Overseas Prospects for the Chinese Automotive Industry: Exports and New Opportunities Developing for Overseas Operations

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1 Overseas Prospects for the Chinese Automotive Industry: Exports and New Opportunities Developing for Overseas Operations Lin Huaibin Senior Market Analyst

2 Content Vehicle Export Export Destination and OEMs Export Performance Chinese OEMs Global Footprint Export Forecast Export Prospect in EU and the U.S. Mergers and Acquisitions

3 Passenger Car Export % 35% 30% 25% 27% 31% % Thousands 20% 15% 10% 5% 0% 6% % % PC Export Volume As of Total Vehicle Export NOTE: Number Including Honda Fit Export

4 Passenger Car Export Destination by Region Africa 13% 18% 21% 20% 20% Asia 5% 3% 6% 7% 7% East Europe 57% 46% 38% 34% 32% Middle East 12% 17% 21% 27% 28% North America 3% 3% 3% 2% South America 13% 10% 9% 6% 6% West Europe 2% 2% 3% 4% 0% 20% 40% 60% 80% 100% NOTE: Chinese OEMs Only

5 Passenger Car Export Destination by Country Chile Colombia Egypt Malaysia Mexico Middle East Russia South Africa Ukraine Venezuela Other 3% 2% 9% 1% 3% 17% 19% 8% 26% 3% 3% 2% 2% 2% 1% 1% 11% 3% 12% 2% 12% 2% 5% 2% 3% 21% 27% 11% 9% 8% 14% 2% 28% 7% 9% 8% 11% 10% 1% 1% 8% 21% 27% 25% 0% 20% 40% 60% 80% 100% NOTE: Chinese OEMs Only

6 Passenger Car Export Performance by OEMs Sales Volume Thousands Y2007 Y2009 Y2011 Y2008 Y BYD CHAN GAN CHERY GEELY GREATWALL FAW TIANJIN ZHONGHUA

7 Export Performance by OEMs Market Share Y2007 Y2008 Y2009 Y2010 Y2011 BYD CHANGAN CHERY GEELY GREATWALL ZHONGHUA 0% 10% 20% 30% 40% 50% 60% 70% 80%

8 Export Performance by Model in ,000 Y2007 Y2008 Y2009 Sales Units 30,000 25,000 20,000 15,000 10,000 5,000 0 From 2010 CHERY A- 15 CHERY QQ3 GEELY FREE CRUISER CHERY A- 5 CHERY QQ6 CHERY A1 GEELY KING KONG BYD F3

9 Export Performance by FOB Pricing Y2005 Y2006 Y2007 Russia Ukraine Venezuela Syria Algeria Egypt Chile Colombia Average Unit:USD Average FOB Increased Partly due to USD Depreciation

10 Footprint in Africa Chinese OEMs sales in South Africa were approximately 15,000 units in 2008 (Geely accounted for 40%) Chinese OEMs in South Africa expected to reach 25,500 units by 2011 Chery production in Egypt began in 2006 Chery sales in Egypt were approximately 12,000 units in 2008 China Brilliance production in Egypt began in 2006 Lifan should commence production in Egypt and Ethiopia by Q4 Chinese OEMs sales in Egypt are expected to reach 36,500 units by 2011

11 Footprint in Southeast Asia Chinese OEMs market share will remain modest due to political constraint (e.g. Malaysia) and local market structure(e.g. Thailand) Chinese OEMs sales in ASEAN were around 4,600 units in 2008 but expected to reach 19,000 units by 2011 Indonesia Malaysia Pakistan Taiwan Thailand Vietnam

12 Footprint in Middle East CKD assembly of Chery began in Iran in Q Production of Lifan 520 is scheduled for 2009 in Iran Production of ChangAn Benben will begin in Iran in 2010 UAE is the largest market for Chinese OEMs in 2008, whose sales topped 15,000 units Chinese OEMs sales in Middle East stood at 30,000 units and are expected to surpass 78,500 units by 2011

