The Automotive Industry in Germany Sustainable Mobility

Industry Overview

The Automotive Industry in Germany Sustainable Mobility

Germany. Driving the World to Sustainable Mobility.

For decades Germany has enjoyed world renown for its strong and innovative automotive industry. Germany has also captured a leading position in environmental technologies and is today the world market leader in renewable energies. German automotive companies are building on this tradition and competence to meet current environmental challenges.

Striving for a leading position in all elds of sustainable mobility, the German approach is opening new windows of opportunity in all vehicle modules: powertrain, electrics and electronics, body, chassis and interior. In fact, there have never been so many business opportunities in the German automotive industry as there are today.

Joint Efforts to Decrease CO2 Emissions

As proposed by the EU Commission, from 2012 onwards new vehicles are not allowed to produce more than 120 g/km CO2 as a result of improved vehicle technology. An additional reduction of 10 g/km is to be achieved through increased usage of biofuels and further technical improvements. Although German cars are already very efcient especially when compared to their direct competitors substantial efforts still have to be made to meet the EU goal by 2012. Suppliers of CO2 emission reducing technologies, which also help manufacturers keep vehicles both affordable and appealing to the endcustomer, are nding unique business opportunities in Germany.

Performance-related Efciency Co2 Emissions per 100 KW Performance

220 200 180 160 140 120 100

Germany
Source: vda

France

Italy

Japan

Korea

EU Trafc CO2 Emission Increase Levels (1990-2006)

in million tons 50 40 30 20 10 0
Austria Belgium

One Goal Different and Complementary Approaches The industry is pursuing two major technology paths In order to further reduce CO2 and other exhaust gas emissions as well as to make vehicles more energy efcient. The rst and most widely discussed is alternative drives. These include, for example: Hybrid vehicles Full electric vehicles (battery and fuel cell electric) Alternative fuels However, conventionally driven vehicles also offer signicant potential for further improvement. Examples include: Enhancing internal combustion engine (ICE) fuel efciency (e.g. turbocharging) Advanced powertrains (e.g. direct shift gearboxes - DSG) Exhaust gas after treatment New materials (e.g. lightweight) Electronics (e.g. tire pressure monitoring)
Industry Overview 2009 www.gtai.com 3

Denmark

Czech Republic

France

Hungary

Greece

Ireland

Poland

Italy

Luxembourg

Spain

Portugal

Sweden

-10

Source: vda

United Kingdom

Netherlands

Finland

Germany

Turning to Alternative Drives

The future shortage of fossil fuels is an issue widely recognized by German end users. Thats why the need to turn to alternative drive technologies is widely accepted. Based on a survey of major OEMs, suppliers, potential infrastructure providers, and launch customers conducted by Roland Berger, it is expected that electric vehicles (BEVs and hybrids) will capture a market share of up to 25 percent in Europe by 2020. Hybrid Technology At present, hybrids of course do not constitute a signicant segment of the market in terms of units sold, but demand is growing. A survey commissioned by Continental AG shows that 30 percent of German consumers who intend to purchase a new car actively consider hybrid cars among their options this despite the fact that there would be a signicant price markup. In the years ahead, sales are expected to rise accordingly. German OEMs will release their respective initial hybrid models from 2009 onward. Full Electric Vehicles Full electric vehicles represent a highly promising future technology for zero emission mobility. At the National Strategy Conference for E-Mobility in Berlin, the government announced its commitment to make Germany the leading market in this eld: a so-called National Development Plan for E-Mobility is on the way. Some EUR 500 million will be made available for projects in this area as part of the plan. Because German OEMs are already working on different electric vehicle models, companies with expertise in this eld will nd a broad spectrum of business opportunities. Moreover, eld
4 Industry Overview 2009

Future Market Share of EV/HEV (in percent)

100 90 80 70 60 50 40 30 20 10 0

ICE vehicles including: Advanced combustion systems Biofuel-powered engines Micro/mild hybrids

ICE

PHEV EV

25%

2010

2015

2015

Source: Roland Berger. Automotive Insights (02.2008), N=2,082

Manufacturer Audi

Initial Hybrid Model A4 Q5/Q7

Start of Production 2009/2010 2009 2010 n/a n/a 2009 2009 2010 2010 2010 2011 2009 2011 2010

BMW

7 series X5 X6 Mini E

Daimler

E Smart A class B class S class

Opel Porsche Volkswagen

Ampera (EV) Cayenne Space UP! Golf Twin Drive

Source: Germany Trade & Invest Research, Automotive News Europe, Automobilwoche, 2007

trials are already under way: BMW is testing its Mini E in cooperation with the energy company EON in Munich, and with Vattenfall in Berlin (where Daimler is also testing its Smart car together with RWE). Furthermore, within the scope of E-Energy (a joint effort for the development of an ICTbased energy system of the future), some EUR 140 million will be mobi-

lized for the development of model regions integrating electric vehicles into power grids. Beyond this, 13 Fraunhofer Institutes are supporting overall research in this eld by developing high-energy power solutions including materials, electrochemistry, power electronics, and solar energy systems among others.

