Preparing for the Challenge: the Future of Automotive2018 Automotive Workshop | Brazil Automotive BusinessAugust 2017
By Alberto TorrijosAutomotive Practice Leading Partner
Deloitte Mexico
Today’s topics
Automotive Market Overview
Global Automotive Consumer Study
Opportunities & Challenges
Q&A
Survey
© 2017 Deloitte Consulting Group, S.C. - 2 -
AUTOMOTIVE MARKET OVERVIEW
© 2017 Deloitte Consulting Group, S.C. 3
Global Trend For Light VehiclesSlow growth of global automotive industry over 2016-21 to force OEMs to be more cost effective by enhancing supply chain and invest in newer technologies
• Reduced sales tax in China spurred growthover 2012-16
• Pent-up demand in Europe and North Americaadded to the sales growth
• Rolledback of tax relaxations to slow growth in China
• Dried pent-up demand in Europe and the US leading to market maturity and sluggish auto sales.
CAGR (2012-16): 4.3% CAGR (2016-21): 2.8%
Historical Projected
1,4 1,4
3,8 2,54,9 3,611,7 14
15,2 18,1
27,236,4
2012 2016
Middle East & Africa Central & Eastern Europe Latin America
Western Europe North America Asia
Global passenger car sales – by región*(million units 2012-2016)
64.276.0
Global passenger car sales – by región*(million units 2017E-2021F)
78.187.3
1,4 1,7
2,6 3,33,9 4,914 15
18,5 19,6
37,642,9
2017E 2021F
Middle East & Africa Central & Eastern Europe Latin America
Western Europe North America Asia
Source: Charts IHS Automotive
© 2017 Deloitte Consulting Group, S.C.
Challenges Risks Mitigation strategy
4
Increasing regulations, costs, and competition are forcing OEMs to revamp the supplychain, restructure the organization, and forge partnershipsEmerging markets are key to OEMs sustaining success
• Lose competitiveness in keyregions against local players
• Focus on introduction of products and technologies compliant to environmentregulations
• Lose market share• Price wars• Lose market share• Price wars
• Expand horizontally to tap new revenuesources
• Expand product portfolio and introduce regional specific pre}ice-product mix
• Overhaul management structure
• Expand horizontally to tap new revenuesources
• Expand product portfolio and introduce regional specific pre}ice-product mix
• Overhaul management structure
• Lower margins and profitability
• Decline in total shareholder’svalue
• Lower margins and profitability
• Decline in total shareholder’svalue
• Re-structure supply chain for efficientprocurement of raw materials
• Exit from unprofitable markets and divest lossmaking segments
• Use of modular platforms to reduce costs
• Re-structure supply chain for efficientprocurement of raw materials
• Exit from unprofitable markets and divest lossmaking segments
• Use of modular platforms to reduce costs
• Slow realization of returnsimpacting the bottom line
• Slow realization of returnsimpacting the bottom line
• Strategic Partnerships with other OEMs, suppliers and tech players to leverage eachothers core competencies and share costs
• Restructure management for increased focuson new technologies and fast-pace decisión making and reduce go to market time
• Strategic Partnerships with other OEMs, suppliers and tech players to leverage eachothers core competencies and share costs
• Restructure management for increased focuson new technologies and fast-pace decisión making and reduce go to market time
Competition
Rising Input Costs & Capital
Investments
Rising R&D Cost
RegulatoryChallenges
© 2017 Deloitte Consulting Group, S.C. 5
Opportunities from emerging trends
Connected CarsAccording to BI Intelligence, the connected car market is projected to reach 92 million by 2020 at a CAGR of 45% from 2015-2020.
Autonomous VehiclesAccording to IHS, 21 million Autonomous cars are projected to be on a world’s roads by 2035, growingat a CAGR of 43% between 2025-2035.
Electric Vehicles (EVs)According to Bloomberg, electric vehicles sales is projected to reach 41 million by 2040, representing35% of new light duty vehicle sales
Shared MobilityAccording to BCG analysis, ~35 million drivers will use car-sharing services by 2021.
