Drive Green Alternative Powertrain Forecast

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1 Drive Green Alternative Powertrain Forecast Michael Omotoso Senior Manager Global Powertrain Forecasting

2 2016/2025 CAFE Standards U.S. Market Forecast Consumer Attitudes Towards Alternative Fuel Vehicles HEV and BEV Sales Forecast Global Forecast Conclusions 2

3 CAFE Standards 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 YEAR 2025 Scenarios 4% annual increase % annual increase model year: Car: mpg Truck: mpg Fleet: mpg Cost = $1,300 $4,000 per vehicle

4 What Will Happen to Gas Prices? Year World oil price, Brent crude spot, $pb $61.57 $79.55 $84.39 $85.62 $94.73 $ $ $ $ Pump prices $/gallon $2.05 $2.65 $2.81 $2.85 $3.16 $3.41 $3.78 $4.26 $5.15 regular 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

5 Saving Gas Money Can be Costly Fuel Cost of Driving 12K Miles/YR for 5 Years 30,000 25,000 $24,000 Total Fuel Cost 20,000 15,000 10,000 5,000 0 $18,000 $14,400 $12,000 $12,000 $10,141 $9,000 $7,200 $7,200 $8,000 $6,000 $6,000 $5,070 $6,000 $3,600 $4,800 $3,000 $4,000 $3,380 $2,400 $2, $2.00 $3.00 $4.00 $5.00 $6.00 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 $6/gal

6 United States Rules and Regulations REGULATION TIMELINE MPG g/mi CO CAFE mpg g CO2/mile Year 0 TAX CREDITS Vehicle type Credit Examples Electric vehicles $7,500 Nissan Leaf, Tesla Roadster Plug-in hybrids, ER-Evs $7,500 Chevrolet Volt, Toyota Prius PHEV Clean diesel $ BMW 335d, VW Jetta TDI Hybrid Expired March 31, 2010 Toyota Prius, Honda Insight was $250 to $3400 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 $ tax credit for BEVs, FCEVs and PHEVs. The state of Oklahoma will provide tax credits for alternative fuel vehicles starting on January 1, GOVERNMENT TARGETS CAFE Emissions A/C leakage credit Flex fuel vehicle credits Policy Target MY Miles per gallon Grams of CO2 per mile N 2 O CH 4 R-134a refrigerant model years MY 2015 MY MY : 0.01 grams/mile 0.01 g/mi Target: 0.03 grams/mile g/mi for cars, g/mi for trucks 1.2 mpg 1.0 mpg No credit 6

7 U.S. Hybrid-Electric Vehicle Market: 26 Models Cadillac Escalade Two-Mode Chevrolet Silverado Two-Mode Ford Escape hybrid GMC Sierra Two-Mode Honda Civic hybrid Lexus GS450h Lexus LS600h Mercury Mariner hybrid Nissan Altima hybrid Chevrolet Malibu hybrid Chevrolet Tahoe Two-Mode Ford Fusion GMC Yukon Two-Mode Honda Insight Lexus HS250h Lexus RX450h Mercury Milan hybrid Saturn Aura Green Line Tesla Roadster BEV Mercedes-Benz S400h BMW X6 Active hybrid Saturn VUE Green Line Toyota Highlander hybrid Mercedes-Benz ML450h Toyota Camry hybrid Toyota Prius As of 9/30/10. 7

8 Q 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 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 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

9 Q U.S. Hybrid and Electric Vehicle Forecast Millions IC ONLY HEV/BEV Hybrid and EV share 12% 10% 8% 6% 4% 2% % 9

10 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 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 10

11 U.S. Diesel Sales Outlook % of US Car Sales US Diesel Car Share % of US LT Sales US Diesel Light Truck Share US Diesel LV Share Light Truck share is significantly higher than car share; volumes 3-6x higher % of US LV Sales Light duty pickups will be largest diesel segment, followed by SUV/CUVs DPF and urea add to upfront costs, but 2016 CAFE forces the issue Detroit 3, Nissan and Honda all delayed their diesel programs in 2009/10 Our forecast is less optimistic than a year ago, but still bullish. 7.3% share in 2016