Energy Storage Energy storage solutions like batteries or ultra-capacitors are widely known to be the crucial component in hybrid and full electric cars. Lithium-ion batteries are considered to be the leading technology in terms of range, weight and size. Signicant quantities of powerful and durable batteries will be required by German car manufacturers in the near future. This opens up opportunities for players along the whole value chain; ranging from material suppliers to cell manufacturers and integrators as well as suppliers of electronic management systems. Moreover, there will also be signicant demand for ultra-capacitors which provide additional power on acceleration. Fuel Cell Technology Fuel cell technology is still considered as being a very promising drive technology in the long term. With Daimler, Ford, Opel, and Volkswagen putting much effort into the development of fuel cell vehicles, signicant steps have been made in pushing this technology forward. Germany is currently home to more than 300 companies specializing in this eld - and over 65 institutes working in the area of fuel cell R&D - making it the European leader. Add to this an excellent supplier network and its clear to see that Germany has already taken a leading position in the development and future market introduction of this important technology. The German government is pushing the implementation of fuel cells through the National Innovation Program for Hydrogen and Fuel Cell Technology. EUR 500 million is being set aside for German and foreign companies conducting development and demonstration projects in Germany.

Running on Alternative Fuels

Alternative fuels such as biofuels have already enabled signicant advances in the partial replacement of fossil fuels. Hydrogen is considered to be the most promising option for fully replacing fossil fuels in the long term. Hydrogen can either power a fuel cell or be combusted like conventional fuels. Most German OEMs are committed to the development of fuel cells. BMW has set on a course of direct hydrogen combustion. Thanks to its strong chemical industry, Germany possesses strong hydrogen provision and storage competences.

The creation of a nationwide hydrogen fueling infrastructure will be the next major step towards the commercialization of hydrogen powered vehicles - around 20 hydrogen fueling stations have already been installed. Germany is a frontrunner in the utilization of rst generation biofuels. Biodiesel and bioethanol account for a share of 6.2 per cent (by energy content) of fuels distributed at the pump today. The German government introduced mandatory blending quotas for biofuels with fossil fuels in 2007. Beyond these quotas, the German government has set a biofuels share (by energy content) target of 12 percent by 2020 - some seven percent above the stated EU target.

Market Development of Natural Gas Vehicles and Stations in Germany

Number of Registered Natural Gas Vehicles 6.000 5.000 4.000 3.000 2.000 1.000 0 1998 1999 2000 2001 2002 2003

Number of Natural Gas Stations 800 700 600 500 400 300 200 100 0 2004 2005 2006 2007

Registered Natural Gas Vehicles Natural Gas Stations

Source: German Natural Gas Vehicles Association, 2008

Industry Overview 2009 www.gtai.com 5

Thanks to higher energy efciency compared with rst generation biofuels, second generation biofuels such as BtL (Biomass to Liquid) and cellulosic ethanol provide an even more promising business opportunity for investors. By granting tax exemptions, the German government has clearly proven its commitment to those fuels about to enter the market in the coming years. Facilities are already being installed or are under development. As a result of emissions lower than those of conventional fossil fuels, compressed natural gas (CNG) and liquied petroleum gas (LPG) are also feasible mediumterm alternatives. With annual growth rates of 35 percent, there are already more than 64,000 vehicles with natural gas propulsion systems on the German roads today and 340,000 LPG vehicles about 11 times as many as only ve years ago. These signicant increases have been made possible by the constantly growing number of gas service stations - over 800 for CNG (more than in any other European country and a third of the total count) and 4,850 for LPG. Biomethane (upgraded biogas) represents an additional path where innovative technology complies with established natural gas technologies to lay the foundations necessary for sustainable mobility. Beneting from a reduced tax rate until 2018, the ame of the natural gas success story looks set to burn for a long time.

Year 2007 2008 2009 2010 2011 2012 2013 2014

Source: Biofuels Quota Act 2007

Total Quota (in percent) 6.25 6.75 7.00 7.25 7.50 7.75

Diesel Quota (in percent) 4.4 Minimum quota applies also to subsequent years.

Gasoline Quota (in percent) 1.2 2.0 2.8 3.6 Minimum quota applies also to subsequent years.

Improving Todays Powertrains

In the short to medium term, the internal combustion engine will remain the main automotive propulsion force. However, in recent years we have seen signicant progress being made in the further development of todays spark-ignition (SI) and diesel engines. Nonetheless, there still remains great potential for further improvement. Internal combustion engines There is a clear tendency towards downsizing and turbocharging, but other technologies also bear a great potential to make ICEs more fuel efcient, such as friction-reducing measures, variable valve timing (VVT), cylinder shut-off, and stop & go systems. Future SI engines will be closer to diesel engines in terms of fuel efciency. Clean diesels are the bestselling passenger cars in Germany today; accounting for nearly 50 percent of the market. The demand for technologies including two-stage turbocharging and high performance injection with direct needle control valve is strong.