13 Footprint in Europe Chery production in Russia and Ukraine began in 2006 but halted in late 2008 Geely production started in Russia in 2006 but stopped in 2008 Chery started assembling Tiggo in Italy via DR in 2007 Greatwall production in Russia and Ukraine started in 2007 but stopped in 2008 Greatwall will begin production in Bulgaria in 2009 Chinese OEMs export to East Europe currently is 80,000 units and could reach 88,000 units by 2011 Export to West Europe is around 3,000 units and could reach only around 7,500 units by 2011

14 Footprint in South America Chery production in Uruguay began in 2008 and vehicles are exported to Argentina Chery production in Brazil could start in 2010 In 2008,Chinese OEMs sales in Chile, Colombia and Venezuela reached around 5,000 units, 5,720 units and 4,500 units respectively Chinese OEMs sales could decline to 19,000 units by 2011

15 Footprint in North America (Mexico) There are uncertainties regarding ChangAn and FAW production plan in Mexico which was scheduled for 2010 Chery s and Chrysler s joint project to introduce Chery vehicles in Mexico failed in 2008 Chinese OEMS export to Mexico could stand around 6,000 units on assumption of CBU export

16 Passage to the West: Rocky Road Export to Western Europe and the U.S. Can Be Expected Only After 2013 Emission Safety Warranty EU: EUROV (2009)/EUROV+(2011) U.S.: Tier II/California (ZEV) EURONCAP/NHTS A/IIHS Anti-Corrosion Warranty Powertrain Warranty Emission Warranty No EUROIV Engine Available Lack of Competitiveness in spite of Improving Safety No Anti-Corrosion Warranty No Powertrain Warranty No Emission Warranty Plus After Sales Service Dealer Management System Brand Building

17 R&D: Eager to Catch Up CHAN AN Set Up Europe Design Center in Turin, Italy JiangHuai Set Up Europe Design Center in Turin, Italy JiangHuai Set Up Ricardo 2010 in the U.K. Set Up Design Center in Tokyo, Japan Set Up SAIC MOTOR U.K. Technical Center (Birmingham) Chan An BenBen ROEWE 750 ROEWE 550

18 New Model Launches in China by Country of Origin in 2009 Models to be launched by Chinese OEMs are usually designed to meet EUROIV and the latest EU safety standards. By meeting these standards, market share of Chinese OEMs is growing, thereby helping to increase export volumes JAC B MPV 5 0 CHINA JAPAN EUROPE US KOREA 1 Chery A6CC

19 Passenger Car Export Forecast thousands By 2013, passenger car exports by Chinese OEMs will pass half a million units as more models with improving design and quality will be launched abroad Note: Export Volume ex. Export from Global OEMs

20 Global OEMs Export from China Honda exported approximately 45,000 units of Jazz to Europe in 2008 (CBU likely to decline in 2010 after the start of UK assembly) GM exported around 20,000 units of Lova and Aveo to Eastern Europe and South America in GM plans to export its NGS model from China mainly to emerging markets in Exports to the U.S. planned in 2011.

21 Mergers and Acquisitions Chinese Brands Indicated in the potential M&A Or Not To Buy? To Buy?

22 Mergers and Acquisitions At this stage, Chinese OEMs have no adequate experience in handling these hurdles to avoid the failure of SAIC- Ssangyong Alliance Brand Positioning Product Integration Labor Union International Management Experience and Cultural Difference

23 Summary Emerging markets will remain the major export destination of Chinese OEMs for the next 5 years The dominance of Chery, Geely and Greatwall in the export market will be weakened as more Chinese OEMs will make inroads into overseas markets Although we will see more Chinese OEMs setting up plants overseas, market entry into the West will not be significant before 2013 By 2013, passenger car export by Chinese OEMs will pass half a million units as models with improved design and quality will be launched abroad There is uncertainty regarding whether China will become an increasingly important export base for Global OEMs due to Global OEMs capacity constraint and current foreign ownership restriction It is still premature for Chinese OEMs to acquire Global OEMs at this stage due to lack of expertise in managing large-scale international operations

24 Thank You! Lin Huaibin Senior Market Analyst