Views on the Automotive Industry’s DirectionApril 26, 2018

Agenda for Today

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• About Plante Moran and your Speakers

• Future Directions in Automotive

• Impacts of NAFTA (and other trade challenges)

About Plante Moran

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1Cohesive and

experienced team

93Years serving

clients

19Years on

FORTUNE’s list

39,000Professionals

worldwide

100+Staff in our

international offices

2,500+Manufacturing &

distribution clients

Plante Moran Services

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Financial• Audit, review, & compilation• Benefit plan audits• Federal tax• State & local tax• International tax• IFRS conversion & reporting• Forecasts & projections• Internal audit• Interim financial services• Bankruptcy advisory• Financial restructuring &

turnaround• Valuation & investigative

services

Human Capital• Personnel assessment• Leadership development• Organizational strategy• Training & coaching• 401(k) & retirement plan

consulting• Incentive & deferred

compensation• Vendor selection &

management

Operations & Processes• Operational restructuring• Facility analysis &

rationalization• Plant layout & flow• Supply chain management• Program & launch management• Lean inventory management• Process improvement• Supplier risk assessment• Transportation & logistics cost

reduction• Balanced scorecard

Strategy & Global• Strategic planning• Global assessment• Low-cost country sourcing• Supplier development• Engineering consulting• Expatriate contracts• Financial structuring

Technology• ERP system implementation• Technology assessment• Technology selection• Contract negotiations• Security assurance

Transactions• Acquisitions & divestitures (buy

& sell side)• Capital raising• Due diligence (financial,

strategic, & operational)• Corporate real estate (lease,

buy, build, monetize, & sale/leaseback)

Wealth Management• Institutional investment• Insurance services• Investment advisory• Individual tax• Trust

Today’s Team from Plante Moran

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Gifford DaronPartner

Leader of Strategy and Automotive Consulting

Services

Alejandro RodriguezCountry Manager

Mexico

Lou LongoPartner

Leader of Global Services

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2 Mobility

Where is the Automotive Industry Going? Megatrends to Understand

1 Autonomy

3 Electrification

4 Making of the Vehicle

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Autonomous Vehicle TimeframeOver 3 Extended Phases

Current State Phase 1

2017-2020

Build Capability, Test & Validate

Autonomous Technology

Future State Phase 2

2020 - 2025

Launch Geo-Fenced Autonomous

Rideshare Networks and

Private Vehicles

Future State Phase 3

2025-2030+

Full Autonomy beyond Geo-Fences Rideshare Networks, and Private Vehicles

Testing & Validation Geo-Fenced Autonomy Full Autonomy

New York City Geo-Fenced Area With Corridors

Staten Island

Brooklyn JFK

QueensLGAEWR M

anha

ttan

Bronx

Full Autonomy beyond Geo-FencesTesting & Validation in Select Cities

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Mobility’s Future Transportation ModelAutonomous and Shared

TODAY’S Transportation

DRIVE YOURSELF GET DRIVEN

INE

XP

EN

SIV

EE

XP

EN

SIV

E

• Taxi• Chauffeur Services• Rental services

• Ride-hailing (personal)• Ride-hailing (pooled)• P2P Carpooling• Public Transport

• Fleet sharing• P2P car sharing• Private Ownership

AUTONOMOUSLY DRIVEN

TOMORROW'S Transportation

Personal/ PooledTaxi

Public

AutonomousTaxi

PublicAutonomousTransport

Privately Owned

PrivateAutonomy

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-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050

Vehi

cle

Mile

s Tr

avel

ed (B

illio

ns)

U.S. Mobility ProjectionsVehicle Miles Traveled will Drive Production

Private - Autonomous Shared - AutonomousNon AutonomousVehicle Type Key

-

50

100

150

200

250

300

350

2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050

Vehi

cle

Parc

(Mill

ions

)

-

5

10

15

20

25

2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050

Vehi

cle

Sale

s (M

illio

ns)

