August 5, 2015 Cars 2025: Vol. 2 Solving CO2: Engines, Batteries and Fuel Cells Equity Research Endless powertrain advancement is a boon for suppliers; Aisin Seiki to Buy Regulations drive spending to cut CO2 The automobile industry will require enormous investments over the next decade to meet tighter environmental regulations we expect to take effect in different countries between 2020 and 2025. In this second edition of Cars 2025 we look at technologies that help reduce CO2 and discuss the considerable potential of three: 1) engine thermal efficiency, 2) lithium ion batteries, and 3) fuel cells. Don’t give up on existing engines While electrification is a major theme, we expect 95% of vehicles sold in 2025 will use gasoline or diesel engines for at least part of their power. Increasing thermal efficiency is vital for meeting new standards. This will lift demand for powertrain components that boost efficiency and limit pollutants. We focus on advances in transmissions (Aisin Seiki, up to Buy), the expansion of direct- injection turbochargers (BorgWarner/ Continental), and demand for gasoline particulate filters (NGK Insulators). We see homogeneous charge compression ignition as a powerful solution and we highlight Mazda’s aim to commercialize the world’s first HCCI product. 2017-18 as a turning point for battery We estimate that hybrids (HVs), plug-in hybrid EVs (PHEVs), and EVs will account for 25% of auto sales by 2025 vs. 5% in 2015. The evolution of lithium ion batteries for vehicle electrification is essential and we see 2017-18 as a turning point for cutting battery costs and increasing energy density. Besides Tesla’s Gigafactory (targeting cost reductions of 30-40%) Nissan and LG Chem plan to substantially raise energy density. Fuel cells a nascent, but key presence Furthest out on the horizon are fuel cell vehicles (FCVs) powered by hydrogen rather than carbon. While we forecast FCVs’ share of the overall auto market at just 0.5% (c.400,000 vehicles) in 2025, their role in diversifying energy sources, extending driving distances and meeting California’s zero emission vehicle regulations warrants attention. We focus on the technological innovations in Toyota’s second FCV set for launch around 2020. Kota Yuzawa +81(3)6437-9863 [email protected]Goldman Sachs Japan Co., Ltd. Patrick Archambault, CFA (212) 902-2817 [email protected]Goldman, Sachs & Co. Stefan Burgstaller +44(20)7552-5784 [email protected]Goldman Sachs International Yipeng Yang +86(10)6627-3189 [email protected]Beijing Gao Hua Securities Company Limited Ashik Kurian +44(20)7051-3084 [email protected]Goldman Sachs International Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research
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August 5, 2015
Cars 2025: Vol. 2
Solving CO2: Engines, Batteries and
Fuel Cells Equity Research
Endless powertrain advancement is a boon for suppliers; Aisin Seiki to Buy
Regulations drive spending to cut CO2
The automobile industry will require enormous
investments over the next decade to meet tighter
environmental regulations we expect to take effect
in different countries between 2020 and 2025. In
this second edition of Cars 2025 we look at
technologies that help reduce CO2 and discuss the
considerable potential of three: 1) engine thermal
efficiency, 2) lithium ion batteries, and 3) fuel cells.
Don’t give up on existing engines
While electrification is a major theme, we expect
95% of vehicles sold in 2025 will use gasoline or
diesel engines for at least part of their power.
Increasing thermal efficiency is vital for meeting
new standards. This will lift demand for powertrain
components that boost efficiency and limit
pollutants. We focus on advances in transmissions
(Aisin Seiki, up to Buy), the expansion of direct-
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 2
Contents
Analyst team contributors 2
Executive summary: Fuel efficient technologies for a low-CO2 society 3
Electric Vehicles (EVs): Tesla’s Gigafactory key to EV growth 18
Fuel Cell Vehicles (FCVs): The ultimate eco-car? 25
CO2 regulations: Intermittent tightening of regulations approaching 35
Appendix I: Stocks in focus 43
Appendix II: Tesla valuation methodology 44
Appendix III: Glossary 45
Disclosure Appendix 47
Prices in this report are based on August 3, 2015 closing prices, unless otherwise stated.
Analyst team contributors
Region Analyst Telephone email Region Analyst Telephone emailAutos/Auto parts Autos/Auto parts (Global)Japan Kota Yuzawa +81 (3) 6437 9863 [email protected] USA Patrick Archambault +1 (212) 902 2817 [email protected]
thermal efficiency (see Exhibit 14-15) Automatic transmissions (ATs) are also evolving from 6-speed to 8- and 10-speed models over
the next several years, which should translate into more efficient use of the engine, as with CVTs.
