Ukraine as extended production facility for global car and ...strategy-council.com/files/research/en/33.pdf · Ukrainian passenger car market Key figures 2 4% 9,1 mio 1 2 3 Ukrainian

Ukraine as extended production facility for global car and components manufacturers

Elena Chepizhko

Head of Government & External Relations EUROCAR GROUP

2

Global factors that determine the low cost production

LOW COST

PRODUCTION

Low cost of production

YES

High added value:

YES, > 70%

Low logistics costs

YESPresence of own

manufacturing base /

proximity to sources of raw

materials

YES

High level of employment:

YES, 1=6

Integration into global value

chains

Potential

Ukraine can integrate into the global value chains as the “second China” in low cost production.

Global production using high-tech developments and the world's leading “know-how” under Industry 4.0 approachand participation in global value chains

3

Global automotive trends: Ukrainian choices

Alternative 1Global production using the resource base and low-skilled labor

Added value

up to 14%

Alternative 2Ukraine – the second China in lowcost production

Global production using high-tech developments and the world's leading “know-how” under Industry 4.0 approach

Added value

>50%

* World Bank data 2013

4

extended production facilities built under low costproduction principle

Exemplary case

74 factories around the world

37

5

Ukraine as low cost production site

Developers of automotive technologies (OEMs)

Extended production facilities

Germany

FranceUSA

Japan

China

South Korea

Slovakia

Turkey

China

Czech Republic

Romania

Ukraine?

6

Competitive advantages of UkraineLogistics

kilometers of railways

4

18

11

22k.

170 k.

international transport corridors

seaports (including Crimea)

river ports

kilometers of road

7

Competitive advantages of UkraineCosts

Low cost of labor and resources compared to most European countries

0,197

0,134 0,138 0,131

0,088

0,062 0,067

Germany Spain Portugal Slovakia Czech

Republic

Russia Ukraine

0,04

0,034

0,042

0,037

0,032

0,008

0,026

Germany Spain Portugal Slovakia Czech

Republic

Russia Ukraine

2683

1767

1100

833 825 767

220

Germany Spain Portugal Slovakia CzechRepublic

Russia Ukraine

Average monthly salary in industry(EUR)

Natural gas(EUR/KWh)

Electricity(EUR/KWh)

UkraineInvest data

8

Low rates of main taxes compared to most European countries

Competitive advantages of UkraineTaxation level

30

25

30

2119 20

18

Germany Spain Portugal Slovakia Czech

Republic

Russia Ukraine

19

21

23

2021

18

20

Germany Spain Portugal Slovakia Czech

Republic

Russia Ukraine

Germany Spain Portugal Slovakia CzechRepublic

Russia Ukraine

VAT rates(%)

Corporate tax rates(%)

Income tax rates(%)

0-45 19-4514,5-48

19-25

1513

18

UkraineInvest data

0

500

1 000

1 500

2 000

2 500

Germany Czech Republic Slovakia Turkey Ukraine

Labour Overhead Energy

9

Company data, EUROSTAT http://ec.europa.eu/eurostat/

4x lower than in Germany

Competitive advantages of UkraineProduction costs

Estimated costs per 1 fully built vehicle [EUR]

10

Tolling: Duty free components and technologies import

Competitive advantages of UkraineExport opportunity to the EU

Tolling: Fully built up vehicles (assembly, production of components): Duty Free (tolling/ inward processing) Tax Free Free from Quotas and Licensing

EU Ukraine

DCFTA: Duty free export to EU

from 2022

DCFTA: Duty free import from EU

from 2019

11

Incentives for Electric Vehicles

more than

20%decrease of production and import cost for electric vehicles

due to Ukrainian government incentives

excise duty since 2018after 190 EUR0 EUR

0%

0%

import duty since 2016after 10%

VAT since 2018after 20%

Taxation level for electric vehicles in Ukraine in 20181st step

12

Incentives for Electric Vehicles

pension tax up until 2028on purchase of electric vehicles

0%

0%

VAT and import duty up until 2028on import of spare parts for electric vehicles production

excise duty up until 2028on import of bodies (including cabs) for electric vehicles production

