Automotive_China_from_MelchersRaffel

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Automotive Trends in China
Strategic and M&A Implications
for OEM and Parts Suppliers
Hong Kong / Shanghai / Munich, June 2013
Raffel GmbH  80333 München  Tel +49 89 242 086 590  Email info@raffel.eu
© Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential.

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1
Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu
© Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx1
Index
0. Preliminary remarks & Executive Summary 2
1. Market size and growth 5
2. Market structure and competition – Carmakers 14
3. Market structure and competition – Automobile parts manufacturers 26
4. Market structure and competition – Automobile parts sub-sector 31
5. Future challenges & developments 41
6. M&A landscape 45
About MelchersRaffel 53

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© Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx
 This paper intends to share the market landscape overview of automotive industry
in China and our main perspectives on the future development in this sector
 It is also designed to present the huge possible business opportunities but at the
same time, to highlight the key strategic challenges that every company should
watch out when participating in the market
 The data shown in this paper is for reference only to understand the general trend
and competitive environment, whereas some of the numbers being best estimates.
Examples given here are selected for illustrative purpose and should not be
considered as an exhaustive list
 Automotive parts sub-sector information for e.g. plastic parts, electronics, metal
parts etc. are available upon request
 This paper is a brief excerpt. The full document has about 50 to 60 pages.
Preliminary Remarks
2

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Market size and growth
 China is the largest sales and production country for automobiles in the world by far. Sales volume has reached 19.3 million
units in 2012 – which are mainly sold domestically (c.95%)
• China is the leading production base for passenger car and the second one for commercial vehicle, just behind US
 Despite the growth rate may start to slow down in the next few years, China still enjoys a faster growth rate comparing to
other European/Western countries, mainly driven by the increasing per capita income and auto penetration
Market structure and competition – Carmakers
 China automobile is a highly concentrated market which is dominated by the State-owned enterprises (incl. joint-venture with
foreign companies). Typically, a leading auto Chinese company carry more than 1 foreign brand through multiple joint-venture
subsidiaries, in additional to their self-owned brands
 Chinese local car-makers are still in early development stage whereas most of the local self-owned Chinese brands are
competing heavily in the low-end segment while the premium & luxury segments are mostly dominated by the foreign brands.
 Chinese consumers regard fuel consumption, safety and functionality as the most important buying factors for car-purchases,
which may explain why foreign brands are more preferred
 Through joint-venture setup in China, foreign passenger car brands enjoy a large market share, c. 70% of the sales volume;
while the local brands only have c.30%. For commercial vehicles, both bus and truck sub-segments demonstrated high
concentration with 80-90% share dominated by top 6-10 players
 Top German auto brands are quite positive about China, which can be reflected from the heavy investment in China. It is
expected the future growth rate of sales volume in China is about 150% from 2010 to 2020
 Both foreign and Chinese carmakers are expanding their R&D budgets and facilities, indicating the shift in technological and
higher quality focus
Market structure and competition – Automobile parts manufacturers
 Chinese auto parts market has been growing rapidly at c.30% in the past few years, and the top local players have a
comparable size to top German companies
Executive summary – 1/2
3

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Market structure and competition – Automobile parts manufacturers (cont‘)
 In contrast to the carmaker market, Chinese automobile component market is very fragmented with about 30,000 companies
• Each automotive supplier sub-sectors has a unique profile – e.g. plastic parts, electronics, metal parts etc. and have to be
analysed accordingly. For main sub-sectors, the information is available from MelchersRaffel.
Future challenges & developments
 Carmakers: Despite the huge potential and high growth in China, international companies are expecting increasing risk in
policy changes and IP protection, and also more intense competition in the mid-range segment; while the local companies
would have to overcome challenges in capacity management, stronger competition in low-end segment and improving the
local design & branding.
 Automobile parts manufacturers: In order to capture the big pie in China, European parts suppliers have to overcome
challenges in client relationship building, communicating value & being more responsive
M&A landscape
 In the automotive parts market, since foreign companies can set up wholly foreign-owned subsidiaries and hence the M&A
activity is relatively less, but more cases are expected in order to gain faster access to the local critical clients, or else it would
be difficult/ too late once local Chinese companies have improved their production techniques
 Local Chinese auto companies have been very active in M&A deals in the past few years, in both domestic and cross-border
areas. Most of the major deals are driven by local Chinese companies acquiring foreign companies especially component
suppliers for vertical supply chain benefits and gaining knowhow/ technological capabilities, and hence improving quality level.
 In contrast, foreign big auto groups acquiring local Chinese car-maker companies cases are limited due to the protectionism
mentality of the Chinese government
 In near future, M&A deals involving Chinese companies are expected to increase further, mainly driven by improving financial
capabilities of local Chinese carmakers, Increasing industry consolidation and rising priority of higher quality/ technology for
local Chinese carmakers
Executive summary – 2/2
4

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▐Market size and growth

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Currently, China is the largest auto production country and the expected growth rate
in the next few years is faster than other European/Western countries
6
Source: IAPEChina, MelchersRaffel analysis
By 2050 it is estimated auto production in China will have grown to about 40 million units per year.
Urbanization Rate in % - 1980-2030
Auto production forecast for the five worldwide leading manufacturing countries
2010-2015
2010 2013e 2015e
14mn
Units
8mn
9mn
5mn
3mn
19mn
10mn
9mn
6mn
5mn
21mn
10mn
9mn
6mn 6mn
(2050: x2)
Auto production in China vs. Other Countries (incl. commercial car and passenger car)
CAGR:
10-13 11% 8% 0% 6% 19% 5% 0% 0% 0% 10%
CAGR:
13-15