Exhibit 14: CVTs make efficient use of the engine Engine thermal efficiency and transmissions
Exhibit 15: Transition taking place to CVTs and high-speed automatic
transmissions Types of transmissions
Source: Company data.
Source: Company data.
Only a few possess 8+ speed AT technology: Aisin Seiki / ZF set to become even more dominant
The development of automatic transmissions (ATs) has involved the addition of more and more speeds over time. The standard
now is 4- to 6-speed transmissions, but demand for 8- to 10- speed ATs will likely increase as adding one speed generally increases
fuel efficiency by 3%-5%, based on company feedback across the sector. We see the sales weighting of 8- to 10-speed transmissions
rising from 6% in 2015 to 11% in 2020. In addition to transmission makers such as Aisin Seiki and ZF (unlisted), some automakers
also manufacture ATs because they are core powertrain parts. However, Aisin Seiki and ZF lead the field in high-speed
transmissions of over six speeds, and transmission makers are likely to extend their dominance in this space, in our view given the
deep level of technological know-how and significant investment required to produce speeds above the 4/6- speeds automakers can
produce themselves.
On the US front, Ford and GM announced a partnership in 2013 to jointly develop a new automatic 10-speed transmission following
on the success of their joint 6-speed project. The venture appears to be paying dividends with Ford announcing that the new 10
speed AT will go into the Raptor next year for the 2017 model year (a performance version of the F-150 that is lower volume). We
Thermal efficiency distribution
Frequency distributionby powertrain
Engine speed
Torque
Low
CVT
6AT
5AT
High
No. of pedals
Transmission type Features
3 Manual
・Gears are changed manually.・Transmission efficiency is better than with an automatic transmission. Excels in fuel efficiency and power.・Most manual transmissions now have 4-6 speeds. The more speeds, the smoother the gear changes, but the more time spent changing gears.
Automatic
・Gears are changed automatically according to driving conditions.・Most automatic transmissions now consist of a torque converter, auxiliary transmission, and hydraulic control unit.・Adding more speeds makes for a more complicated structure and a larger transmission.
CVT
・In contrast to manual and automatic transmissions, where gears are changed in stages, CVTs change gears continuously using belts, pulleys, and toroidals.・Constant use of the optimal engine speed makes possible greater fuel efficiency and rapid acceleration.
DCT
・Two clutch systems are used, one is connected to a shaft for odd-numbered gears and the other to another shaft for even-numbered gears.・Preparations for gear changes are made by engaging the gear above/below the one currently in use in advance.・There is no time lag when changing gears and the clutch and gear are linked mechanically, making for excellent power transmission efficiency and good fuel efficiency.
2
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 16
think wider adoption within Ford trucks is likely in coming years. While GM has not disclosed its product plans for the-10 speed, IHS
expects it to be fitted into the pickup trucks, and some Cadillac products.
Exhibit 16: 8+ speed transmissions to become more common in 2020 Global transmission forecast
Exhibit 17: Aisin Seiki has the top AT global market share by volume (2014) Global transmission unit ranking (K units)
Source: IHS, Goldman Sachs Global Investment Research.
Source: Company data.
(2) HCCI engine developments set for 2020;
Over the 2020 horizon, we believe HCCI gasoline engines that work through auto-ignition are worthy of attention; European
automakers and Japanese automakers (particularly Mazda) are competing in R&D in this space, which may be capable of reducing
fuel costs by about 30% compared with current models. According to some calculations, the cost burden may be lighter than
electrification of vehicles (including hybrids). Automakers that have been consistently developing diesel engines may be a step
ahead of others in HCCI, given it requires a significant improvement in compression ratio. In any case, HCCI involves a high
technological hurdle. Automakers are seeking to improve engine characteristics, especially in terms of stable engine operation in a
low temperature environment, using different fuels, etc.