Vehicle Miles Traveled Vehicle Parc

Annual New Vehicle Sales

• Growth in miles traveled will be driven by autonomous vehicles capturing competitive and untouched markets• Vehicle parc decreases over time due to the increased utilization and efficiency of shared autonomous vehicles • Introduction of autonomy increases annual sales and shifts customer base from private ownership to shared

ownership

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Electrified Vehicle Projections – U.S.Adoption will Accelerate

Model Inputs Factors

Market Dynamics

• Lower fuel and electricity cost• Improving electric infrastructure• EVs available in most vehicle segments

Government Regulations

• CAFE requirements • Government incentives for infrastructure and EV

purchases• 11 States adopting Zero Emissions vehicle

standards

Technology Advances

• Electrification cost becomes comparable to ICE over time

• ICE cost grows due to fuel efficiency requirements

Customer Perception

• Social pressure to reduce emissions• Range anxiety declines with increase battery

efficiency and reduced costsSource: Plante Moran

Mix of electrified powertrains steadily replace internal combustion engines over the next 20 years until cost, regulations and technology advances drive the rapid adoption of battery electric vehicles

EV Model CharacteristicsU.S. EV Model Sales Projections

0

5

10

15

20

25

2017 2022 2027 2032 2037 2042 2047

Veh

icle

Sal

es (M

Uni

ts)

ICE HEV PHEV BEV

Note: Hydrogen fuel cell propulsion technologies did not have significant volume in projections, due to uncertain infrastructure for fueling and product costs.

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2025 2015 2025

Electronics and Interiors Separated Electronics Brain and displayin "one infotainmentbox"

Split of Electronics Brain and Display "Multifunction" displays appear

Full black panel effect displays appear. Electronics become seamless, integrated, and beautification parts

Display fully integrated into decorative "Smart Surfaces"

Market trend

2015 2025

2010 2014 2016 2018+

Market trend

2015 2025

Market trendMarket trend

2015

2025+

Market trend

2025+

Augmentedrealityhead-updisplays, displays integrated into doors, center console entertainment systems

Current Technologies FutureTechnologies

Future Mobility Will Impact SuppliersKey Questions Driving Strategic Change• What are the main demand drivers of your company’s products?

• How will factors driving metallic product demand change over the next year? Over the next 5, 10, 20 years?

• How will the metal forming manufacturing process change over the next 5, 10, 20 years?

• Is your Company’s product portfolio structured to adapt to near term changes? Long term future trends ?

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Setting your Organization's DirectionStrategic Planning is Critical – Near and Long Term

“Vision Creation”

Plante Moran’s Strategic Planning Model“Plan and Implement”

NAFTA Update

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NAFTA Update

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Topics for Discussion

• What is NAFTA?• NAFTA and the Trump Administration• NAFTA 2.0• Possible Outcomes• What’s Next?

What is NAFTA?

North American Free Trade Agreement§ A Tri-lateral trade agreement between the Unites States, Canada, and

Mexico§ Entered into force in January 1994§ Created to promote trade between our three nations

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Higher Tariffs

Expensive Goods

Less Trade

Trade Agreement

Cheaper GoodsMore Trade

Lower Tariffs

NAFTA and the Trump Administration

NAFTA Renegotiation§ One of President Trump’s campaign promises§ Main goals of the U.S. are:

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• 23-year-old agreement• Include new sectors such as energy and e-commerce

Updatingthe agreement

• Trade deficit with Mexico has grown significantlyReducing

trade deficit• President Trump has indicated that cheap imports are

responsible for hurting US manufacturers and workers

Bringing backUS manufacturing jobs

NAFTA 2.0

Renegotiation Status§ The original plan was to finalize negotiations before the end of

2017§ Upcoming elections in Mexico and the US are having a great

impact on the renegotiation timeline

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Round 1August 16, 2017

(Washington DC, US)

Round 2September 5, 2017(Mexico City, MX)

Round 3September 23, 2017

(Ottawa, Canada)

Round 4October 11, 2017

(Washington DC, US)

Round 5November 17, 2017(Mexico City, MX)

