Powertrain Strategies to Assist China in Achieving Sustainable Mobility Tianshu Xin Director, Global Technical Research
Presentation Outline Challenges China are Facing Regulatory Driven by Energy and Environmental Concerns How Will China Respond to Future Challenges? Can Diesel Cars Be the Solution in China? Would China Become a Hybridisation Market? How Will Evolving Transmission Technologies Help Fuel Economy? Future Powertrain Study for China Copyright 2008 Global Insight, Inc. 2
2007: Production Growth of 2.35 Million Units in Asia China Again the Main Growth Engine CHINA BRAZIL GERMANY S KOREA INDIA SLOVAKIA SPAIN RUSSIA INDONESIA ARGENTIN UKRAINE TURKEY HUNGARY UNITED IRAN CZECH ITALY POLAND JAPAN Global: 4.08m units; Asia: 2.35m units; China:1.62m units 2007 Production Growth/Decline by Country/Region Strongest Performers Weakest Performers PHILIPPINES VENEZUELA THAILAND FINLAND TAIWAN NETHERLANDS AUSTRIA BELGIUM PORTUGAL MALAYSIA FRANCE UNITED STATES 0 400 800 1200 1600 Change in Vehicle Production (Thousand units) -600-400 -200 0 Change in Vehicle Production (Thousand units) Copyright 2008 Global Insight, Inc. 3
Fastest-growing Market in the World Overtook the United Kingdom and France to become the fourth most significant vehicle market in 2002 Overtook Germany to become the third-largest vehicle market in 2003 Overtook Japan by a very narrow margin to become the second-largest market in 2005 Passenger car sales rose seven-fold between 2001 and 2007 Copyright 2008 Global Insight, Inc. 4
Further Motorization Supported by Low Car Ownership Base and Faster Urbanization 600 500 546 468 Car per 1,000 Population (2006) 439 432 400 300 200 100 0 253 238 36 13. 1 7. 8 GER US UK JPN MY S. KOR TH CHN I N Car ownership per 1000 population still low 70 60 Percent 60. 0 Faster urbanization 60% expected in 2020; More demand for transportation 50 40 30 20 17. 9 26. 4 36. 2 40. 5 41. 8 43. 0 43. 9 44. 9 10 0 1978 1990 2000 2003 2004 2005 2006 2007 2020 Copyright 2008 Global Insight, Inc. 5
Passenger Car Market Development: History and Outlook 14 12 10 8 6 4 2 0 Million 63% 21% 14% 1.4 0.7 0.9 66% 3.3 2.3 2.6 14% 6.4 33% 5.4 24% 4.3 23% CAR SALES (LHS) GROWTH RATE (RHS) 7.1 20% 7.9 8.7 11%11% 10% 10.0 10.510.9 9.5 12.4 12.612.8 11.3 11.812.1 70% 60% 50% 40% 30% 20% 9% 10% 6% 4% 4% 3% 4% 3% 2% 2% 2% 0% 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 Copyright 2008 Global Insight, Inc. 6
What Challenges are We Facing Source: SEPA Traffic Jam Heavy Pollution High House Price Copyright 2008 Global Insight, Inc. 7
BUT We Still Want to Have a Car Copyright 2008 Global Insight, Inc. 8
AND We Want to Have Big Cars As Well Segmentation profile ONLY changed gradually 2007 2013 E, 7% SUV, 7% MPV, 5% A, 9% B, 12% SUV, 9% E, 5% MPV, 8% A, 9% B, 17% D, 15% D, 15% C, 44% C, 36% Copyright 2008 Global Insight, Inc. 9
BUT What If Cheap Oil Dry Up in China Oil Price Gasoline Price 140 1 120 0.9 100 0.8 0.7 80 0.6 60 0.5 US$ Per Barrel US$/L 40 0.4 20 Jan FebMar Apr May JunJul Aug Sept Oct Nov Dec-03 Jan FebMar Apr May JunJul Aug Sept Oct Nov Dec-04 Jan FebMar April May june Jul-05 Mar-06 May-06 2007 2008 0 Copyright 2008 Global Insight, Inc. 10 0.3 0.2
Will There be a Revolution of Powertrain Technologies in China Centre government vs. Local authorities Fuel tax is crucial to consumer attitude towards fuel efficiency Consumption tax accounts for only 6% of gasoline and 3% of diesel retail price at the pump in China Chinese fondness for larger cars is likely to continue in short term due to the government caps on fuel price Not a sustainable growth in the long term Revolutionary Development Market growth will slow down Consumers will demand for more fuel efficient vehicles OEMs will have to develop and offer alternative fuel vehicles Copyright 2008 Global Insight, Inc. 11
Challenges to Achieve Sustainable Growth Environmental Concerns Powertrain Technologies Scarce Oil Resources Consumer Desire Copyright 2008 Global Insight, Inc. 12
Regulatory Driven by Energy and Emission Concerns Sept 2004 EURO II Emission Standard Implementation May 2004 Overloading Restriction Jan 2005 New Official Vehicle Classification System Sustainable Growth can only be achieved with appropriate regulatory guidance April 2005 Issued EURO III & IV Emission Standard Plan Oct 2005 Hybrid Standards Apr 2006 New Consumption Tax 2008-2010 Phase II Fuel Consumption Standard Fuel Tax Euro IV Emission Standard 1994 Auto Industry Policy June 2004 New Auto Industry Policy Oct 2004 Auto Loan Policy April 2005 New Local Content Regulation Auto Distribution Regulation Jul 2005 Phase I Fuel Consumption Standard Dec 2006 New Fuel Price Policy Jun/Jul 2007 National Climate Change Programme Euro III Emission Standard Govern Alternative Fuel vehicle development Copyright 2008 Global Insight, Inc. 13