Aut
omot
ive
Meg
atre
nds
© 2017 Deloitte Consulting Group, S.C.
Mexico
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Source: AMIA Mexico & IHS Automotive
1,6
2,0 2,0 2,1
1,5
2,3
2,6
2,9 2,9
3,2 3,4
3,5
2,2
1,2
1,5 1,6 1,7
1,2
1,9
2,1
2,4 2,4 2,6
2,8 2,8
1,8
-
0,5
1,0
1,5
2,0
2,5
3,0
3,5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
Production Exports
Mill
ions
of Veh
icle
s
2009 - 2016 CAGR Production 11.2%Exports 11.2%
Global ProductionMexico | Industry Production and Exports
Forcasted 4.0 million units
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427
523
610655
579 593
227
325
482
644 667
854919
978 978
1.0961.132 1.140
1.1001.026
755820
906988
1.0631.135
1.352
1.604
865
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD
Thou
sand
s of
Veh
icle
s
2009 - 2016 CAGR National Sales 9.8%
Local MarketMexico | National Sales
Source: AMIA Mexico & IHS Automotive
Forcasted1,625 units
© 2017 Deloitte Consulting Group, S.C. 9
Source: AMIA and Deloitte’s industry analysis
IHS Data Base
30% 31% 31% 30%33%
36% 37%
27%29% 28% 29% 26% 25% 24%
18%17% 17%
19% 19% 20% 19%
18% 15% 15% 14% 14% 13% 13%
4% 4% 6% 6% 6% 5% 5%2% 2% 2% 2% 1% 1% 1%1% 1% 1% 1% 1% 1% 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016
Sport
Minivan
Luxury
Pick Up
SUV
Compact
Sub-compact
• Still, as a maturing market, the preferences of the Mexican consumer appear to be shifting from low-cost options (sub-compact) to more equipped, higher-value vehicles.
• With over 60% of the total volume (Sales), the Mexican Auto Industry is heavily oriented towards the “small car” segments (sub-compact & compact).
Mexico Local MarketSales Segment Composition
© 2017 Deloitte Consulting Group, S.C.
Some aspects that the August 2017 renegociations between NAFTA countries involve:
1. It seeks to eliminate unfair subsidies, enhance reciprocal market access, and reduce the trade deficit.
2. It strives to secure commitments not to impose customs duties on digital products (e.g., software, music, video, e-books).
3. It seeks horizontal disciplines regarding transparency.
4. Proposes to eliminate NAFTA Chapter XIX and to remove the exclusion of Canada and Mexico in all U.S. global safeguards under the WTO.
5. Seeks to promote a more assertive use of third country dumping to jointly face unfair competition from others. It requests, as well, the establishment of an early warning import monitoring system for this.
6. Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.
7. Bring the labor provisions into the core of the Agreement rather than in a side agreement.
10
NAFTARenegotiations
© 2017 Deloitte Consulting Group, S.C.
Brazil
© 2017 Deloitte Consulting Group, S.C. 12
Source: ANFAVEA Brazil & IHS Automotive
2009 - 2016 CAGR Production -4.5%
Exports 3.7%
Mill
ions
of Veh
icle
s
Global ProductionBrazil | Industry Production and Exports
2,0 2,0
2,4
2,6 2,62,7
2,6
2,83,0
2,5
2,0
1,8
2,5
2,7
0,60,5 0,5 0,5
0,30,4 0,4 0,4
0,5
0,3 0,30,4
0,6 0,6
-
0,50
1,00
1,50
2,00
2,50
3,00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
Production Exports
Forecasted
© 2017 Deloitte Consulting Group, S.C. 13
Local MarketBrazil | National Sales
Source: ANFAVEA Brazil & IHS Automotive
2009 - 2016 CAGR National Sales -5.5%
Thou
sand
s of
Veh
icle
s
569 535605 600
911
1.135
1.416 1.429
1.605
1.246
1.036
1.2051.318
1.243 1.2161.315
1.440
1.633
2.086
2.341
2.644
2.857 2.902
3.1153.041
2.795
2.123
1.688
2.084
2.250
0
500
1000
1500
2000
2500
3000
Forecasted
© 2017 Deloitte Consulting Group, S.C. 14
Primary agreements:
• Mercorsur entered into force January 2003
• March 2015 Brazil and Mexico reached an agreement to amend the Agreement of Economic Complementation 55 (ACE 55).
