Financing the Automotive Sector in Emerging Markets …

… in this incredibly fast changing world !

Emmanuel POULIQUEN

Principal Industry Specialist, Energy Efficient Machinery

Global Auto Industries Webinar Series

15 Sept 2011

Japan 2007-2018

8.7- 11.0 M

Korea 2007 - 2018

3.7M - 4.5 M

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•2007 -

8.3M

•2011 -

18.3M

•2018 - 31.9M

•2007 -

21.9M

•2011 - 19.7M

China

•2018 - 26.9M

European

Cluster North

America

•2011 -12.8M

•2007 -

15.0M

•2018 -16.5M

Mercosur

•2007 -

1.9M

•2011 - 3.8M

•2018 -

10.4M

India •2007 –

2.2M

•2011 –

3.8M

•2018 –

6.0M

ASEAN

•2007 –

3.2M

•2011 –

4.6M

•2018 –

5.9M

How fast things go ….11 years analysis …

Source: JD Power 2011

Sub-Saharan

Africa 2007-2018

0.7M- 1M

So China will make 32 M Cars ? Well, you know …

• “… Chinese cars are not American cars ! (and even less

European or Japanese ones !)”

Crash test !

Emissions !

Quality !

Bells and whistles (?)

Efficiency (!?)

• “Anyway, China is still an emerging country for long and they

only make cheap cars for lower income people !”

• … but, well, perhaps we should pay attention a bit more ?

BYD ?

Tibet ?

Africa ?

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China emerging country for long …

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… but should not we look a bit closer ?

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The path to 50 M Chinese Cars per year

• How many cars per year in China in the end ?

• In 2010:

Japanese model: 128.3 M People – 60 M Car Parc – 5 M Light Vehicles Sold

Car Sales = Car Parc (U.S. model: Car Sales = Car Parc / 20)

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China: 1 331.4 M People – 40 M Car Parc

• The Japanese model would give 622 M Car Parc in China 50 M Light

Vehicles Market (U.S. model: 30 M Light Vehicles Market)

• How long will the growth last ?

2003: 2.36 M Cars Sold 2010: 9.6 M Cars Sold CAGR = 22.1% !

At 22.1% growth per year, 50 M Cars yearly sales would be reached in less

than 9 years

… 600 M cars on the Chinese roads by the end of next decade ???

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How fast ? The E-Bikes model

• 2009, China's output of electric bikes (E2W) reached 22.2 M

• 2011, about 120 M e-bikes on Chinese roads, more than 30 M produced

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Not a Chinese Tsunami ! (but …)

• 中国 = Country in the Middle = Self Centric – and pragmatic !

• Not a Japanese or Korean export model

Largest internal market in history

No former American protectorate

• 1980-2000: Get hard currencies to pay for technology

Export whatever you can (From Barbie dolls to TV sets and PCs)

Import technology and business know-how

• 2000-2010: Prime the internal demand era

Grow the industry and expand technical know-how towards hi-tech

• 2011 and later: Internal demand attractiveness beats all markets

Similar to the U.S. from 1900 to 1929 … but 15 times larger

Exports still needed for offsetting raw materials/energy imports

Flows of exports accelerate with Africa and South-America in line with imports

Yuan becomes the reference trade currency for Africans … and others (?)

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In the mean time …

• Confederate Europe expands its cluster to Middle east (500 M consumers

with Oil, Gas, Solar and Nuclear Energy)

North Africa and Turkey complement Eastern Europe as growth centers

Cluster stability around the Euro

Internal cluster industrial exchanges most important

• Astonished America challenged as number one and must turn to frugality

The Illness:

• Hardest hit by inflation of oil and raw materials

• Hardest hit by the diminishing power of the Dollar

• Hardest hit by its national deficit

Cures: Considers “the confederation of NAFTA” - Strengthened Cluster – Open borders

• South-America (Brazil cluster) grows well and learns to love China

• Japan and Korea towards China economic protectorates

• India continues a difficult adolescence and re-explores links with Russia

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Cars: Enough oil for the world ?

Oil prices will keep growing robustly

China can’t afford a petrol/diesel engine model for long term growth

China will be THE driving market for (H)EVs

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Fossil-fuel CO2 emissions, 2007

•World emissions: 30.7 billion tons CO2

Implications – Macro Level • For China:

Control of strategic raw materials sources

• Oil ? Yes, but it’s not the long term solution

• Batteries, permanent magnets: Lithium, rare earths Western China

• Grid electricity: Uranium Western China

• Others: (Copper, Iron, Lead, Nickel, etc …) Africa, Latin America, Australia

“Thrifty” high-tech to save as much energy and material as possible

ICE cars Serial Hybrids, E-Cars – Top-Down and Bottom-Up

E-Bikes E-Micro-Cars (or “Segway-QiChe” ?)

