ANDREW KIRBY. president: NAAMSA. Challenges facing the auto value chain

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1 ANDREW KIRBY president: NAAMSA Challenges facing the auto value chain

2 Challenges facing the auto value chain Component manufacturers OEM s & Distributors Dealers & Retail 'SA Auto Industry is and will be experiencing the highest level of disruption since 1995' Technology Disruptors Customer Behaviour Changing SA Business Environment

3 Challenges facing the auto value chain Component manufacturers OEM s & Distributors CHallenges Dealers & Retail Respond to Market Changes Optimise Regional Integration Establish Infrastructure as an Enabler Achieve Global Competitiveness Develop an Inclusive Value Chain

4 RESPOND TO MARKET CHANGES

5 RESPONDING TO MARKET 1 CHANGES What is the real market opportunity in SA? 2 South Africa s dual economy 3 To optimise our market potential we need to Respond to global disruptors Respond to changing customers Respond to changes in retail trends How big? How different? What factors?

6 Italy Vehicle Price Brazil South Africa SA MARKET Potential and Motorisation Per 1000 people diverse needs GDP per Capita $6, $9, $31, VEHICLE NEEDS Dual Economy Advanced technology Design No compromise on value Market Potential Affordability Practicality No compromise on styling 2018 F/C Market at Brazil motorisation level Vehicle Size How to provide advanced technology in a market mainly focused on

7 Global disruptors Autonomou s driving Alternative propulsion Connectivity Impact on developed market needs and expectations

8 Global disruptors autonomous driving 80% 70% Autonomo us driving 60% 50% 40% 30% Driven by the need for advanced safety technology 20% Basic automation Advanced automation Limited self-driving Full self-driving GENERATION X PRE-BOOMERS GENERATION Y/Z Market acceptability for automation growing, yet skepticism around SELF-DRIVING TECHNOLOGY remains Source: Deloitte automotive survey

9 Europe Italy South Africa Global disruptors alternative propulsion CURRENT 0.2% 0.6% 99.2% Conventional engines (Petrol / Diesel) Alternative Propulsion 100 BEV HEV BEV HEV BEV HEV Hybrid electric (HEV) Other alternative engines (BEV / FCV) ,240 63, ,47 283,59 286, ,735 3 desired - 39% +70% +45% 83.0% 11.0% 6.0% Cost Govt incentives Infrastructure Range SA is bucking the global trend Source: Deloitte automotive survey acea.be

10 Changing customers Millennials Prefer r i d e s h a ring t o o w n ership. Afrilennials are FOCUSED ON SUCCESS M o s t A R E f i r st -generation m i d dle - c lass a n d a re a c t i vely p l ay ing asset c atch- up. Ownership is key! Afrilennials are PROUDLY AFRICAN Major difference between millennials & Afrilennials

11 Global RETAIL Smart stores TRENDS Hyperpersonalisation Intelligent assistants Remote experts Brick and mortar strikes back Personalising for the segment of one Adding voice to customer interactions Human interaction remains golden Instant fulfillment Virtual & Augmented Reality Application experience Make it a reality Blend Physical with Digital Every transaction and user experience matters... Will influence CUSTOMER EXPECTATIONS OF Source: cisco.com

12 Optimise Regional integration

13 Africa s potential New vehicle sales could reach 2 million in the next 5 10 years. 2,00 1,50 1,11 1,25 1, Need economic growth backed by political and policy stability

14 Opportunit ies 1 Trade measures Eg. Free trade agreements * 2 3 Geographic advantage Products by Africans, for Africans South Africa has potential to be the gateway to Africa

15 * Opportunities Trade Measures EXISTING Being ratified Under discussion Southern African Development Community (SADC) The Tripartite Free Trade Area (TFTA) African Continental Free Trade Area (ACFTA) Current CBU Import Duty Rates: Malawi = 25% Mauritius = 50-75% Mozambique = 20% Zambia = 30% Zimbabwe = 40% Current CBU Import Duty Rates: Egypt = 135% Kenya = 25% Libya = 10% Rwanda = 25% Uganda = 25% Current CBU Import Duty Rates: Algeria = 15-30% Cameroon = 30% Ivory Coast = 22.5% Morocco = % Niger = % South Africa Production Benefit: 100% Duty Free South Africa Production Benefit: To Be Confirmed Africa is open for business South Africa Production Benefit: 20 ~ 100% Duty Free