Mazda is ahead of others in HCCI engine development
Mazda has a history of cutting investment in power train electrification to prioritize investment in emerging technologies, and of
focusing on improving conventional internal combustion engines. It aims to increase thermal efficiency in HCCI gasoline engines to
Exhibit 26: Japanese/Korean names feature prominently on the list of battery material producers (2013 market share by sales) Makers of key components and materials
Source: Company data and interview, Goldman Sachs Global Investment Research
Cathode Anode Separator Electrolyte
Nichia, 20%
L&F Material,
15%
Umicore, 15%
Toda Industrial,
10%
Nippon Chem,
5%
Tanaka Chem,
5%
Mitsubishi Chem,
5%
Nippon Denko,
3%Others,
22%Hitachi Chem, 30%
BTR, 20%
Mitsubishi Chem, 15%
JFE Chem, 10%
Tokai Carbon,
10%
Nippon Carbon,
5%
Showa Denko,
5%
Kureha, 3% Others,
2%
Asahi Kasei, 30%
Toray, 20%Celgard,
15%
SK Innovation
, 10%
Ube Industries
, 5%
Sumitomo Chem,
5%
Mitsubishi Chem,
5%
Teijin, 3%
Others, 7% Ube
Industries, 20%
Mitsubishi Chem, 20%
Panaxx, 15%
Chell Industries
, 15%
LG Chem, 10%
Fuji Chem, 10%
Central Glass,
8%
Others, 2%
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 25
Fuel Cell Vehicles (FCVs): The ultimate eco-car?
Toyota released the world’s first commercially available FCV, the Mirai, in December 2014. This represented a major step
toward the achievement of a hydrogen-based society. FCVs face many obstacles –cost, infrastructure, and regulatory
reform– that are yet to be overcome but the technology has significant medium-term potential from an energy
diversification and CO2 emission reduction standpoint. We expect FCV sales volumes to start increasing mainly in Japan
and California from 2020 given strong regulatory focus on emissions reduction.
Toyota releases long-awaited mass-production FCV
We think FCVs stand alongside EVs as a technology that could transform automobile internal combustion engines in 10 years.
Gasoline-powered vehicles generate power by burning gasoline, whereas FCVs generate power using hydrogen as fuel and onboard
fuel cells. These vehicles are also known as fuel cell electric vehicles (FCEVs) because they combine elements of EVs to use
generated electricity to drive the motor. Toyota released the Mirai as the world’s first mass-production FCV in December 2014. The
vehicle is priced at ¥7.24 mn (US$60,000), or ¥5.22 mn (US$43,000) after subsidies, which is high compared with ¥4.22 mn
(US$35,000) for the similar class Crown HV. Toyota developed the Mirai using parts from existing models, including the motor and
inverters from the Harrier HV and rechargeable batteries from the Camry, but we think the fuel cells and tank likely increased costs
significantly. FCV consumer awareness is still not high, but governments in Japan, California, Germany, UK, and elsewhere have
taken aggressive stances on their penetration through various regulations and subsidies.
Competitors prepare to follow Toyota’s foray into FCVs
Honda plans to release a mass-production FCV sedan in FY3/16, roughly one year after the Toyota Mirai. Nissan plans to release an
FCV developed jointly with Daimler and Ford in 2017. Volkswagen is also developing an FCV, although the release timing is unclear.
Hyundai released an FCV in 2013, but we estimate that most of these were sold for fleet use rather than to general consumers.
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 26
Exhibit 27: Mirai is still highly priced Comparison of Toyota’s FCV and similar models
Exhibit 28: Other automakers are also planning to release FCVs FCV release plans
Source: Company data.
Source: Company data, Goldman Sachs Global Investment Research.
Nameplate FCV Mirai Crown HV Crown conbustion
Price (¥) 7.24mn 4.22mn 3.64mn
Subsidy (¥) 2.02mn - -
Real price (¥) 5.22mn - -
Vehicle size
Length 4,890mm 4,895mm 4,895mm
Width 1,815mm 1,800mm 1,800mm
Height 1,535mm 1,460mm 1,460mm
Maximum power113kW(motor)
FC stack is 114kW
162kW(motor 105kW)
149kW(engine)
Fuel efficiency ¥7.8/kmHydrogen=¥1,100/kg
¥6.0/kmGasoline ¥130/l
¥12.3/kmGasoline ¥130/l
Model name Launch Note
Toyota Mirai 12/1/2014Price:JPY 7.24mnToyota opened its 5,680 FCV patents for free. Joint development ongoing with BMW.
Honda Sedan FCV FY2015 Joint development ongoing with GM.
Hyundai Tucson based FCV 2013 Massive price down in 2015JPY 16.0mn → JPY 9.0mn
Nissan Unknown 2017 Joint development with Daimler and Ford
Volkswagen Unknown Unknown Obtain a FCV related patent in Canada.
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 27
Exhibit 29: Many Japanese makers contribute to the Mirai Main parts suppliers for the Mirai
Source: Company data.