12 Consumer Attitudes To Alternative Fuel Vehicles 12

13 Single Greatest Benefit of a Hybrid-Electric Vehicle - Among Hybrid-Electric Non-Considerers - Lower fuel costs 29% Better fuel economy 26% Decrease U.S. dependency on foreign oil Better for the environment 16% 15% Lower emissions 6% Tax credit Improved carbon footprint Social status of being an HEV owner Able to drive in HOV lane 4% 2% 1% * Decreased dependency on oil no matter where it comes from. Chevrolet Caprice owner 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 Ownership of cutting edge/new technology Other * 2% Lower fuel cost and usage, plus environmental and tax benefits. Kia Sorento owner 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 * Indicates less than 1% 13

14 Why Are You NOT Considering a Hybrid-Electric Vehicle? Cost premium of HEV 43% I don't know enough about it Desired vehicle not available with Hybrid- Electric powertrain Cost of ownership Concerned about performance Longevity of battery life 35% 30% 29% 26% 23% Unproven technology Never thought about it Not a significant increase in fuel economy Battery makes vehicle unsafe Other 3% 6% 15% 14% 17% % Considering HEV 62% FFV 43% CDV 16% None 19% 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

15 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 STUDY AVERAGE Pickup Utility CUV Sporty* Basic Van* 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

16 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? Better fuel economy 76% Lower fuel costs 50% Better for the environment Vehicle's range on one tank 44% 43% % Considering Decrease U.S. dependency on foreign oil Lower emissions Higher engine power/torque 32% 35% 35% HEV 62% FFV 43% CDV 16% None 19% Towing capability 21% Tax credit 16% Social status of being Clean Diesel owner 3% Other 1% Multiple Mention 0% 20% 40% 60% 80%

17 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 I don't know enough about it 45% 43% Never thought about it Concerned about fuel availability 20% 29% % Considering Cost premium of Clean Diesel 18% HEV 62% Desired vehicle not available with Clean Diesel engine Concerned about emissions Cost of ownership 13% 11% 11% FFV 43% CDV 16% None 19% Concerned about noise 10% Not a significant increase in fuel economy 9% Concerned about performance 6% Other 3% Multiple Mention 0% 20% 40% 60%

18 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 - Among Clean Diesel Considerers - Additional amount willing to spend for a Clean Diesel powertrain Basic* $1,881 Conventional $1,684 Sporty* $1,637 CUV* $1,678 STUDY AVERAGE $1,855 Utility* $1,832 Van* $1,830 Pickup $2, * Caution: Small sample size Note: Numbers may not add up to total due to rounding Expected Fuel Econom y (MPG) of Segm ent Prim arily Considered (Avg) Additional Fuel Economy (MPG) Expected from a Clean Diesel Version of Segment Primarily Considered (Avg)

19 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% Hybrid 9.5% Diesel 8.1% Flex 10.0% Electric 0.90% Gas 86.0% Gas 74.0% Gas 71.5% 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

20 Global Hybrid/EV Sales Millions IC only Hybrid/EV Share % 7% 6% 5% 4% 3% 2% 1% 0% 20

21 Global Hybrid/EV Sales by Region Millions 6,000 Asia-Pacific North America Europe Big 5 Europe Other 5,000 4,000 3,000 2,000 1,

22 Global Hybrid/EV Sales by Type Millions 6,000 BEV EREV FCEV FHEV MHEV PHEV 5,000 4,000 3,000 2,000 1,

23 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 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 Sales 500, , , , , , , , ,000 50,000 - BEV MHEV FCEV EREV PHEV FHEV LV Share Share 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 23

24 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, Cumulative global sales exceeded 2.68 million. The plug-in market should approach 60,000 units by 2015 and 100,000 by HYBRID/EV OUTLOOK Sales 1,000, , , , , , , , , ,000 - FHEV PHEV EREV MHEV FCEV BEV LV Share % 20% 15% 10% 5% 0% Share 24

25 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

26 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 Hybrid and PHEV sales grow from 728,000 units in 2009 to 2.8mn in 2015 and 3.9mn in 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 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 Asia will account for 32% in 2015 and 33% in 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: 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 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