Round 6January 23, 2018

(Montreal, Canada))

Round 7February 26, 2018(Mexico City, MX)

Round 8 / Permanent RoundONGOING (Started early April 2018)

(Washington DC, US)

NAFTA 2.0

Topics/issues that remain open for negotiation include:§ Rules of Origin

Ø Vehicles currently at 62.5% minimum to be considered NAFTA contentØ US originally proposed to increase to 85%, plus a minimum of 50% U.S. content

§ Introduction of Five-Year Sunset ProvisionØ The agreement would automatically end after five years unless renewed

§ Seasonal Duties and TariffsØ Fruits and vegetables specifically

§ Elimination of Chapter 19Ø Review and dispute settlement in antidumping and countervailing duty matters

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Possible Outcomes

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Scenario #1Minor update

Scenario #2Some changes to

the agreement

Scenario #3US withdrawals

from NAFTA

What could happen?

Possible Outcomes

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Scenario #1 – Minor Update§ Everything stays the same, except for updating certain areas

including:

Ø EnergyØ E-CommerceØ TelecommunicationØ Others

§ This scenario appears extremely unlikely.

Possible Outcomes

Scenario #2 – Some Changes§ Certain changes could be implemented§ Change in “Rules of Origin”

Ø NAFTA content in vehicles changesØ Supply chain disruption / time to implementationØ Would more suppliers manufacture parts in NAFTA or less?Ø Which countries are the most attractive?

§ Seasonality of agricultural imports§ Renewal – not expiration – every 5 years?

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Possible OutcomesRules of Origin

§ Currently at 62.5% NAFTA content§ US original proposal: increase to 85% in addition to a 50% US-specific content

§ Canada’s counter proposal: no comment on % but proposed to expand the definition of North American content to include intellectual property and new technologies

§ US drops 50% US-specific: floats the idea of including wages over US$15 per hour as part of the content of origin calculation methodology

§ US proposes creating as many as five different automotive component categories: % NAFTA content would range from 85% for the most critical (engine, driveshaft, axle, etc.) to lower percentages for less critical components

§ US reduces the number of categories to 3 and lowers the % NAFTA content a maximum of 75%: countries could earn credit towards the threshold if components are manufactured by workers making at least US$15 per hour

§ US introduces a proposal to include a 5% “credit” towards regional value content: this credit would apply for for companies that invest $5 billion in either the US and Canada.

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Possible OutcomesScenario #3 – The U.S. Withdrawals from NAFTA§ Impact on automotive industry§ If the US is no longer a party to NAFTA, the WTO’s Most Favored Nation (MFN)

rules and related duty rates would apply§ For auto parts the average MFN rate is < 1%

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USA

Mexico

WTO Tariff Rate:2.5%

WTO Tariff Rate:25.0%

Light Vehicles

Trucks

Mexico OEM Map

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TOYOTATecate Plant2004

NISSANCivac Plant1966

FORD Hermosillo Plant1986

FORDChihuahua Plant1983 (Engine)

FCAToluca Plant1968

FCASaltillo Plant1995

HONDACelaya Plant2014

HONDAEl Salto Plant1995

GMSilao Plant1992

VOLKSWAGONSilao Plant2013 (Engine)

GMToluca Plant1965

FCARamos Arizpe Plant1981 (Engine)

GMRamos Arizpe Plant1979

GMSan Luis Potosi Plant2008

NISSANAguascalientes Plant1982

MAZDASalamanca Plant2013

NISSANLerma Plant1978

VOLKSWAGENPuebla Plant1964

AUDIPuebla Plant2017

BMWSan Luis Potosi Plant2019

KIAPesqueria Plant2016

FORDCuautitlan Izcalli Plant1964/2010

TOYOTAApaseo Plant2020

Mercedes Benz / InfinitiAguascalientes Plant2019

What’s Next?

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Negotiating teams reach and

Agreement in Principle

Ratification of the agreed changes by

governmental bodies

NAFTA 2.0 is implemented

Thank you.Plante Moran

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