High-cost FC stack breakthrough if production volume surpasses 50,000 vehicles
We believe the most important factor for FCV penetration is the pace of decline in FCV prices. The fuel-cell stack is the most
expensive part in FCVs, and at a production volume of around 500 vehicles (Toyota’s current production capacity), we estimate the
FC stack would cost c.US$32,000 (around ¥4 mn; per kW cost of US$280 × Mirai stack capacity of 114 kW = US$32,000)
We estimate that an increase in production volume to 50,000 vehicles could lower the FC stack cost to c.US$7,600 (US$66 × 114 kW).
Japan’s government has presented a roadmap for fuel cell system costs that targets a 50% reduction in 2020 compared with 2015. If
this is achieved, we think FCV sales in the Japanese market could accelerate from 2020. We forecast global FCV sales volume of
150,000 vehicles in 2020 and 400,000 vehicles in 2025.
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 28
Exhibit 30: Global FCV penetration in 2020/2025 FCV penetration plans
Exhibit 31: FC costs fall sharply at a production volume of 50,000 vehicles Production volume and cost per kW
Source: New Energy and Industrial Technology Development Organization (NEDO)
Source: New Energy and Industrial Technology Development Organization (NEDO)
Major advances in Toyota’s second generation Prius HV
We wonder if anyone could have accurately forecasted the current sales volume of hybrid vehicles (HVs) 18 years ago, when Toyota
presented the Prius to the world as the first HV in 1997. The model had a strong tailwind from high energy prices, but HVs are now
viewed as a mainstream rather than stopgap technology by the world’s automakers. In particular, we find it interesting that Prius
sales volumes accelerated following the release of the second-generation model in 2003. This suggests that perhaps we should not
focus too much on volumes for the first generation of FCVs, given quality and emphasis on production technology maturity is their
key focus. We think the second generation of FCVs planned for release around 2020 will mark the full start of hydrogen vehicles.
Region Plan/estimate Plan
Japan CY2025E:Total 2mn units 1,000 H2 station. 2,000 cars/station.
US CA CY2017E:53thous units Conducting interviews on ZEV regulation to auto makers3.3mn ZEVs until 2025 in CA+7states
Germany CY2023E:0.5mn units Next National Implementation Plan (Jun. 2013)
England CY2030E:1.6mn units UK H2Mobility project (Apr. 2013)
South Korea CY2020E:0.1mn units Green Growth National Committee (Dec. 2010)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2015E 2020E 2025E
South KoreaEnglandGermanyUS CAJapan
280.33
103.58
66.6854.83
0
50
100
150
200
250
300
0 100,000 200,000 300,000 400,000 500,000 600,000
(USD/kW)
(Production)
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 29
Exhibit 32: Toyota hybrids move to fourth generation in 2015 Evolution of the Toyota Prius
Exhibit 33: Second generation spurred sales Toyota’s hybrid sales
Source: Company data.
Source: Company data.
Hydrogen infrastructure hard to develop, but high operating leverage a positive
We think the development of hydrogen stations is essential for FCV penetration. Hydrogen stations require upfront investment of
¥400-¥500 mn per station (gasoline stations cost ¥100 mn - US$0.8mn), and hydrogen accounts for a full 60% of station-related costs.
JX Holdings (covered by Japan Energy analyst, Shuhei Nakamura) plans to cut hydrogen station investment in half, and seeks to
reduce equipment costs based on examples in Europe. Moreover, station operations are significantly affected by utilization rates.
We estimate that one station would need a sustained customer base of around 2,000 FCVs to achieve profits.
Already 78 hydrogen stations confirmed in Japan; approaching the number needed in 2020
Japan’s government has increased subsidies for hydrogen stations, and targets to have 100 stations in operation by the end of
FY2015 (78 stations are already confirmed). We estimate that 200,000 FCVs would be needed for all stations to be profitable (2,000
vehicles × 100 stations = 200,000 vehicles), a figure that may be finally reached by around 2020. The creation of a hydrogen-based
society requires ongoing government support to achieve this target.
