Key drivers... 8 Fuel economy and CO 2

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1 Contents Key drivers... 8 Fuel economy and CO 2 emissions... 8 The United States... 8 The European Union... 9 Japan China Other countries Criterion emissions Diesel Soot Particulate Matters Nitrogen oxides (NOx) Europe Source: DieselNet...17 The United States...17 Japan Other countries Medium- and heavy-duty vehicles Testing regimes Platinum Group Metals trends Exhaust and Aftertreatment Technology Three-Way Catalytic converter (TWC) Diesel oxidation catalyst Exhaust Gas Re-circulation (EGR) NOx reduction Selective catalytic reduction (SCR) Lean NOx trap or NOx adsorber catalyst (NAC) CRT Process Particulate reduction Particulate filters Combined particulate and NOx aftertreatment systems Catalyst Poisoning The SCR versus EGR debate SCR plus EGR for Euro Acoustic management Exhaust heat recovery systems Thermoelectric generators The Exhaust and Aftertreatment Systems Market The OEM market The Aftermarket Supplier Profiles Bienes Turgon Bosal Boysen Calsonic Kansei IHS Automotive SupplierBusiness COPYRIGHT NOTICE AND LEGAL DISCLAIMER 2013 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For more information, please contact IHS at customercare@ihs.com, IHS CARE (from North American locations), or +44 (0) (from outside North America). All products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners edition IHS

2 Eberspächer Emitec Faurecia Futaba Johnson Matthey KSPG Magneti Marelli Sichuan Bohong Group Tenneco Umicore Wahler Verwaltungsgesellschaft mbh Figures Figure 1: Emissions regulation promulgation from different source jurisdictions... 5 Figure 2: The progress of emissions regulations across major markets... 6 Figure 3: Tenneco s technology road map for exhaust systems... 7 Figure 4: Global CO 2 (g/km) progress normalised to NEDC test cycle... 8 Figure 5: CO2 (g/km) performance and standards in the EU new cars Figure 6: Fuel economy standards to 2015 for selected countries (US mpg) Figure 7: Comparison of different fuel efficiency regulations and test regimes Figure 8: Global testing procedures and standards Figure 9: CO reductions in the EU, Japan and the US, Figure 10: An overview of the role of nitrogen oxides in atmospheric chemistry Figure 11: The structure of particulate matter (PM) Figure 12: Diesel PM reductions in the EU, Japan and the US, Figure 13: NOx reductions in the EU, Japan and the US, Figure 14: Euro 5 and 6 emissions regulation implementation roadmap Figure 15: US Light duty emissions standards Figure 16: Criterion emissions reductions in the EU, the US and Japan, Figure 17: Emissions standards timetable in selected countries, Figure 18: Comparison of different test regimes for EU, US and Japan Figure 19: PGM application suitability mix Figure 20: Price trends for palladium, platinum and rhodium 1993 to Figure 21: Factors affecting overall PGM demand Figure 22: Aggregate PGM demand Figure 23: Eberspächer technology road map for exhaust systems Figure 24: A 2012 exhaust system including emissions control, CO2 reduction and acoustic design Figure 25: Audi A3 aluminium cylinder head with integrated exhaust manifold Figure 26: A comparison of exhaust systems 1975 and Figure 27: The effect of temperature on catalytic converter operation Figure 28: Three-way catalytic converter Figure 29: A close-coupled catalytic converter, close to the engine for faster light-off, with underfloor catalyst and oxygen sensor Figure 30: The effect of fuel-air mixture on catalytic converter operation Figure 31: The construction of an electrically heated TWC Figure 32: The construction of a diesel oxidation catalytic converter Figure 33: Exhaust gas recirculation with cooler Figure 34: A schematic of an advanced EGR system Figure 35: Denso s compact EGR cooler for gasoline engines Figure 36: Selective catalytic reduction schematic Figure 37: Selective catalytic reduction Figure 38: Delphi s on-board reformer edition IHS

3 Figure 39: Faurecia ASDS unit Figure 40: A schematic of Faurecia s ASDS system Figure 41: Lean NOx trap operating modes Figure 42: NOx trap system with ECU control Figure 43: Strategies for the minimisation of PM in GDI engines Figure 44: A schematic of a wall-flow DPF Figure 45: Mercedes Benz E Class DPF Figure 46: Acicular Mulite process effects in DPF substrate Figure 47: Combined NOx reduction and particulate reduction systems Figure 48: Assessment grid for combined NOx reduction and particulate reduction systems Figure 49: Development trends for SCR and LNT technologies Figure 50: A comparison between EGR and SCR technology Figure 51: Eberspächer s ActiveSound technology integrated with an Audi A6 exhaust system Figure 52: Energy distribution and losses Figure 53: Honda Rankine cycle energy recovery system Figure 54: Electrical power requirements for NEDC and actual customer requirements for various vehicle classes Figure 55: BMW Turbostreamer technology on test and in-situ Figure 56: BMW s combined EGR TEG unit Figure 57: A systematic diagram of a TE module Figure 58: Skutterudite structures Figure 59: Thermoelectric materials development Figure 60: Global gasoline and diesel production forecast to Figure 61: Global gasoline and diesel production forecast by region to Figure 62: Forecast DPF market for light vehicles to Figure 63: Exhaust and aftertreatment market for light vehicles value to Figure 64: Exhaust and aftertreatment market for light vehicles value by region to Tables Table 1: Euro emissions limits for light positive ignition (gasoline) vehicles (g/km) Table 2: Euro emissions limits for light compression ignition (diesel) vehicles (g/km) Table 3: Monitoring requirements of California OBD systems Table 4: Japan emissions limits for light gasoline & LPG vehicles (g/km) Table 5: Japan emissions limits for light diesel vehicles (g/km) Table 6: Chinese emissions standards for light duty vehicles Table 7: Emissions control strategies Table 8: Reactions in a three- way catalytic converter Table 9: Cost comparison EGR vs SCR in Europe edition IHS