Substantial changes expected within 15-years Electric Vehicles Strategy 2nd step

0%profit tax up until 2032for extractors of lithium, manufacturers of batteries and electric vehicles

0%

Relevant bills

№8159 and

№8160 are awaitingconsideration inthe Parliament

passenger car park (2017)

13

Ukrainian passenger car marketKey figures

2

4%

9,1mio 1

2

3

Ukrainian passenger car manufacturer companies (2016 – 2017)

average level of production capacity utilization(2017)

Eurocar PrJSC

SKD (Skoda)

Bogdan Corporation

CKD (Lada, Bogdan, JAC)

ZAZ PJSC

CKD, SKD (ZAZ)

Ukrainian passenger cars manufacturing capacities amount

to 400 k units per year.

14

6 additional working places in supporting industriescumulatively are created by one working place in carproduction

202 cars per thousand people – the number of cars percapita

3 place currently occupies the import of foreign cars indevelopment of negative trade balance of Ukraine

Ukrainian car industryPotential

19,6 years is the average age of car park

0,4%

0,5%

4%

7%

10%

12%

14%

Ukraine

Russia

Poland

Czech Republic

Hungary

Slovakia

Germany

Indicators of the automotive industryWorld vs. Ukraine

15

850,9

470

178,3

159,7

88,5

66,4

7,8

Germany

Russia

Poland

Czech Republic

Hungary

Slovakia

Ukraine

Direct automotive manufacturing employment

(k employers)

4%of the EU’s GDP is the share of the automotive sector

Share in GDP(%)

of the EU employed population is

employed in the automotive sector5,7%

Automotive cluster in the Western Ukraine

16

SlovakiaUkraine

Hungary

Western Ukraine

of the wiring harness for the European automotive industry is produced in Ukraine

75%

Well-known international producers are already here,

that creates the potential for localization of car production

17

Industrial parks - opportunity for high value added production location

Existing preferences:

Already existing facilities and infrastructure

Exemption from a “regional development participation payment”

1

2

Solomonovo Industrial Park – high-techdevelopment and production center, inparticular for automotive industry.

Additional Taxation and Customs preferences upcoming

18

Expansion of global companies to Ukraine

Yazaki-UkraineGroclin-Karpaty

LEONI,Forshner,

ODW Elektrik,Bosch

Jabil

2002 2003 2004 2005 2006 2007 2008 2012 2013 2015 2016 2017

W.E.T. Automotive Ukraine

Kromberg & Schubert Ukraine, Sumitomo Electric Bordnetze

KostalDelphi

Tyco Electronics,Bader

Flextronics

Bader,SE Bordnetze,

Kromberg & Schubert, Fujikura (2 plants),

Prettl Group

LEONI,Bader-Aunde,

Delphi, Fujikura

SEWS Ukraine

Groclin

35plants

>45k

employees

>400mio EUR

investment

19

Skilled labor force

Employees in Ukrainian automotive production

EUROCAR is officially supporting the employment of Ukrainians at VW Group plants and engaged in training and skills matching of

personnel for VW Group

Structure of unemployment by education

State Statistics Service of Ukraine, State Employment Service of Ukraine data

of unemployedUkrainians havehigher education & vocational andtechnical education

80%7.8k.

Ukrainians are involvedin vehicle manufacturing

33k.Ukrainians are involved in electric and electronic equipment for vehicles manufacturing

20

Opportunities for Ukraine

1

2

3

Efficient supply chain

integration due to convenient

logistics

Skilled labor force and lower

(on average) labor costs

compared to European

countries

Government promotion of

electric vehicles and presence

in Ukraine of lithium deposits

used in the manufacture of

batteries for electric vehicles

turning into cost competitive extended production site for global vehicle manufacturers, including those producing electric vehicles.

Using Ukraine can integrate into global value chain,

Eurocar plant video:

Contacts of Eurocar Group :

Tel/fax: +38 (044) 490 10 70, 490 10 80 | Mob.:+380503341438 | E-mail: [email protected] | Elena Chepizhko

Thank you for attention.