16 Threat FDI FROM WORLD TOtal CAPEX $92.3bn Market POWERS Capex $bn Country Share 39% 36.1 China 12% 11.0 UAE 5% 4.8 MOROCCO 4% 4.0 ITALY 4% 3.8 SAUDI ARABIA 4% 3.4 UNITED STATES 4% 3.2 SINGAPORE 3% 3.1 JAPAN 3% 2.5 MALASIA 3% 2.5 UK Influence of world powers (esp china) is much bigger than

17 Threat Flood of low-cost (new/used) vehicles from Asia

18 Threat Localisation of motor industry Prod Vol South africa Variance k 599k 590k - 4% Morocco 288k 345k 376k + 31% Algeria 19k 42k 60k + 213% egypt 36k 36k 37k + 2% world total 90.9m 95.1m 97.3m 7% k k k + The number of vehicles produced in Morocco increased 9 times between 2010 and 2017 Regional policies dictating localisation

19 challenges \\\ 1 Compete with emerging competitors and 2 nd hand 2 imports Support the development and access to a larger new car market

20 Establish Infrastructure As an enabler

21 Challenges confronting participants in the Automotive Value Chain 1 Introduction of cleaner fuels 2 Road and rail infrastructure 3 Roadmap for alternative energy source fuels

22 SA and Africa are lagging behind to introduce cleaner fuels Global level above Euro3 Africa below Euro3 1. Regulation framework is required to introduce cleaner fuels 2. Lack of clean fuels restricts adoption of advanced engine technology 3. Cost disadvantage due to diverse market requirements

23 SA road network = 750,000km 154,000km Paved 21% 140,000km Planned for future? Capacity issues: not enough roads and deteriorating infrastructure increasing traffic congestion will retard growth of Motorisation and introduction of Autonomous vehicles

24 Energy Charging stations are expanding however not catering to Consumer dilemma 54% 22% 24% Expectation k m s k m s M o r e t h a n k m s Global standard for charging station Range consumer Workplace: Retail Store: Highways: distribution 1 / 2.5 cars 1 / 20 cars 1 / Km expectation Uncertainty of market growth & Cost will hamper infrastructure development Source: Deloitte automotive survey

25 Rail & port infrastructure COMPETITIVE ADVANTAGE THROUGH IMPROVED STAKEHOLDER ENGAGEMENT 1. Cost Containment 2. Productivity 3. Capacity Improvement MAIn Activities PORT: Berth Deepening RAIL: Move to Rail Increased Visibility Sea & Land Potential to berth 3 vessels per quay with increased cargo capacity Flexible Wagon load configuration solution to allow for greater load optimisation. End to end visibility of key resources enabling reduced cost and risk Make rail & port our competitive advantage

26 Achieve global COMPETITIVEness

27 Total cost of parts ( local & imported ) Total cost of parts ( local & imported ) Relationship localisation vs. parts costs Less developed auto Supply Chain Well developed auto Supply Chain Cost penalty potential Cost reduction potential Switching point Switching point 0% 50% 100% Local Content Thailand in 1980 s, SA Industry now 0% 50% 100% Local Content Thailand & Japan in the 2000 s MATURE INDUSTRY SUPPORTS LOCALISATION

28 Automotive supply chain Image Thailand auto supply chain South africa auto supply chain OEM 1% Tier 1 29% Tier 2/3 70% OEM 5% Tier 1 67% Tier 2/3 28% SA Supply Chain is underdeveloped

29 OEM Reasons for the SA Situation OEMs focused highly on developing & Growing Tier 1 s BUT X Was Not carried down to Tier 2 & 3 Tier 1 Tier 1 X Lack of skill No incentive T1 s tend to engage with each other ** The Automotive Industry is not an attractive market to the typical T2/3 supplier Tier 2 Risk mitigation Global Sourcing Tier 3 Tier 2/3 suppliers need to be

30 Localisation Transformation Conundrum Competitivenes s technology High Investment Lack of skills Global sourcing access Finding the right balance in a low-volume market

31 Way forward IDEAL SA AUTO SUPPLY CHAIN OEM Collaboration 5% Tier 1 45% Tier 2/3 50% Synchronisation Attract Global Suppliers & Technology To be competitive, we need localisation

32 Develop an inclusive value chain

33 Inclusive auto value chain Component manufacturers OEM s & Distributors Scorecard progression ownership Dealers & Retail leadership

34 This is not business as usual! Master plan IS CLEAR 2035 Component manufacturers Government OEM s & Distributors Labour Dealers & Retail Auto industry Then we become a relevant, competitive and Inclusive auto value chain

35 thank you