• ACE 55: Annual cuotas, tariff free goods and from 2006 auto parts were included.
• Majority of the consumers in Brazil trust traditional car manufacturers the most to bring self-driving technology to market
Trade Agreements Mexico & Brazil
Source: Bloomberg & AMIA Mexico
542.471600.614
720.713
886.776
100000
300000
500000
700000
900000
2013 2014 2015 2016
Imported in Mexico from MERCOSUR(all countries, ~10% Brazilian origin)
137.443
102.828
59.42846.046
0
20000
40000
60000
80000
100000
120000
140000
2013 2014 2015 2016
Exported from Mexico to Brazil
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Global Automotive Consumer Study:Future of Automotive Technologies
© 2017 Deloitte Consulting Group, S.C. 16
• Survey performed since 2009
• Explores consumer interest in advanced vehicle technologies: self-driving technology, advanced safety and powertrain systems, cockpit technologies and more.
• Highlights which technologies consumers desire most and how much they are willing to pay for those features.
• Focuses on six focus countries, the United States, Germany, Japan, South Korea, China, and India, and compares and contrasts consumer sentiment in these markets as a proxy for consumers worldwide.
• It is also performed in Mexico and Brazil (2nd time)
Global Automotive Consumer StudyMethodology
17
Desirability for vehicle automation higher compared to neighboring countries
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 18
Consumers’ desirability for advanced to full self driving vehicle automation is higher in Brazil when compared with US and Canada
61%
74%
52%
47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Basic automation Advanced automation Limited self-driving Full self-driving
US Mexico Canada Brazil
Note: Percentage of respondents who strongly agreed or agreed have been added together.
Consumers’ level of agreement with different automation levels, 2016
Source: 2016 and 2014 global automotive consumer survey, Deloitte.Sample size – [US: N= 1,722 ; Mexico: N= 1,228; Canada: N= 1,220; Brazil: N= 1,232]
Automation that allows the driver to be in complete control with
vehicle performing specific automated tasks
Automation that combines at least two functions such as adaptive
cruise control and lane centering technology
Automation that allows vehicle to take over all driving functions under
certain traffic and environmental conditions
Automation that allows the vehicle to take over all driving functions for
an entire trip
Represents significant difference between Brazil and US and Canada
19
Not only the desirability, but the willingness to pay for advanced vehicle technologies has also decreased since 2014…
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
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20% 18%32% 29%
46%
55%67%
49% 60%
46%
25%15% 19%
11% 8%
Alternative engine Safety Full/partial self drive Connected Cockpit
Not willing to pay anything Up to BRL 1,600 BRL 3,200 or more
Consumers’ least willing to pay for cockpit technologies
BRL 5.951
BRL 1.995
BRL 0
BRL 2.000
BRL 4.000
BRL 6.000
Overall
2014 2016
Average expected price and consumers’ willingness to pay by technology type, 2014 and 2016 (Brazilian Reals)
Source: 2016 and 2014 global automotive consumer survey, Deloitte.Sample sizes – [2014: N= 1,609, 2016: N= 1,250]
Wei
ghte
d av
erag
e pr
ice
(BRL)
Perc
enta
ge o
f co
nsum
ers
will
ing
to p
ay (
2016
) 2,779BRL
2,172BRL
2,194 BRL
1,637BRL
1,192BRL
Willingness to pay has decreased in 2016 compared to 2014
21
But, there is good news for automakers to be found among younger consumers…
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 22
Gen Y/Z consumers as desirable as other generations for various levels of vehicle automation
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
Basicautomation
Advancedautomation
Limited self-driving
Full self-driving
Percentage of consumers who agree or strongly agree with different levels of automation,by generation, 2014 and 2016
Gen Y/Z
Gen X
Pre/boomers
Sample sizes – [2014: Pre/boomers, N= 459; Gen X, N= 292; Gen Y/Z, N= 742] [2016: Pre/Boomers, N= 300; Gen X, N= 292; Gen Y/Z, N= 642]
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
Basicautomation
Advancedautomation
Limited self-driving
Full self-driving
2014 2016
Source: 2016 and 2014 global automotive consumer survey, Deloitte.
