China's E-mobility Drive: Implications for European Automotive Suppliers

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Gwenda Francis
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1 Implementing Partners China's E-mobility Drive: Implications for European Automotive Suppliers Stefan Kracht, Managing Director Fiducia Management Consultants November 2017 A project financed by the European Union

2 Get Ready for China! The EU SME Centre is an EU Commission funded project which helps EU SMEs prepare to do business in China by providing them with a range of information, advice, training and support services. The Centre is implemented by a consortium of six partners and was established in October It successfully completed its first phase in July 2014 and has now entered its second phase which will run until July

3 A project funded by the European Union in 2010 to help European small and medium-sized enterprises (SMEs) get ready to do business in China Implemented by six chambers of commerce Based in Beijing About the EU SME Centre

Speaker biography Stefan leads Fiducia s team of 120 specialists across its four offices and oversees all strategic

He helps international clients achieve their best possible strategic positioning and operational setup in Greater

A Hong Kong-born German national, Stefan began his career with the Otto Group in Hamburg, continuing in Hong Kong and

4 Speaker biography Stefan leads Fiducia s team of 120 specialists across its four offices and oversees all strategic advisory support and outsourced commercial services. He helps international clients achieve their best possible strategic positioning and operational setup in Greater China, drawing from nearly two decades of trade and investment experience in the region. A Hong Kong-born German national, Stefan began his career with the Otto Group in Hamburg, continuing in Hong Kong and Shanghai. After working as a management consultant at Bain & Co. in London, he founded a components and materials trading company in Shanghai. Having sold that business, he joined Fiducia in 2005 and took over leadership in 2012.

5 About Fiducia Made in China 2025 Implications for auto suppliers Product development Value chain Competition MIC 2025 Key Success Factors Agenda

6 About Fiducia

7 Background Our clients benefit from Fiducia s integrated services and long-term approach

8 Made in China 2025

9 Made in China 2025: Background When? Why? Announced in 2015, reflected in 13 th Five Year Plan Industry-specific targets to be reached by 2025 Followed by two plans up to 2049 Slower growth Competition from emerging & developed markets Labour shortage & rising costs Debt & overcapacity in the old economy Green development Who? How? 1. New materials 2. High-speed rail 3. E-mobility 4. Aerospace 5. Robotics 6. Power equipment 7. Agricultural tech 8. Advanced IT 9. Shipping 10. Biopharma & medical Financial support for key industries Reforms and regulations for key industries Purchase of foreign technologies Technology transfer through M&A

10 Made in China 2025: Europe s Exposure 10/31/201730/11/10

11 Made in China 2025: In Context MIC 2025 interacts with other market forces affecting automotive suppliers in China. REGULATORY ENVIRONMENT DEMAND Incentives for volume growth Environmental concerns Urbanisation Rising incomes Consumer preferences SUPPLY New technologies New business models New manufacturing requirements Localisation 1. Product development 2. Value chain 3. Competition

12 Product Development

13 Product Development: Encouraged Categories Encouraged Vehicle Type 2025 Target Encouraged Components 1. 4L Fuel-efficient Reduce average fuel consumption 7L Advanced materials 2. Connected & Autonomous Reduce traffic accidents by 30% Digital systems & smart components 3. New Energy Vehicles Total car sales: 35m NEV ratio: 1/5 Battery technology

14 Product Development: NEVs Pain points Pollution Urban congestion Slower growth Regulatory & market factors Environmental regulations Consumer readiness Made in China E Plug-in sales 330k 507k 2m Plug-in/Total Car Sales 1% 2% 7% Source: MIIT (The Ministry of Industry and Information Technology of the PRC)

15 Product Development: NEVs

16 Product Development: MIC 2025 Implications Win Top PEV Manufacturers, 2016 Lose Conventional car part suppliers Global Market China Market Conventional service providers PEV component suppliers Smart components, connected software & hardware Less affected Interiors, exteriors, chassis, coatings

17 Value Chain

Value Chain: Guidelines and Key Actions Product Development

local R&D investment Take advantage of pro-innovation tax

own and of sub-suppliers Aftersales market & services Continuous

18 Value Chain: Guidelines and Key Actions Product Development Manufacturing Sales & Aftersales Higher R&D investments Increase local R&D investment Take advantage of pro-innovation tax incentives Green manufacturing Ensure environmental compliance: own and of sub-suppliers Aftersales market & services Continuous market research to identify new distribution channels & partners Grow local sales team

Innovative products/services within key industries Proprietary intellectual property 3-5% of total annual revenue

19 Value Chain: Opportunities Monitor policy changes continuously to identify new opportunities. Tax Incentives for High and New Technology Enterprises (HNTEs) Registered resident enterprise for >1 year Innovative products/services within key industries Proprietary intellectual property 3-5% of total annual revenue invested in R&D > 60% of revenue spent on high-tech related operations > 10% of staff dedicated to R&D Standard Corporate Income Tax (CIT): 25%

20 Competition

21 Competition: Objectives & Targets Objectives Upgrading domestic tech capabilities Targets by 2025 (example) Domestic share of NEV market: Increasing domestic market share Creating super-brands (industry consolidation) Domestic share of driver assisted & partially automated cars: Position Chinese players globally 40%

22 Competition: Opportunities For Whom? Global players In China, we will quickly gain sufficient scale to make e-mobility cost effective enough so that it will also be a success in Germany and the US Herbert Diess, VW CEO Local players The Chinese make it clear that they want to be the global champion Joerg Wuttke, former EUCCC President It will be difficult for Chinese EV manufacturers to catch up with large international players Marshall Chen, Fiducia Consulting Manager Draft NEV laws require localisation of the entire R&D process. Foreign carmakers would be forced to hand over 100% of their technology Michael Clauss, German Ambassador to China Innovative foreign enterprises benefit from the direction in which Chinese industry is developing Bernd Siegel, FUCHS China Government regulations are creating hurdles for global battery makers trying to make their way in Christian Hochfeld, Transport Think-Tank Agora

23 MIC 2025 Key Success Factors

24 MIC 2025 Key Success Factors Key building blocks for a Made in China proof strategy. R&D Organisational transformation Policy monitoring Continuous market research New customers Strategic partnerships

25 Thank you!

26 Get Ready for China

27 Follow Us on WeChat Knowledge centre Advice Centre Training Centre SME Advocacy Platform Hot-desking & Meeting Rooms

Second Stakeholders Workshop Brussels, 12 th June China s STI Policies and Framework Conditions

Second Stakeholders Workshop Brussels, 12 th June China s STI Policies and Framework Conditions China s STI Policies and Framework Conditions 1 Contents I. Introduction II. III. STI Policies Framework Conditions for STI in China 2 Contents I. Introduction II. III. STI Policies Framework Conditions