• For developed countries:

Cars downsizing

Some hybrid

Europe, Japan used to smaller cars, dear oil, Nuclear energy Easier adaptation

North-America issues – Lobbies, Driving Distances, “Big and Plentiful” mentality

• For India and Russia:

India comes years after China “first come, first served” natural resources policy in

Africa and South America and could turn to Russia

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Scenario for 2010-2030

• A decade of inflation worldwide (2010-2020)

• 2020: Yuan challenges the USD as the preferred currency for

commodities

• 1 USD = 1 EUR = 2 CNY ?

• Western countries and Japan GDP per head stagnant since 2010

• India “Small Car Hub” for Developed countries

• 2015-2030: Africa economy booming

• Global Industry Growth will stay dynamic – but driven essentially by

Emerged (China) or Emerging Markets

• Boom in Energy management, Electricity Grids, E-Cars supply Chain

• Wind+Solar+Atomkraft ? Ja Bitte ! (or we’ll all suffocate !)

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What does this mean for the Car Industry ?

(… and how can my automotive business survive ?)

• Thrifty, Thrifty, Thrifty (even if you make Ferraris !)

Know your shop floor, look for Muda !

• Serial Hybrids or EVs (small ones preferred)

• Light weighting, compatible with EV architecture

Technology will evolve very fast BUT Quality will still stay paramount !

“Reserved for future use”

• Cluster organization

One Head Quarter in each cluster + Global R&D, Purchasing & Finance

coordination – Strong, empowered China HQ

Looking for Low Cost should be next door ! (Logistics, Currency Zone)

Next door emerging market have still growth potential !

• … and integrate Chinese, Spanish/Portuguese, Arabic and Russian !

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Finance: manage in a wild world

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• Currency fluctuations (not-so-low cost sourcing)

• Market fluctuations

• Accelerate in emerging markets – with the right Banker

Bankers support (Knows east/west/south)

Hands on experience in your trade

Development AND investment banker

Present in all emerging countries

World class understanding of your industry

Long term view

• Promoting efficient products and processes

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• IFC, part of the World Bank Group, is the largest global development

finance institution focused on the private sector – the global leader in

private sector development finance

• We create opportunity for people – to escape poverty and improve

their lives

• Driven by our vision and purpose, we make a unique contribution

to development

• We invest, advise, mobilize capital, and manage assets – providing

solutions for an inclusive and sustainable world

Who We Are, What We Do

Expertise: How we can help • Financial expertise

55+ years focused on sustainable projects financing in emerging markets

• Country expertise

Part of the World Bank - hands on experience in fast growth countries and

access to governments

• Industries expertise (Manufacturing, Infrastructure, Retail, VC )

Unique combination of manufacturing expertise with VC experience

A different VC model …

• Not just technology but scaling up operations

• Higher variable costs (hardware) and higher breakeven points

• Requirement for a global understanding of combined emerging and

developed market

Evolution of grids and automotive energy issues are closely monitored

• Renewables (Wind, Solar, Biomass, …)

• Batteries (Vehicles, Grid storage)

• Inverters, BMS, smart meters, RFID, Billing …

• H-EVs/EVs

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IFC’s Business (What we do) Investment Services

• Loans and intermediary services

• Equity and quasi-equity

• Syndications

• Structured and securitized products

• Risk management products

• Trade finance

• Subnational finance

• Treasury operations

• CleanTech Venture Capital

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IFC Strategic Priorities

• Strengthening the focus on frontier markets – IDA countries,

poorer regions of middle-income countries, conflict affected

and fragile states, and industries with the broadest potential

for development impact

• Building enduring partnerships with emerging market players

• Addressing climate change and ensuring environmental and

social sustainability

• Promoting private sector growth in infrastructure, health,

education, and the food supply chain

• Developing local financial markets

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Combating Climate Change

• The developing world has great

demand for energy, but cannot

afford to increase emissions due

to climate change concerns.

• Solar, wind and other forms of

renewable energy pose great

opportunities for private

investors – if risks can be

overcome.

• IFC invested $1.6 billion in

renewables in fiscal 2010,

a 60 percent increase from

the previous year.

What we can do together (Feature) • Help grow your business overseas in Emerging Markets

• “Neutral Broker” with local partners

Joint-Ventures, Clients, Suppliers

Corporate Governance (JVs)

Transparency

Intellectual Property

Ethics and Social dimensions

• First range knowledge of policies – means to influence

Ex: World Bank report on China New Energy Vehicles program …

… triggering policy support project on EV deployment in WuHan and ShenZhen

Close follow-up from WB shareholders at board level - United States (15.85%),

Japan (6.84%), China. (4.42%), Germany (4%), Britain (3.75%) and France (3.75%).