Appropriate Regulatory Drives More Advanced Powertrain Technology Development 55 Cost kw/l 50 45 40 35 30 Co-operate with AVL Co-operate with FEV Chery ChangAn 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Chery ChangAn Foreign Vehicle JVs Engine Imports Foreign Vehicle JVs & Engine Assembly Acquisition of Technology Design Houses Cooperation & Inhouse Development Reversing Engineering Engine Makers/JVs Technology Know-how Copyright 2008 Global Insight, Inc. 14
Evolution of Powertrain Technologies in China KW/L 60 Gasoline Engine 60 kw/l Gasoline Engine Japan 50 55 40 50 >10 years China 30 45 4 years 20 40 10 35 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Local Engine kw/l Imported Engine kw/l 30 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Japan USA W. Europe World China 000s 5,000 4,500 Automated Transmission Production 100% Diesel Turbo Rate 4,000 3,500 80% 3,000 60% 2,500 2,000 40% 1,500 1,000 CAGR 28% 2.5 Mil Units 20% 500-0.6 Mil Units 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Local production Imported 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NA TC TCI Copyright 2008 Global Insight, Inc. 15
Environmental Concern Drives More Stricter Emission Standards CHINA (2000) CHINA (2004) Beijing/Guangzhou/Shenzhen 2005/2006 Beijing/Shanghai 2008/2009 CHINA (Jul 2010) 50ppm CHINA (Jul 2007) 350ppm EU 5 (Sept 2009) CHINA (2012?) Copyright 2008 Global Insight, Inc. 16
Energy Concern - Scarce Oil Resource in China Oil Production vs Consumption Gasoline Consumption 600 Others 14% Million Tons 500 400 300 200 100 0 1998 1999 2000 2001 2002 2003 2005 2010 2015 Production Consumption Others 77% Automotive 86% Diesel Consumption Automotive 23% Copyright 2008 Global Insight, Inc. 17
Fuel Economy Challenges Become Clearer Weight KVW<=750kg 750kg<KVW<=865kg 865kg<KVW<=980kg 980kg<KVW<=1090kg 1090kg<KVW<=1205kg 1205kg<KVW<=1320kg 1320kg<KVW<=1430kg 1430kg<KVW<=1540kg 1540kg<KVW<=1660kg 1660kg<KVW<=1770kg 1770kg<KVW<=1880kg 1880kg<KVW<=2000kg 2000kg<KVW<=2110kg 2110kg<KVW<=2280kg 2280kg<KVW<=2510kg 2510kg<KVW 1/7/2005 7.2 7.2 7.7 8.3 8.9 9.5 10.1 10.7 11.3 11.9 12.4 12.8 13.2 13.7 14.6 15.5 L/100km 1/1/2008 6.2 6.5 7.0 7.5 8.1 8.6 9.2 9.7 10.2 10.7 11.4 11.5 11.9 12.3 13.1 13.9 CO2 (g/km) 1/1/2008 148 155 167 179 193 205 219 231 243 255 272 274 284 293 313 332 Applicable to both gasoline and DIESEL vehicles VW Jetta 1.6L Gasoline 146 g/km CO 2 1.9L Diesel 123 g/km CO 2 * NEDC Cycle ** Gasoline: 1.0L/ 100 km corresponds to 23.9 grams / km of CO 2 Diesel: 1.0L/ 100 km corresponds to 26.8 grams / km of CO2 Copyright 2008 Global Insight, Inc. 18
Vehicle Fuel Efficiency Standards will Continue to Strengthen with a Focus on CO2 and Emissions USA JAPAN CHINA EUROPE CAFE (Corporate Average Fuel Economy) Classified by weight WITH adoption of CAFE method in a weight class Classified by weight WITHOUT adoption of CAFE method in a weight class NO direct fuel economy legislation Would raise the corporate average fuel economy standard for cars to 35 mpg by 2020, from 27.7 mpg in 2007, and 4% annual increases thereafter Introduced stricter fuel efficiency regulations by 2015 with average 23.5% improvement over 2004 actual value When will the next round of tighter fuel economy standards be (2012/2013)? Since voluntary agreement 2008 target of 140g/km CO2 will NOT be met, the EC is pushing for a binding legislation of 120 g/km CO2 target for 2012 Equivalent CO 2 TARGETS / EXPECTED TARGETS (g/km) 2010: 220 2015: 143 2008: 210-240 2012: 120 2020: 140? 2020: 115? 2020:???? 2020: 95? Copyright 2008 Global Insight, Inc. 19
Global Warming War Declared China s First National Climate Action Plan To cut back its greenhouse gas emissions by 950 million tonnes by 2010, with national energy supply diversification and improved efficiency figuring prominently in the strategy Police Financial incentives on environmental-friendly, small engine size vehicles LONG-WAIT implementation of fuel tax Encourage development of Hybrid and Electric Vehicles Implementation To enforce implementation of Fuel Economy Standard To accelerate development of Diesel Vehicles Copyright 2008 Global Insight, Inc. 20