4 Introduction The exhaust and aftertreatment sector has grown considerably from beginnings which sought to control hydrocarbons (HC) and carbon monoxide (CO) through the US Clean Air Act introduced in California in the early 1970s. From this has evolved a highly complex set of technologies that seek to meet ever-tighter regulations of both criteria and, in the past few years, greenhouse gas emissions. According to a 1997 EPA Report to the US Congress, the first 20 years of Clean Air Act programs, from , led to the prevention in 1990 of: 205,000 premature deaths; 672,000 cases of chronic bronchitis; 21,000 cases of heart disease; 843,000 asthma attacks; 189,000 cardiovascular hospitalisations; 10.4 million lost IQ points in children - from lead reductions; and 18 million child respiratory illnesses. In 1990 the US regulation was revised with bipartisan support from US lawmakers, and from 1990 through to 2008 emissions of six common pollutants fell by 41%. Emissions of volatile organic compounds fell by31%, carbon monoxide fell by 46% and sulphur dioxide by 51%. Figure 1: Emissions regulation promulgation from different source jurisdictions Source: Umicore Lead levels in ambient air are today 92% lower than in 1980, greatly reducing the number of children with IQs below 70 because of dirty air. Analysis by the US EPA shows that in 2010 Clean Air Act fine particles and ozone programmes implemented since the 1990 amendments prevented more than 160,000 premature deaths. In addition, the forecast economic value to the US of the air quality improvements is estimated to reach close to $2 trillion for the year 2020, a value that vastly exceeds the compliance 2013 edition IHS

5 costs and its related programmes in the US. From these beginnings, today technology to reduce criterion emissions is essentially pre-competitive not only in the developed markets but across emerging markets as well. However, an awkward situation has developed that carries an additional cost burden for the industry, where different national and regional regulation and testing regimes have meant that different technologies and systems have been needed to satisfy disparate markets. This situation is being gradually eroded by the harmonisation of regulations; a measure that can bring long term benefits to the automotive industry. Figure 1 illustrates the position today, where although there are still three distinct bodies of regulation operating, EU and EU inspired regulation standards are the most widespread. Figure 2: The progress of emissions regulations across major markets Source: IHS Automotive Having initially endured the difficult situation of meeting standards developed across three different markets (the US, the European Union and Japan) OEMs and suppliers have found that emerging markets have largely been able to pick their regulation off the shelf. This has mainly been the Euro regulation system. This has also meant that OEMs and the supply base that have successfully developed technology to meet regulation enjoy a competitive advantage in emerging markets in this respect. Today the additional factor of reducing greenhouse gas emissions, and particularly CO 2 emissions through improving fuel efficiency, has begun to have a very significant influence over the exhaust and aftertreatment sector. Around two-thirds of the energy contained in fuel is dissipated as heat, a large proportion of this through the exhaust system. Therefore there are considerable gains to be made in harnessing this energy, particularly in terms of its conversion to electricity, as modern vehicles utilise increasing electrical power (see Exhaust heat recovery systems on page 74). Exhaust and aftertreatment suppliers have had a difficult time over the past few years, which have resulted in structural changes in the sector. The technology development is largely based in a pre-competitive market and therefore competition is ultimately cost-based rather than having a differentiative element where cost can be passed down the value chain to the consumer. In addition the depressed vehicle market between 2008 and 2012 ultimately lowered volumes and the increased use of more robust materials, such as stainless steel, has heavily impacted on the once lucrative aftermarket. Furthermore, raw materials prices, such as those for steel and platinum group metals (PGMs), have impacted on the underlying cost base of the sector at the same time as the market has become more fragmented, with model proliferation, shorter product lifecycles and more demanding technology. Estimates from a number of commentators have concluded that the overall costs for exhaust and aftertreatment systems will make up more than 5% of the total light vehicle costs for diesel engines and approaching this amount for gasoline by This is compares to an estimate of 0.5% for light vehicles in More stringent criterion and greenhouse gas emission regulations have required considerable innovation, which continues to cause considerable cost pressure on the suppliers despite the increasing sophistication of the technology. However, new developments that can improve fuel efficiency are becoming significant. Suppliers have also been put under considerable pressure to match OEM customer footprints and install production capacity close to new vehicle assembly across the emerging markets of China, India and central and eastern Europe. As with many automotive technology sectors, the supply relationship with OEMs has changed such that suppliers are expected to shoulder more of the research and development cost and risk, and develop the in-house competencies needed 2013 edition IHS