1st generation(1997)
2nd generation(2003)
3rd generation(2009)
4th generation(2015E)
Engine type 1.5L Atkinson 1.5L Atkinson 1.8L Atkinson Unknown
Engine power 43kW 57kW 73kW Unknown
Motor power 30kW 50kW 60kW Unknown
Voltage 288V 500V 650V Unknown
Battery Ni-MH Ni-MH NI-MH(Prius V uses Li-ion) Unknown
Exhibit 37: CO2 is sometimes produced in the hydrogen production process Well to Wheel CO2 g/km emission comparison
Exhibit 38: Hydrogen production methods and costs vary Hydrogen production methods
Source: Japan Automobile Research Institute (JARI), Ministry of Economy, Trade and Industry (METI), New Energy and Industrial Technology Development Organization (NEDO)
Source: Motor Fan
FCVs only one of the building blocks required to achieve a hydrogen-based society
The release of the Mirai created the impression among some that the transition to FCVs constitutes a shift to a hydrogen-based
society; in fact, FCVs are merely one step towards achieving a hydrogen-based society. Due to its lack of national energy resources,
Japan, in particular, plans to diversify its energy sources and take steps to achieve energy security. Amid poor visibility on the
nuclear power outlook, high expectations for hydrogen power generation as a means of addressing greenhouse gas regulations are
understandable. Japan Petroleum Energy Center estimates surplus hydrogen capacity in Japan to be 8.1 bn normal cubic meters
(Nm3) in 2014, which is enough to fuel 9.2 mn FCVs on our calculations. This suggests that making effective use of surplus energy
in Japan is by itself a sufficiently worthwhile project from an FCV standpoint alone.
Ultimate eco-car requires CO2-free hydrogen development
From a medium-term standpoint, taking into account issues such as further hydrogen cost cuts and CO2-free hydrogen production;
FCVs do not mark the end of the discussion. If the field is broadened to include hydrogen power generation also, attention must be
given to hydrogen production from lignite, transporting hydrogen from overseas, and hydrogen production methods using
hydraulic and solar power.
79
78
14
147
132
95
79
55
0 20 40 60 80 100 120 140 160
FCV(Onsight reforming town gas)
FCV(Insight reforming natural gas)
FCV(alkaline water electrolysis by solar)
Gasoline
Diesel
HV
PHEV
EV
Productionprocess
Prospect of practical use
Production cost(JPY/㎥) Characteristic
By-product hydrogen Steel ✓ 24-32 Production volume is dependent on purpose-grown proudct
Petrochemical ✓ 20 18bn ㎥/yr surplus production in steel and petrochemical industry
Purpose-grown Oil refining ✓ 23-32 Produced in unused spare capacity.
(Existing facility) 4bn ㎥/yr produced by oil refining
Purpose-grown Petro fuel reformer ✓ 31-58 Need additional facility.
(New facility) water electrolysis ✓ 84-136
Future development Photocatalysis × Not yet Still a technology hurdle
IS process × Not yet Cost is unknown.
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 33
Exhibit 39: Japan has sufficient production capacity for 9.2 mn FCVs Japan’s hydrogen production capacity (2014)
Exhibit 40: Hydrogen could be imported for power generation Hydrogen supply/demand
Source: Japan Petroleum Energy Center, Goldman Sachs Global Investment Research
Source: New Energy and Industrial Technology Development Organization (NEDO),Goldman Sachs Global Investment Research
Hydrogen power production raises many issues
From the perspective of energy/environmental policy, our Japan Energy analyst Hiroyuki Sakaida believes the use of hydrogen will
gather real momentum from stage two of the Japanese government’s hydrogen social roadmap (2025-2030).
In stage one, hydrogen is not a satisfactory energy source from the perspective of CO2 reduction because it is primarily made from
fossil fuels (merits stem from the high thermal efficiency of fuel cells). Similarly, hydrogen-driven power generation by gas turbines
has no CO2 reduction merits in stage one, and is rather a stage of technology development for the future.
In stage two, Japan aims to import hydrogen produced overseas. By this time, however, the government expects to be able to use
CO2 made using carbon capture and storage (CCS) technology, which does not release CO2 into the atmosphere. CCS is an
environmentally friendly technology and our team expects hydrogen-driven power generation to be commercialized during this
stage. The government first aims to reduce hydrogen-driven power generation costs (hydrogen fuel costs) to ¥17/kW. However, we
note that this is almost what it costs to generate power at old thermal plants, when crude oil was trading at US$100/bbl, and is quite
high compared with more efficient gas-fired and coal-fired plants. At current oil and gas price levels, some form of political incentive
Type I 50-75miles 2 2Type I.5 75-100miles 2.5 2.5Type II Over 100miles 3 3Type III Over 100miles + Fast refueling* or over 200miles 4 3Type IV Over 200miles + Fast refueling 5 3Type V Over 300miles + Fast refueling 7** 3
* See the chart belowFast refueling requirementsType III Must be capable of replacing 95 miles (UDDS ZEV range) in ≤ 10 minutesType IV Must be capable of replacing 190 miles (UDDS ZEV range) in ≤ 15 minutesType V Must be capable of replacing 285 miles (UDDS ZEV range) in ≤ 15 minutes **9 credits from 2015UDDS:Urban Dynamometer Driving Schedule
Credit
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 42
Exhibit 54: ZEV credits required in 2025 in California Comparison of credits required to comply with regulation
Exhibit 55: FCVs currently qualify for ZEV credits Estimated FCV requirements in California for Toyota and Honda (sales volume)
Source: CEPA, Goldman Sachs Global Investment Research.