Can Diesel Cars be the Solution in China Strength 30% fuel efficiency 25% better torque 30% less CO2 emission Mature diesel technology Weakness Higher initial cost 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Fuel Price Opportunity Uncertain market: Dieselisation or Hybridisation? Lack of oil resource Increasing consumer fuel economy awareness Threat Poor customer perception Hybrid technologies No difference on fuel price Poor diesel quality Lack of government s financial support Copyright 2008 Global Insight, Inc. 21
Beyond the Facts: The Best Decision on Diesel is No Decision Oil refinery vs. Auto industry European vs. Japanese vs. American Foreign vehicle manufacturers vs. Domestic vehicle manufacturers 4% 3% Diesel Passenger Cars 2% 1% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Copyright 2008 Global Insight, Inc. 22
Would China Become a Hybridisation Market? Assuming driving at 15k miles per year 14 12 Consumer reluctant to absorb HIGH cost!!! 10 Payback (Years) 8 6 4 2 0 2.0 2.5 3.0 3.5 4.0 $/gallon And about fuel economy improvement, hybrids are significantly more sensitive to the driving cycle compared to diesel Copyright 2008 Global Insight, Inc. 23
Would Stop-Start Technology Be a Feasible Solution % market penetration of new cars 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Benefits NO Emissions when car stops Up to 10% fuel saving in urban driving cycle More than 30% stopping time in urban driving Less expensive system China 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Copyright 2008 Global Insight, Inc. 24
Evolving Transmission Technology Will Lead to Additional Improvements in Fuel Economy DCT is a rising star, which combines a manual s simplicity with an automatic s smoothness 5% 4% 3% 2% 1% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 DCT CVTE AMT Low weight and good fuel efficiency Fun to drive due to its responsiveness Offering competitive pricing through synergies, especially, if manual transmission production facilities are already in place Copyright 2008 Global Insight, Inc. 25
Points to be Taken Away More regulatory guidance will be required in assisting China to achieve sustainable growth Powertrain technologies will play a significant role in reducing fuel consumption and emission Develop your Winning Strategies - Shift the attention from low cost to advanced technologies Copyright 2008 Global Insight, Inc. 26
Future Powertrains For China A New Multiclient Study From Global Insight For Further Discussion: Phil Gott Iping Wong Tom De Vleesschauwer
Questions Are Being Raised What fuels will be available? Will China address the need for a sustainable transportation system by 2025, and if so, what will it look like? What engines will be needed to use those fuels and meet regulatory, market and competitive demand? What powertrain components and systems are needed to support those new engines? Copyright 2008 Global Insight, Inc. 28
Objective: A Mid-Term View Of Light-Vehicle Powertrains In China ca. 2025* Identify and describe the factors that will shape the next generations of light vehicle engines and transmissions in China Vehicle market Consumer expectations Disposable income Current status Based on Powertrain Technology data base Driving forces Regulations Emissions Fuel consumption / CO 2 Government incentives Fuels Types available Quality levels R&D programs underway Government sponsored Academic Industry consortia Forecast the likely response of the Chinese Industry Domestic OEMs Engines by fuel type Overseas JV OEMs Transmissions by type Hybrids, etc. * Separate, detailed draft Table of Contents is available for review Copyright 2008 Global Insight, Inc. 29
Expected Benefits Why Should Someone Buy This? Enables mid and long-range business, research, manufacturing planning Provides understanding of the drivers that provide the impetus for powertrain development in China Presents the expected response of the Chinese industry to Pressures to develop advanced technologies Market demand Export opportunities Identifies business opportunities for suppliers and OEMs Identifies the origin of threats to traditional suppliers in other markets as China develops the capability to export its own technology Interactions with others in the industry at final group presentations Shanghai Europe if demand is sufficient Detroit if demand is sufficient Copyright 2008 Global Insight, Inc. 30
Thank You Tianshu Xin Director, Global Technical Research tianshu.xin@globalinsight.com