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China is the leading production base for passenger car and enjoys the highest
growth rate at 19% in the past few years
7
15.5
5.4
3.3
8.6
4.1
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
China Germany India Japan USA
2007
2008
2009
2010
2011
2012
Passenger car production by country, 2007 – 2012
Mn units
Mn units
CAGR 07 – 12
19%
-1%
14%
-3%
1%
Source: International Organization of Motor Vehicle Manufacturers; MelchersRaffel research
Passenger car

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China is not only the largest global production site, but it also has a huge growth
potential driven by the increase in car penetration and rising GDP per capita
8
R² = 0.7935
-
10,000
20,000
30,000
40,000
50,000
60,000
- 100 200 300 400 500 600 700
GDP per capita versus passenger cars unit per 1000 people
Source: Worldbank; MelchersRafffel analysis
Passenger
cars unit per
1000 people
GDP per capita, 2010
(current US$)
Australia
Denmark
Sweden
China GDP per capita is
estimated to reach c. USD 50k
by 2050, which implies a 8-10
times increase in penetration
UK
UAE
Singapore
Hong Kong
Spain
Germany
Czech Republic
Greece
Malaysia
S. Korea
Italy
New Zealand
Brazil
Mexico
Russia
Poland
Netherlands
Japan
Austria
Finland
Chile
Turkey
S. Africa
Thailand
China
Morocco
Cambodia
Egypt
Bangladesh
Philippines
India
Sri Lanka
China
by 2050

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Key factors for future trends in China automobile market
Overall the automotive industry in China is expecting to grow further, which is in
particular driven by the political, economic and social developments in China
9
Political
▐ Government is planning to have 2~3 huge players of >3 mn capacity and 4~5 >1.5mn capacity.
▐ Electric vehicles was identified as one of the 7-strategic industries in the government 5-year plan
▐ Lots of subsidies is provided to new energy car,
■ E.g. Shanghai government is offering RMB40k + per new energy car purchase & free license
Economic
Social
Technological
Legal
Environmental
Source: MelchersRaffel research
Growth
impactAspect Key factor
▐ License plates can cost more than the car
■ Shanghai is one of four Chinese cities that limit car purchases by imposing quotas on registrations.
The prices paid at Shanghai’s license auctions in recent months—RMB90k
▐ Pollution control
■ Beijing Environmental Protection Bureau released two sets of Euro VI equivalent emission
standards for heavy-duty trucks and for non-road machineries in Apr 2013
▐ Increasing per capita disposable income is driving passenger car demands since they are more
preferred than buses or other mass transit vehicles
▐ The export of local brand cars to emerging market including Middle East and Africa has large volume
increment in recent two years.
▐ Increasing urbanization leads to higher demand for both commercial and passenger cars
▐ Local Chinese carmakers successfully created electric and hybrid energy saving vehicles
▐ Chinese OEM suppliers can make their own IP protected accessories in parts of the car. e.g. BYD has
the advantage of their lithium battery in the world.
(Replacement)

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▐Market structure and competition – Carmakers

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Top 10 players
87%
Others
13%
At company level, passenger car market in China is highly concentrated whereas top
10 companies have accounted for about 90% share in sales volume, mainly SOEs
11
2%
3%
3%
3%
4%
8%
11%
14%
17%
22%
Great Wall
Chery
Brillance
JAC
GAC
BAIC
Changan
FAW
DongFeng
SAIC
Automobile sales volume market share in China, 2011
% of units
Market share by player by ownership type, 2011
% of units
Central SOE
Provincial SOE
Private enterprise
Total: 18.5mn
Source: CAAM; Bank analyst reports; MelchersRaffel analysis
Passenger car + Commercial vehicle

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Examples – Multi-brand structure of typical Chinese Auto companies
Typical leading local Chinese companies carry multiple foreign brands, in additional
to their self-owned brands
12
Sino-foreign JV
Sino-sino local JV
Local self-owned brand
Dongfeng Nissan
1 2
3 4
Sino-foreign JV
Sino-sino local JV
Local self-owned brand
1
2
3
4
6
5
Due to historical legal limitation, All foreign brands manufactured in China are produced through joint ventures with
Chinese partners. Big Chinese Auto groups usually carry > 1 foreign brand, in additional to their self-owned local brands.
Source: Company website;, MelchersRaffel research
Provincial
SOE
Central
SOE
Passenger car + Commercial vehicle

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Major passenger car brands in China by price segment
Foreign brands are dominating the more high-end & luxury car segments while majority
of the local carmakers are still competing heavily in the mass low price segments
13
> RMB
1.5mn
(>EUR 185k)
Dominated by foreign
brands, in particular
sports car
< RMB 100k
(<EUR 12k)
Mainly local Chinese brands
with lower-quality products
RMB 100k – 500k
(EUR 12k – 62k)
RMB 500k – 1.5mn
(EUR 62k – 185k)
Generalization, not exhaustive
Imported foreign brands/
Foreign-Sino JV brands
Local Chinese auto brands
Mass low-end
Mid-range
Premium
Luxury
Source: Company website;, MelchersRaffel research
Passenger car

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FULL DOCUMENT IS AVAILABLE UPON
REQUEST
Please send an email to rcd@raffel.eu with your name, position and
company name. Thank you for your interest.
14

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This allows the creation of outstanding value for
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MelchersRaffel has offices and access to networks in all relevant Asian
countries
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