Source: CEPA, Goldman Sachs Global Investment Research.
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1,172
1,823
2,474
3,125
3,776
4,427
5,078
5,729
1,845
2,869
3,894
4,919
5,944
6,968
7,993
9,018
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2018 2019 2020 2021 2022 2023 2024 +2025
Honda Toyota
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 43
Appendix I: Stocks in focus
Exhibit 56: Stocks in focus
Powertrain (ICE, EV and FCV)
Note: Market capitalization as of August 3, 2015.
Source: Datastream, Goldman Sachs Global Investment Research.
Company Ticker Region Market Cap.(US$, mn)
ICE advancementEngine management systemDenso 6902.T Japan 43,478 Global No.1 revenue auto parts makers. Toyota has 22% stake.Continental CONG.DE Germany 44,958 High tech auto parts maker. It has high end tire business as well.Keihin 7251.T Japan 1,089 High tech auto parts maker. Honda has 41.3% stake.Hyundai Mobis 012330.KS South Korea 17,325 High tech auto parts maker. Hyundai/Kia are its main customers.Bosch Non-listed Germany - Global No.2 revenue auto parts maker.TurboMitsubishi Heavy 7011.T Japan 17,830 World top 3 turbo charger maker.IHI 7013.T Japan 6,177 World top 5 turbo charger maker.Honeywell HON US 81,850 World top 3 turbo charger maker.BorgWarner BWA US 11,085 World top 3 turbo charger maker.Valeo VLOF.PA France 10,603 Global automotive suplier. Supplies electric super charger.Continental CONG.DE Germany 44,958 Global automotive suplier. Supplies gasoline turbo charger.TransmissionAisin 7259.T Japan 11,375 World top 3 automatic transmission maker. Toyota has 22% stake.ZF Non-listed Germany - World top 3 automatic transmission maker.JATCO Non-listed Japan - Global No.1 CVT maker. Nissan has majority stake.Schaeffler Non-listed Germany - World top 3 automatic transmission maker.Fuel Cell VehicleOEMsToyota 7203.T Japan 226,111 First mass produced FCV producer for retail customers.Honda 7267.T Japan 63,255 Aiming to launch FCV (mass production) in early 2016.Nissan 7201.T Japan 42,816 Aiming to launch FCV (mass production) in 2017.Hyundai 005380.KS South Korea 27,112 Already started FCV fleet sale.Volkswagen VOWG_p.DE Germany 60,146 Aiming to launch FCV (mass production).Hydrogen stationIwatani 8088.T Japan 1,525 Japanese No.1 hydrogen maker. Operates several hydrogen stations in Japan.Taiyo Nippon Sanso 4091.T Japan 5,112 Operates several hydrogen stations in Japan.JX Nippon Oil & Energy 5020.T Japan 10,179 Operates over 40 hydrogen stations in Japan.Electric VehicleBattery packPanasonic 6752.T Japan 28,943 Cosumer Electric maker. Strong in camera, sensors and Li-ion battery. Has a close relationship with Tesla.Tesla TSLA US 32,864 High end EV makers. Aiming to become world biggest Li-ion makers by 2020.GS Yuasa 6674.T Japan 1,638 Japanese Li-ion battery maker. Has JVs with both Honda and Mitsubishi Motors.LG Chem 051910.KS Korea 13,471 One of the largest Li-ion battery manufactureAESC Non-listed Japan - One of the largest Li-ion battery manufacture. Nissan and NEC have majority of stakes.Cathode materialNichia Non-listed Japan - Global No.1 in market share in cathode material. Also famous for LED.Umicore UMI Belgium 4,818 Global top 3 in market shareToda Kogyo 4100.T Japan 170 Global top 5 in market shareNippon Chemical Industrial 4092.T Belgium 155 Global top 5 in market shareTanaka Chemical Corp. 4080.T Japan 74 Global top 5 in market shareMitsubishi Chemical 4188.T Japan 9,743 Global top 5 in market shareAnode materialHitachi Chemical 4217.T Japan 3,718 Global No.1 in market share (30%)Mitsubishi Chemical 4188.T Japan 9,743 Global No.3 in market shareTokai Carbon 5301.T Japan 639 Global No.5 in market shareNippon Carbon 5302.T Japan 358 Global No.5 in market shareShowa Denko 4004.T Japan 1,884 Global No.5 in market shareSeparatorAsahi Kasei 3407.T Japan 10,850 Global No.1 in market share (over 30%)Celgard Non-listed Japan - Affiliate of Polypore (Asahi Kasei announced its acquisition). Global No.3 in market shareToray 3402.T Japan 12,762 Global No.3 in market shareUbe Industries 4208.T Japan 2,022 Top tier in market shareSumitomo Chemical 4005.T Japan 8,895 Top tier in market shareMitsui Chemical 4183.T Japan 3,817 Top tier in market sharePolypore PPO US 2,703 Top tier in market share. Asahi Kasei announced to marger Plypore in February 2015.Electrolyte SolutionUbe Industries 4208.T Japan 2,022 Global No.1 in market share (over 20%)Mitsubishi Chemical 4188.T Japan 9,743 Top tier in market shareLG Chem 051910.KS South Korea 13,471 Top tier in market shareLithium producerSQM SQM Chile 5,035 Global No.1 lithium producer.FMC FMC US 6,471 Holding FMC Lithium as an affiliate, the top tier lithium producer.
