global overview – light vehicle outlook by the almost all growth in russian market during past...

MOSCOW CITY INVESTMENT AGENCY

Automotive market in Russia and Moscow

July 2013

Car sales have grown strongly during past decade

9 15 18

28

47

62

26 35

59

71

0

20

40

60

80

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Market volume, bn USD

1 088 1 290 1 400

1 800

2 410 2 780

1 355

1 780

2 500 2 760

0

500

1 000

1 500

2 000

2 500

3 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Market volume, thousands of units*

Source: AEB, PwC data

+10%

• Over the last three years, the automotive market has been recovering post crisis thanks to government support and strong unfulfilled demand.

• Approx. a third of all foreign cars are sold in the Moscow Region

+20%

*only new car sales

MOSCOW CITY INVESTMENT AGENCY / 2013 2

Light vehicle density


22

83

178

380

282

557

561

762

0 100 200 300 400 500 600 700 800 900

India

China

Brazil

Moscow City

Russia

Poland

Germany

USA

Number of cars per 1000 inhabitants, units

Sales of new cars in Russia in 2012

Source: АЕБ, Автостат, АСМ-Холдинг, PwC

• After several years of intense sales volatility at car market the signs of stabilization emerged

• At 2012 sales of new cars increase by 10% in unit form and by 21% in USD form compared to previous year.

• Russian-made foreign brands were leaders among other types of cars and raise its market share up to 44%.


Sales of new car in 2012, ‘000 units Sales of new car in 2012, bUSD

580

1 215

965

0

400

800

1 200

1 600

Russian Brands Russian-madeForeign Brands

Imported ForeignBrands

6,7

31,2 33,1

0

10

20

30

40

Russian Brands Russian-madeForeign Brands

Imported ForeignBrands

Share of cars sales by price segment


5% 5% 5% 5%

9% 8%

41%

41% 39%

5% 5% 5% 2% 2% 3% 4% 3% 3%

24% 26% 31%

100%

+7%

Other E D

2012

C

SUV

B 27%

31%

2011

28%

35%

2010

27%

38%

New car sales by class

100%

USD 40-70k > USD 70k

9%

USD 30-40k

USD 20-30k

USD 10-20k

< USD 10k

2012

16%

23%

2011

12%

22%

11%

2010

12%

18%

19%

New car sales by price segment

Source: Autostat

• During 2010-2012 the share of more expensive cars (>$20k) exceeded 50% of the market (increase from 40% to 52% over the period).

• The share of SUVs is growing, both in premium segment (all the major premium brands introduced smaller SUVs, e.g. RR Evoque, Audi Q3, BMW X1, etc.) and lower price segment (Renault Duster).

+12%

New Car and LCV sales by brand in Russia in 2012

Source: AEB


Breakdown of market share by brand of new car and LCV in 2012, %

18,3%

7,0% 6,5% 6,4% 5,9% 5,6% 5,2% 5,2% 4,5%

3,4%

32,0%

0,0%

10,0%

20,0%

30,0%

40,0%

Lada Chevrolet Renault KIA Hyundai VW Nissan Toyota Ford Skoda Other

25 top sold models in 1h 2013

Source: AEB


0

20

40

60

80

100 Sales volume in 1H 2013, thousand units

Among the top 10 bestselling models 10 were produced in Russia, 2 of it in Moscow

New car sales in Russia in 5 months of 2013


• In March 2013 the market declined for the first time in the last three years (-3% y-o-y). In April and May the downward dynamics continued (decline by 8% and 12%, respectively).

• In response at the end of June 2013 the Russian government announced the introduction of subsidised loans to support the market (but likely only for cars with the price under 23k US dollars).

Car category* Sales of new cars, thousands of units

5 months 2013 5 months 2012 Change

Domestic brands 202 221 -9%

Locally assembled foreign cars 473 467 +1%

Imported cars 352** 385 -9%

TOTAL 1027* 1073* -4%

*Net of LCV

** PwC estimate

Sources: AEB, Federal Customs Agency, PwC

Passenger car production in Russia

965 1021 982 1013

1105 1069 1175

1296

1472

598

1207

1737

2000

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Passenger car production in Russia, thousands of units


More foreign brand cars produced in Russia than imported

25% 32% 27% 28%

27% 28%

36% 50% 55% 56%

75% 68% 73% 72% 73% 72%

64% 50% 45% 44%

12% 20% 18% 19% 16%

19%

26%

41%

46% 49%

88% 80% 82% 81% 84%

81%

74%

59% 54% 51%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Share of Russian-made foreign brands (in units), %

Share of imported foreign brands (in units), %

Share of Russian-made foreign brands (in monetary terms), %

Share of imported foreign brands (in monetary terms), %

• Almost all growth in Russian market during past 10 years has come from foreign brands.

• From 2011 internally produced foreign brands outperform imported foreign brands in unit terms.

• The share of imported cars in monetary terms is constantly declining.

• We do not expect these trends to change in the medium term.