Gen Y/Z
Gen X
Pre/boomers
Year of birth for various Generations - Pre/boomers: Before 1964; Gen X:1965-1976; Gen Y/Z:1977 and later
Represents significant difference with Pre/boomers
23
Which technology features do Brazilian consumers find most useful?
Safety…Safety…Safety
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 24
And the forward technologies consumers in Brazil preferIt’s all about safety (and the building blocks of vehicle automation) and fuel efficiency…
Note: Break points for most, moderate and least preferred technologies are derived based on percentage of times a technology is rated the best.Sample size – [N= 1,261]
Rank Technology that… Category
Mos
t U
sefu
l
1 Recognizes objects on road and avoids collision Safety
2 Blocks driver from dangerous driving situations Safety
3 Informs driver of dangerous driving situations Safety
4 Takes steps in medical emergency or accident Safety
5 Enables remote shutdown of stolen vehicle Cyber security
6 Diagnoses and sends maintenance notifications Connectivity
7 Prevents theft by restricting unauthorized access Cyber security
8 Enables usage of alternative fuels Environment
9 Lowers the impact on the environment Environment
10 Prevents hacking into vehicle systems Cyber security
Mod
erat
ely
Use
ful
11 Enables vehicles-to-vehicle and road communication Connectivity
12 Coaches the driver to drive safely Cost efficiency
13 Monitors the physical health of the driver Safety
14 Helps enhance fuel efficiency Fuel efficiency
15 Enables use of advanced lightweight materials Fuel efficiency
16 Automates tasks for comfort and convenience Convenience
25
Consumers in Brazil trust a traditional car manufacturer to bring self-driving technology to market
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 26
Majority of the consumers in Brazil trust traditional car manufacturers more to bring self-driving technology to market
55%
22%
22%
1%
Traditional car manufacturer
Existing technology company
A new company that specializes in autonomousvehicles
Others
45%
Type of company consumers trust the most to bring fully self-driving technology to market
Sample size – [N= 1,259] Represents significant difference with non-traditional car manufacturer
27
Individual safety features rule, but how do consumers feel about fully self-driving vehicles?
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 28
80 percent consumers believe that self-driving cars will be a positive experience and think it will free up their time. More than two-thirds are willing to try them if they have an established safety record and if they are offered by a brand they trust
80%
71%
61%
54%
Travelling in a fully self-driving car will be a positive
experience
A fully self-driving car will freeup my time so I can focus on
other activities
I would trust an autonomouscar to drive for me
Fully self-driving cars will notbe safe
Factors making consumers ride in fully self-driving vehicles
Note: Percentage of respondents who strongly agreed or agreed have been added together
74%
69%
62%
49%
An established track record ofself-driving cars being used on
the streets safely
Vehicle is offered by a brandyou trust
Government regulation /approval of self-driving cars
A friend or neighbor using one
Consumer opinion on fully self-driving vehicles
Note: Percentage of respondents who said ‘significantly more likely’ or ‘more likely’ have been added togetherSample size – [N= 1,173] Sample size – [N= 1,187]
Represents significant differences with other consumer opinions
29
Consumers are also concerned about the safety of their data…
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 30
8 in 10 consumers fear hacking as the biggest threat to data sharing. Majority of consumers would readily share their personal information with car makers if they get significant benefits in return
82%
79%
66%
58%
52%
With my car connected to the outside world, I fear someone hacking into my carand risking my personal safety.