Comment
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 44
Appendix II: Tesla valuation methodology
Exhibit 57: TESLA valuation
Key risks are higher/lower pace of Model S demand, FCF, and Gigafactory timing.
Source: Company data, Goldman Sachs Global Investment Research.
Elon as Steve Jobs
Elon as Henry Ford
Elon as the Maytag Repairman
Base case Downside caseProbability Weighted
Disruptive technology iPhone Ford Model TLaundry Appliance/
1 Long range/pure EVs only Downside: -11%2 Consumer durables share based on Ford Model T3 Based on average multilpes applied in 2019 - 2025 4 Based on average of 2019 - 2025 values5 Based on average 2019-2025 future values discounted back at 20%/15% cost of equity during high/low growth periods
Note: upside potential is based off 7/30/2015 closing price
Automotive
August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 45
Appendix III: Glossary
Automatic Transmission (AT): AT is a transmission that that can automatically change gear ratio.
Compression ratio: Ratio of the volume in an internal combustion engine before and after compression. Power increases as the
compression ratio rises, but engine knocking can occur if it is too high.
Continuously variable transmission (CVT): CVT is a transmission that can change seamlessly without a gearshift. CVT limits power
losses and achieves great fuel efficiency as it can continuously change gear ratios.
Diesel particulate filter (DPF): A filter that removes harmful particles from diesel engine exhaust gas.
Dual-clutch transmission (DCT): DCT is a transmission using two separate clutches for odd and even gear sets. Shifts can be
accomplished without interrupting torque distribution to the driven roadwheels by applying the engine's torque to one clutch at the
same time as it is being disconnected from the other clutch.
Electric vehicle (EV): EV is an automobile that runs on a motor with electric power charged from an external source. It is free of
CO2 emissions as it does not use gasoline or other petroleum derivatives. Lithium ion batteries are the mainstream power source
for EVs.
Fuel cell vehicle (FCV): Whereas a gasoline car obtains kinetic energy using an engine to heat the gasoline, an FCV stores
hydrogen as fuel and generates power using a fuel cell installed in the vehicle. Since electricity is used to power the motor, FCVs
have similar properties to electric vehicles (EVs) and are also called FCEVs.
Gigafactory: Tesla’s battery plant currently under construction in Nevada. Panasonic has also invested in this factory.
Gasoline particulate filter (GPF): A filter that removes harmful particles from gasoline engine exhaust gas.
Hybrid vehicle (HV): An HV is an automobile that runs on two power sources: Engine and electric motor(s). HVs largely break down
into three categories based on their drivetrain, namely series, parallel, and power-split. The motor’s support leads to fuel efficiency
improvement during the drive.
Homogenous charge compression ignition (HCCI) engines: Gasoline engines that work through auto-ignition. HCCI engines may be
capable of reducing fuel costs by about 30% compared with current models.
Honeycomb: A common ceramic porous material reminiscent of honeycomb. Its form allows a broader contact area for exhaust gas
and catalyst.
Li-ion battery: A rechargeable battery capable of recharging and discharging as lithium ions migrate between the positive and
negative electrode. Generally lithium metal oxides are used for the positive electrode and carbon material for the negative electrode.