Market share of foreign brands vs. imported, %

Source: PwC data


Despite short-term fluctuations in the market,

there is long-term growth potential

• Factors having a negative impact on the results of the first 5 months in 2013 tend to be short-term:

─ decline in special offers for cars assembled in 2012 and disappointment of customers with prices for new cars assembled in 2013;

─ uncertainty about prospects of economic situation in Russia and Europe;

─ depreciation of the ruble;

─ high interest rates on car loans;

─ reduced number of working days in May.

Short-term perspective Long-term perspective

USA

France Germany

Japan UK

Italy

Poland

Czech Republic Brazil

Russia (2002)

Russia (2011)

Slovakia

Russia (2025)

China

Ukraine India

0

5

10

15

20

25

30

35

40

45

0 200 400 600 800 1000

new

veh

icle

sale

s p

er

1000 p

eo

ple

vehicles per 1000 people

Car ownership level in different countries

Source: Autostat, PwC estimates


Car sales and production forecast


0

500

1000

1500

2000

2500

3000

3500

4000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Total car sales Total car production

Estimate of total car sales and production in Russia in 2009-2018, ‘000 units

Sources: Autostat, PwC estimates

The introduction in 2005 of the industrial assembly regime has been one of the key drivers of localisation

+1 090

+1 066

Primary market of components for foreign car model assembly


0.3

0.6

1.6

1.2

1.6 1,8

2 2,1 2,2 2,2

0

0,5

1

1,5

2

2,5

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Estimate of production of foreign light vehicle models, millions of units

3,8

11,1

17,3

22,7

29,9 33,4

37,5 39,7

42,0 42,5

0

10

20

30

40

50

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Estimate of the production cost of foreign light vehicle models, USD billion

Precondition: auto components represented 80% of overall cost in 2011-2018.

3,2

9.1

13.8

18.2

23.9 26,7

30,0 31,8

33,6 34,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Volume estimate of the primary market of auto components for foreign car model assembly, USD billion

Source: PwC data

Potential development of a primary market for locally made

auto components for foreign car assembly


1,3 2,1

3,9

6,7

9,2

12,2

15,0

18,0

20,4

0

5

10

15

20

25

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US

D b

illi

on

Localisation by 2018 = 60%

Development scenarios for a primary market of locally made components for assembling foreign cars in Russia

Given the achievement of 60% localisation by 2018, the volume of the primary market for locally made auto components for foreign car assembly could increase 10 times versus 2011.

Source: PwC data

+16,5

Car fleet forecast


Doubling the number of foreign cars by 2018 versus 2011 and, thus, growth of the secondary auto components market

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Total car fleet Foreign car fleet

Estimate of the total number of cars and number of foreign car models in Russia in 1998-2018, millions of units

Sources: Autostat, PwC estimates

• Car fleet of the Moscow region is more than 7mln units

• The share of foreign car models within the total car fleet could triple over the period 2009-2018, which in turn would lead to a corresponding increase in the size of the secondary components market

+8 715

Automotive component market


Sources: Autostat, GAZ Group

14

17 15

18

21 23

25

27

30 31

32 33

9 11

4

11

17

20

23

27

31 33

34 34

0

15

30

45

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Secondary market Primary market

Russian automotive component market, bUSD

+14,1

+10,3

OEM clusters


Production in 2012 (‘000 units)

Kaluga Cluster

Volkswagen, 180

Volvo Trucks Mitsubishi-Peugeot-Citroen, 40

*The list is not exhaustive

Moscow Kaluga

St-Petersburg

Nizhny Novgorod

Kazan

Toliatti

Nizhniy Novgorod Cluster

GAZ-Volkswagen, 111, 6

Samara Cluster

AvtoVAZ-Renault-Nissan, 718 GM-AvtoVAZ, 63

Moscow Cluster

Renault (Avtoframos), 167

MosAutoZIL

United Cluster of St.Petersburg and Leningrad Region

GM, 85 KIA-Hyundai, 244 Ford-Sollers, 108 Nissan, 43 Scania Toyota, 28

Far East Cluster

Sollers, 33 Toyota, 28 Mazda, 3

Kaliningrad Cluster

Avtotor (BMW, GM, KIA), 250

Tatarstan Cluster

Ford-Sollers, 18 Mercedes-Benz- Trucks Vostok Fuso KamAZ, 51

Kaliningrad

Vladivostok

Note: major vehicle manufacturers that do not have production facilities in Russia - Honda, Suzuki, Subaru, Lexus, Volvo, Seat

OES clusters


Kaluga Cluster

Benteler Bosal CIE Automotive Continental Faurecia Fuyao Glass Gestamp Lear Magna Siemens VDO Sitech Visteon

*The list is not exhaustive

Moscow Kaluga

St-Petersburg

Nizhny Novgorod

Kazan

Toliatti

Robert Bosch

Tyco Electronics

Samara Cluster

Delphi Corporation Eberspacher Faurecia Federal Mogul Gestamp Johnson Controls Magna Siemens VDO Tenneco Automotive Woco

