000

Forecast for 2030 – DE Normal Scenario

Person-km per YearGermany

Autonomous vehicles will be used much more intensely than conventional cars, reducing the duration of their lifecycle and creating higher replacement demand in spite of shrinking overall vehicle fleet.

Autonomous technology is expected to create new markets for individual mobility types, driven by strong mobility demand.

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

2018 2020 2025 2030

Trilli

ons

Shared autonomous Personally owned autonomousShared driver-driven Personally owned driver-driven

PwC Autofacts ®

The transformation of mobility will all but decrease vehicle sales, while vehicle parc will shrink and new mobility sub-markets will accelerate demand for alternative emission-free drivetrains

0

0,5

1

1,5

2

2,5

3

3,5

4

2018 2020 2025 2030M

illion

s

New Car Sales by Autonomous LevelGermany

Level 0 Level 1 Level 2

Level 3 Level 4 Level 5

0

0,5

1

1,5

2

2,5

3

3,5

4

2018 2020 2025 2030

Milli

ons

New Car Sales by DrivetrainGermany

Combustion Hybrid Electric

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• More intense use of autonomous and shared vehicles

• Quicker replacement creates additional new vehicle demand

• Strong legislative push from 2020 on

• Sufficient public charging infrastructure ~2025

• Cost-of-operations tipping point differs by segment and use pattern

• Tech will allow level 4/5 adoption from 2028 on

• Robotaxis with limited use from 2025 on

0

0,5

1

1,5

2

2,5

3

3,5

4

2018 2020 2025 2030

Milli

ons

New Car Sales by Mobility TypeGermany

Shared autonomous Personally owned autonomous

Shared driver-driven Personally owned driver-driven

PwC Autofacts ®

As vehicle sales and value per car increase, the total value add of new vehicles will grow accordingly –creating significant overall growth opportunities for the automotive value chain

The acceleration of market dynamics in the new mobility segments increase volume. Added content for autonomous driving and connectivity create new volume and cost dynamics in new and conventional technologies.

6

0

10

20

30

40

50

60

70

80

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

Billio

ns

Total Value AddCars sold in Germany

Powertrain Combustion Powertrain Electric ChassisElectric/ Electronic Body ExteriorInterior Connected/ Autonomous

Main growth areas are in E/E, interior and chassis components, as sensoring and actuation become more important in all areas of the vehicle. Over the mid-term, electric powertrains create on-top growth opportunities.

16.500 €

17.000 €

17.500 €

18.000 €

18.500 €

19.000 €

19.500 €

20.000 €

20.500 €

21.000 €

3,2

3,3

3,4

3,5

3,6

3,7

3,8

3,9

4

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Milli

ons

Total Sales, Total Cost per VehicleCars sold in Germany

Sales Cost per Vehicle (rhs)

PwC Autofacts ®

While conventional powertrains remain dominant in the mid-term, alternative drivetrains increase total powertrain value add requiring new skills and additional investment

The value add of total powertrain technologies is calculated on the basis of ongoing cost reductions of conventional components, while electric drivetrain components for BEV and hybrid powertrains create significant additional opportunities.

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0

5

10

15

20

25

30

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

Billio

ns

Total Value Add DrivetrainCars sold in Germany

ICE Drivetrain Full Hybrid ComponentsPlug-In Hybrid Components Battery-Electric Drivetrain

0 €

5.000 €

10.000 €

15.000 €

20.000 €

25.000 €

30.000 €

35.000 €

40.000 €

2018 2020 2025 2030

Average Cost per Vehicle Cars sold in Germany

Average BEV Average ICE-VAverage PHEV Average FHEV

BEV and PHEV costs are currently elevated by small-scale production but will decrease as volumes grow. As average battery capacity of BEV is assumed to rise – plus autonomous technology – value per car remains higher than pure ICE.

PwC Autofacts ®

Even assuming aggressive cost reduction potential, the fast rise of electric drivetrain demand creates significant business opportunities, requiring fast decisions even today – but a long-term strategy and large financial resources.

Stricter global CO2 emission standards require new powertrain technologies. The combustion engine needs significant innovations, especially exhaust system, to reach the new emission requirements.

While mechanical ICE technologies decrease in value, exhaust gas treatment will still drive value add in the field while specific hybrid components only make for a small part of electric drivetrain revenues

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0

2

4

6

8

10

12

14

16

18

20

Billio

ns

Value Add Combustion EngineGermany

Combustion Electric

0

2

4

6

8

10

12

14

16

18

20

Billio

ns

Value Add Electric EngineGermany

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

Base Engine Fuel System Intake SystemExhaust System Cooling Transmission

Electric Motor & Generator Power Electronics, security CoolingTransmission Inverter, Charging Energy Storage

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

PwC Autofacts ®

The foreseeable changes of the automotive value chain will come in several different ways: while evolutionary change is fairly benign, transformational change requires strategic realignments.

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Process

Evolutionary developments require suppliers to further develop existing business models in order to remain profitable.

Fully integrated business models of product, technology and machinery allow for seamless adaption to evolutionary changes.

Technology

Transformative influences require action as today's business models will be strongly modified (disruptive) or replaced (substitutive) in the future.

Substitutional Transformation can lead to obsolescence of entire production areas and competencies of suppliers.

The automotive industry has been handling technological progress continuously for over 130 years – mostly as technology leader.

Upcoming changes may require the adaptation of non-automotive technologies and skills –through cooperation, co-opetition or the creation of new business cultures.

Quantitative Qualitative

Evolutionary Change

SubstitutionalDisruptive

Transformational Change

PwC Autofacts ®

DON’T PANIC: The anticipation of the automotive transformation already influences the interactions between automotive stakeholders over the entire value chain and determines long-term strategies

Quelle: PwC Autofacts 2018

Big players such as OEMs and large suppliers are creating new markets on top of managing value shifts in existing operations

Especially family-owned smaller companies can leverage new opportunities for pivotal shifts of business model

Specialized suppliers are striving to establish dominating positions in critical market segments to elongate business

Basic technologies will continue to be in demand but fall under increasing per-unit price pressure, requiring permanent adaption

Portfolio Realignment

Strategic Pivot

Last Man Standing

Business as Usual

Stakeholder Map

10

Trans-formation(Expectation

of …)

Financialinstitutions

OEMs

Marketdevelopment Suppliers

Business strategy types

PwC Autofacts ®

Contact and Further Information

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Christoph StürmerAutofacts Global Lead Analyst

PwC Germany

Tel. +49 69 9585-6269

christoph.stuermer@pwc.com

Felix KuhnertGlobal Automotive Leader

PwC Germany

Tel. +49 711 25034-3309

felix.kuhnert@pwc.com

The information contained in this report represents the culmination of proprietary research conducted by Autofacts, an analytical group within the PwC Research & Analysis Organisation. All material contained in this report was developed independently of any PwC clientrelationship and does not represent the firm’s view as an auditor to any legal business entity. While every effort has been made to ensure the quality of information provided, no representation or warranty of any kind (whether expressed or implied) is given by PwC as to theaccuracy, completeness or fitness for any purpose of this document. As such, this document does not constitute the giving of investment advice, nor a part of any advice on investment decisions. Accordingly, regardless of the form of action, whether in contract, tort orotherwise, and to the extent permitted by applicable law, PwC accepts no liability of any kind and disclaims all responsibility for the consequences of any person acting or refraining from acting in reliance on this document.

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