Plug-in hybrid vehicle (PHV): PHV is a type of HV that allows one to charge electricity directly to a storage battery from a residential
power plug. Similar to HVs, PHVs have series and parallel drivetrains. A PHV’s battery volume is larger compared to that of a HV,
but smaller compared to that of an EV. Driving distance for PHVs depends on the battery size.
Selective catalytic reduction (SCR): An after-treatment system that reduces nitrogen oxides (NOx) contained in exhaust gas with a
catalyst. Popular automotive SCRs include urea SCR, which uses ammonia as a reductant agent.
Thermal efficiency: The ratio of heat transformed into mechanical energy (work). The higher the thermal efficiency, the more
efficiently fuel is converted into mechanical energy.
World-Harmonized Light-Duty Vehicles Test Procedure (WLTP): WLTP is a global harmonized standard to test CO2 emissions
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Goldman Sachs Global Investment Research 46
and fuel consumption, and is currently being developed under the Article 29 Working Party (WP29). The procedure will likely provide
results with a more accurate reflection of actual fuel economy relative to unique test procedures currently adopted by each country.
Zero emission vehicle (ZEV) regulations: The emission regulatory framework at the state level in the United States. Regulations
announced by California will exclude hybrids from the ZEV category from 2018 and only include PHEVs, EVs, and FCVs.
Rating and pricing information
Aisin Seiki (N/N, ¥4,785), BorgWarner Inc. (N/N, $48.98), Continental (N/N, €205.25), Mazda Motor (B/N, ¥2,393), NGK Insulators (N/A,
¥3,185), Tesla Motors Inc. (N/N, $259.99) and Valeo (B/N, €121.60). Prices as of August 3, 2015 close.
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Goldman Sachs Global Investment Research 47
Disclosure Appendix
Reg AC
We, Kota Yuzawa, Patrick Archambault, CFA, Stefan Burgstaller, Yipeng Yang and Ashik Kurian, hereby certify that all of the views expressed in this report accurately reflect our personal views about
the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,
returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make
comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on
quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Kota Yuzawa: Japan-Automobiles. Patrick Archambault, CFA: America-Autos & Auto Parts, America-Autos Dealers. Stefan Burgstaller: Europe-Autos & Auto Parts. Yipeng Yang: China Autos. Ashik
Kurian: Europe-Autos & Auto Parts.
America-Autos & Auto Parts: BorgWarner Inc., Dana Holding, Delphi Automotive Plc, Ford Motor Co., General Motors Co., Harley-Davidson Inc., Johnson Controls Inc., Lear Corp., Magna International
Inc., Magna International Inc., Meritor Inc., Metaldyne Performance Group, Tenneco Inc., Tesla Motors Inc., Tower International Inc..
America-Autos Dealers: AutoNation Inc., Group 1 Automotive Inc., Penske Automotive Group, Sonic Automotive Inc..
China Autos: Anhui Jianghuai Automobile Co., Baoxin Auto Group, Brilliance China Automotive, BYD Co., China Harmony New Energy Auto, Chongqing Changan Auto (A), Chongqing Changan Auto
(B), Dongfeng Motor, FAW Car, Fuyao Glass Industry Group (A), Fuyao Glass Industry Group (H), Geely Automobile Holdings, Great Wall Motor Co. (H), Great Wall Motor Co.(A), Guangzhou
Automobile Group, Huayu Automotive Systems, Minth Group, SAIC Motor, Sinotruk (Hong Kong), Weichai Power (A), Weichai Power (H), Weifu High-Technology Group (A), Weifu High-Technology
Group (B), Zhengtong Auto Services Holdings, Zhongsheng Group.
Europe-Autos & Auto Parts: Autoliv Inc., BMW, CNH Industrial, CNH Industrial, Continental, Daimler AG, Faurecia, Fiat Chrysler Automobiles NV, Fiat Chrysler Automobiles NV, GKN, Hella KGaA Hueck,
Michelin, Nokian Renkaat, Peugeot, Pirelli, Porsche, Renault, Valeo, Volkswagen, Volvo.
Nissan Motor, Nissin Kogyo, Stanley Electric, Sumitomo Rubber Industries, Suzuki Motor, Toyota Boshoku, Toyota Industries, Toyota Motor, TS Tech, Unipres, Yamaha Motor.
Company-specific regulatory disclosures
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published research
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
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Goldman Sachs Global Investment Research 48
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 53% 15% 46% 38% 33%
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Goldman Sachs Global Investment Research 49
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August 5, 2015 Global: Automobiles
Goldman Sachs Global Investment Research 50
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