Moscow Cluster

Asahi Glass Company BASF Hella IHI Knorr-Bremse Lear Magneti Marelli Michelin

United Cluster of St.Petersburg and Leningrad Region

Asahi Glass Company Doowon Faurecia Gestamp Hyundai Mobis Johnson Controls Lear Magna Nokian Tires NVH Korea Stadco Tenneco Automotive Toyota Boshoku Yura

Yokohama

Nizhniy Novgorod Cluster

Asahi Glass Company Benteler Faurecia Ficosa Johnson Controls Knorr-Bremse Lear Magna Magneti Marelli Michelin Stadco Valeo

Tatarstan Cluster

Cummins Daido Metal Leoni AG Magna Continental AG Stadco Sigit Weigl ZF

Overview of automotive component clusters in Russia

Note: major vehicle manufacturers that do not have production facilities in Russia - Honda, Suzuki, Subaru, Lexus, Volvo, Seat

Renault


1999 2000 1998 2003 2006 2007 2012 2013 2013-2020

Formation of joint venture of Renault with Moscow Government

SKD assembly plant: Renault Megane and Renault 19

Assembly of Clio Symbol

Beginning of construction of CKD assembly plant with production of Renault Logan with $250m of investments

Renault Logan is top seller foreign brand in Russia

Capacity with 60 000 cars

Signing general agreement with Moscow Government on capacity extension to 160 000 vehicles and production of new models

Getting 100% control under Avtoframos.

167 406 cars produced (+19% y-o-y)

Achieving the capacity with 188 000 vehicles

Producing 7 models: Logan, Sandero, Fluence, Duster, Latitude, Koleos, Megane

Investing $700m in procurement of equipment, production extension and assembling new models

Increasing production

at least to 336 000 vehicles

$590m invested in Moscow automobile Industry Largest investor of

Russian automobile industry

Key figures 2013

Personnel

Total 6 000

Manufacturing 4 600

Localization*

Logan & Sandero 74%

Duster 70% *stamped details, bumper, dashboard, seats, glasses, exhaust system, accumulator, chassis, window regulator etc

MosAutoZIL


2012 2015 2014 2013

Conclusion the agreement between Sberbank and Moscow Government

Submission of business plan to Sberbank

Acquisition of Chimex Group, the holder of 166 Agreement

Reaching the agreement with OEM1 on assembling LCV1

OEM2 expressed interest in assembling LCV2

Signing MoU with OEM3 on assembling range of CV

Construction of DKD assembling facility with the capacity of 15 000 LCV per year

Construction of CKD assembling facilities with the

capacity of 50 000 units

per year

Old ZIL medium trucks production volume (units per year)

1992 205 000

2012 2 000

Federal incentives of OEMs: industrial assembly agreements


*Localization = incremental value created in Russia ** 11 OEMs have committed to production of not less than 300 kUnits, the rest have 25 kUnits commitment

Custom duty reduction (3-5%) or exemption on import of automotive component in exchange for investment in construction or modernization of facilities for automotive assembling

Key requirements of 166 Agreement

• Expiration of agreement at 2020

• Commitment of minimal volume production of 300 kUnits (for greenfield) and 350 kUnits (for brownfield) per year

• Creation or modernization of R&D center

• Commitment to produce in Russia not less than 30% of total production of engines/transmissions or not less than 200 000 if production of vehicles exceeds 1 mUnits

• Minimal localization* (greenfield): At 4th year from the date of Agreement inception – 30% At 5th year from the date of Agreement inception – 40% At 6th year from the date of Agreement inception – 60%

• Joint implementation of 166 Agreement by companies of one Group

• Submission of statement once a year

31 OEMs signed the 166 agreement**

Federal incentives of OESs: industrial assembly agreements


*Localization = incremental value created in Russia

Custom duty reduction (3-5%) or exemption on import of automotive component in exchange for localizing production

Key requirements of 566 Agreement

• Localization* rate at 15~45% (depends on the group of component)

• Strict list of technological operations

• Submission of statement once a year

• Commitment to procure of certain components made in Russia

Nearly of 70 OESs signed the 566 agreement

Ways to earn custom duty exemption or reduction


*Localization = incremental value created in Russia

Passing the Agreement between companies within one Group

Cooperation with OEM, holding active 166 Agreement

Industrial cooperation with OES, holding 566 Agreement

Acquisition of company, holding Agreement

Formation on JV with holder of Agreement

Summary


Russian market is volatile, but not more than many

others. The challenge is to focus on future growth

while being ready to respond quickly to short term

market downturns.

Critical mass has been achieved for localization.

Moscow region offers both a huge market and

production opportunities.

There is supportive attitude to automotive investment

in Russia at Federal and Moscow level, as well as

interesting potential partners to talk to.

Thank you!

Leonid Kostroma

Moscow City Government

Moscow City Investment Agency

Strategy Deputy CEO

[email protected]

www.mosinvestagency.com

global overview – light vehicle outlook by the almost all growth in russian market during past...

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