I would share my personal information with the automotive manufacturer or dealerif I get significant benefits from it.
I would share my personal information with commercial third parties if I getsignificant benefits from it.
I would share my personal information with any one as long as I know what I’m sharing and am comfortable sharing it.
I believe personal data generated from my car is safe and secure from hackers.
Consumer opinion on personal data sharing and privacy
Sample size – [N= 1,188]
Note: Percentage of respondents who strongly agreed or agreed have been added together Represents significant differences with other consumer opinions
31
Ride-sharing not a threat for Brazilian car ownership…for now
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 32
64 percent of consumers in Brazil never or rarely use ride-hailing services…
21%
43%
36%
Ride-hailing frequencySample size – [N= 1,261]
Gen Y/Z consumer’s use of ride-sharing services is almost two times that of Pre/boomers
24%
46%
30%
Pre/Boomers
32%
41%
27%
Gen X
43%
42%
15%
Gen Y/Z
Sample sizes – [Pre/Boomers, N= 306; Gen X, N= 296; Gen Y/Z, N= 659]
Rarely At least once a weekNever
Represents significant difference with other options
Represents significant differences with other generations
*Ride-sharing is defined in this study as car sharing services wherein consumers hire a car/driver via the phone, or an app.
2016 Global Automotive Consumer SurveyDeloitte Center for Industry Insights
© 2017 Deloitte Consulting Group, S.C 33
55 percent of consumers who use ride-sharing services, question their need of owning a vehicle in the future
Percentage of consumers who question their future vehicle ownership due to use of ride-sharing services, Brazil, 2016
Sample size – [N= 988]Rest percentage of the consumers haven’t thought about it.
Yes No
Overall
Sample sizes – [Pre/boomers, N= 211; Gen X, N= 216; Gen Y/Z, N= 561] Rest percentage of the consumers in each category haven’t thought about using it.
Gen Y/Z consumers are more likely to question their need to own a vehicle in future, when compared with Gen X and pre/boomers55%
24%
Yes No
40%
50%
62%
31%
25%21%
Pre/Boomers Gen X Gen Y/ZRepresents significant difference with the option “No” Represents significant difference with other generations for the option “Yes”
© 2017 Deloitte Consulting Group, S.C. - 34 -
OPPORTUNITIES & CHALLENGES
© 2017 Deloitte Consulting Group, S.C. 35
Challenges & OpportunitesMexico & Brazil share main opportunity areas for the development of the sector
Mexico BrazilTrade AgreementsLabor CostGeographyInfrastructureLocal Market PotentialSkills & ExpertiseEase of Doing BusinessLabor availabilityPolitical Stability
Developed
In process of improvement
In need of improvement
© 2017 Deloitte Consulting Group, S.C. - 36 -
Q&A
© 2017 Deloitte Consulting Group, S.C. - 37 -
Survey
What is your perspective on ridesharing trends?a) I use it as my primary means of transportb) I use it as much as I can on weekends and special events and plan to stay that wayc) I plan on depending on them in the future but use them occasionally for the momentd) I never use it and never will. I don’t see the benefit
What matches best your perspective on self-driving cars?a) I don’t and won’t trust them with my safety and the safety of my datab) I’m expecting to test and adopt them as soon as I canc) I’m open to testing but would consider to adopt them as the technology matures and becomes more “normal”d) I would consider to test it but it would depend on the maker behind it
What is your biggest concern with autonomous cars?a) My safety during the rideb) Data safety and protectionc) Technology deployment and infrastructure
What trend are you most likely to adopt in the near future?a) Ridesharingb) Electric Vehiclesc) Autonomous Vehicles
1
2
3
4
© 2017 Deloitte Consulting Group, S.C. - 38 -
Thank you
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