• Look for win-win cases

Sustainable economic growth effects in emerging countries

Dividends in capital, experience and technology in developed countries

Climate change mitigation

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What can be expected (Benefits)

• Financing solutions not readily available elsewhere in those markets

Long tenor, grace periods

Equity, Quasi Equity

Syndication

Local currency (when regulations allow)

Global facilities

• World Bank stamp of approval

Sustainable development

Corporate image

Credit enhancement

• Industry, Financial and Global expertise sharing

Cross-fertilization

VC / PE partnership approach on a global scale with ethics

Portfolio supervision / follow-up

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Virtuous partnership in the development cycle

A case study Example:

• Core technology and industrial practices from a U.S. company

Core system components from the best of U.S. technology

Patents combined with “secret sauces” in key areas

• Tap into huge potential emerging market (ex: China)

Localize labor intensive, bulky product processes, local deployment

Leverage lessons learned to better U.S. products and operations

Second financing round to expand in

• Other emerging countries (cheap, trimmed down solutions)

• Developed countries (upscale solutions)

• Raised VC (Mezzanine) Quasi-Equity financing from IFC

Co-investor joined IFC benefitting from due diligence and risk mitigation

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Our Vision

That people should have the opportunity

to escape poverty and improve their lives

We foster sustainable economic growth in developing

countries by supporting private sector development,

mobilizing private capital, and providing advisory and risk

mitigation services to businesses and governments.

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• IFC provides more than money

•We blend investment and advice, helping the private sector find solutions

•We spread innovative ideas, mobilizing money for clients from many sources

•As results come in, we influence the policy debate and share our learning for wider impact

Questions ?

Mr. Emmanuel POULIQUEN (普迈新)

Principal Industry Specialist

IFC - Global Manufacturing & Services – Energy Efficient Machinery

Financing production and deployment of equipment that

efficiently generate, store, transport or transform energy

http://www.ifc.org/ifcext/gms.nsf/Content/EEM_Overview

2121 Pennsylvania Ave., NW

Washington, DC 20433

Tel: +1 (202) 473-9114 Fax: +1 (202) 974-4394

Email: EPouliquen@ifc.org

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Appendixes

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Investments by Industry, FY10

Global Financial

Markets 54%

Commitments for IFC’s Account: $12.7 Billion

Global Information and

Communication Technologies 4%

Infrastructure 12%

Subnational

Finance 1%

Health and

Education 3%

Oil, Gas, Mining

and Chemicals 8%

Private Equity and

Investment Funds 3%

Agribusiness 4%

• Global Manufacturing and

Services 11%

• Low emissions Cars, EVs

• Wind, Solar, Grids, Batteries

• Low Emissions Machines

• Other …

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Investments by Region, FY10

Commitments for IFC’s Account: $12.7 Billion

Sub-Saharan Africa 19%

East Asia and Pacific 13%

South Asia 8%

Europe and Central Asia 23%

Latin America and the

Caribbean 24%

Middle East and North Africa 12%

Global 1%

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IFC Financing

* “Mobilization” includes syndicated loans, structured finance, IFC initiatives and other, and IFC Asset Management Company.

IFC’s own account Mobilization* Loan Participants

$20bn

$15bn

$10bn

$5bn

$0

IFC Offers to Clients (What we bring) Unparalleled Expertise

• Knowledge of global industries and local markets

• Financial sector influence

• Long-term partnerships; countercyclical role

• Sustainable investments

• Leadership on corporate governance

• Value-adding expertise

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IFC Offers Clients A Unique Role

• Emphasis on development impact

World Bank affiliation

• Market discipline

• Risk-taking and risk management

• Preferred creditor status

• Political risk cover

• IFC can provide debt, equity, or a combination of both depending on the client’s needs

• IFC has a longer investment horizon (5-7 years) and is less cyclical than most financial investors

• With its equity investments, IFC can act as an “honest broker” in joint venture situations,

give additional comfort for minority shareholders, and be a catalyst for other investors.

• Leading multilateral source of development finance – IFC’s breadth of investment expertise

and years of experience in emerging markets add value to its clients

• IFC strong reputation adds credibility to investee companies that access international

capital markets

• Best practice know-how on corporate governance, environmental management, local communities,

and insurance requirements

How IFC differs from other Investors

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What IFC brings to an investment Multinational Regional Local

Quality stamp of approval

Country risk mitigation

Exposure to country risk volatility

Good contacts/knowledge

Competitive cost

Long tenors

Access to local currency funding

Complementary funding source

•What is important about IFC to a company, by size and location

•Always

•Often

•Sometimes

IFC Customer Profile: Multinationals, Regional and

Local