Transmission Being the energy interface, transmissions also play a vital role in powertrain efciency. Technologies including double clutch and automatic transmissions (with up to eight or nine gears), as well as hybrid drives are very much in demand. Exhaust The coming into effect of the Euro 5 emissions standards restricting diesel particulate emissions to 5 mg/ km from 2010 onwards will ensure that diesel particulate lters remain in high demand. Euro 5 also restricts NOX emissions to 180 mg/km for diesel engines and 60 mg/km for gasoline engines from September 2009. In a second step, emissions for diesel engines will be further restricted to 80 mg/km from 2014. This norm will make special NOX post-treatment necessary. Excellent business opportunities exist for NOX storage catalytic converter manufacturers and selective catalytic reduction (SCR) technology suppliers. As the exhaust system becomes ever more complex, the demand for complete exhaust solutions will rise accordingly.

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Advances in Materials, Electrics and Electronics

When considering approaches to make vehicles more environmentally friendly, it is necessary not only to look at the powertrain but to keep the overall system in mind. One way to increase car efciency is to reduce its total weight. Accordingly, lightweight materials become increasingly popular. In addition, advanced electronics systems provide valuable solutions to reduce vehicle fuel consumption. Materials Stricter safety regulations and increased comfort demands from customers in recent years have resulted in a steady increase in average vehicle weight. In order to halt this trend, suppliers of advanced materials (including light metals like magnesium and aluminum, high-strength steels, plastics as well as ber-reinforced materials and composites) are enjoying a steadily increasing demand from German OEMs. Electronics As a key technology for future automobiles, automotive electronics can be applied both to reduce the fuel consumption of the vehicle itself as well as to efciently steer the vehicle through the trafc system. The use of electric and electronic features (as seen with recuperative braking and X-by-wire) contributes not only to more efcient energy use, but also to a reduction in weight by replacing mechanical components.

The expected demand for tire pressure monitoring systems is also signicant as they ensure a low rolling resistance of the car. A study by market research institution Frost & Sullivan (2007) forecasts 100 percent market penetration of this technology by 2020. This will become a statement of fact if the EU enacts its plans to make tire pressure monitoring systems compulsory for all new vehicles from 2012. Correspondingly, a great number of electric systems also provide excellent opportunities for fuel efciency improvement. LED systems, for example, offer low energy consumption and long durability.

Both industry and government are working together to improve the framework conditions for sustainable mobility. Intelligent transportation infrastructure, trafc management systems, vehicle-to-X communication, and active safety are just some of the focus areas in which opportunities abound.

Demand for Microelctronics by Region 2007 to 2012

14 13.2 12 10 8.3 8 6 4 2 0 USA Europe/ Germany Japan Asia/ Pacific 4.2 6.1 5.2 4.9 3.5 8.3 6.8 6.8 2007 2012

Source: Mikroelektronik Trendanalyse bis 2012; ZVEI 2008

USD billion/year

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Incentives in Germany

Incentives in Germany R&D Project Funding Speeding up Sustain- Germany offers several incentives programs targeted at reducing the able Mobility
Germany offers numerous incentives for all investors regardless of whether they are from Germany or otherwise. There is a large selection of programs designed to support a wide variety of business activities at different stages of the investment process available. Support ranges from cash incentives for the reimbursement of direct investment costs to incentives for research and development (R&D). operating costs of R&D projects. Programs operate at the regional, national, and European level and are wholly independent from investment incentives (see below). At the national level, all R&D incentives programs are subsumed under the Federal Governments four-year High-Tech Strategy. The High-Tech-Strategy denes specic sectors with a high dependency on promising high-tech developments. Each sector comprises various R&D programs. Approximately EUR 15 billion in total are reserved in the form of non-repayable project grants until 2009.

Within the current framework of the German economic stimulus program, an extra EUR 500 million R&D funding budget has been set aside for application-oriented research in the area of mobility. Interestreduced loans and grants are also disbursed for developing new hybrid drives, fuel cell and battery technologies.

Supporting Direct Investment Costs

Investors can count on direct grants to reimburse investment-related costs such as the setting up of a production facility. The amount of these grants generally depends on three factors: project scope, investor company size, and the new investment location. In Eastern Germany, investment grants are complemented by the Investment Allowance, which is usually provided in the form of a taxfree cash payment but can also be allotted in the form of a tax credit. Investment incentives can also be provided in the form of interest-reduced loans made available by state development banks, or in the form of public guarantees usually provided by state governments.

The National Innovation Programme for Hydrogen and Fuel Cell Technology Incentives available for applied research in the areas of: Hydrogen production, storage, and infrastructure Fuel cell and combustion engine (including H2 hybrid powertrain) Value chain cost reduction The main focus is placed on mobility activities. Incentives are provided in the form of: R&D grants (max. 50% of eligible project costs) Overall budget: EUR 500 million for 2006 through the end of 2016 The program is open to: SMEs, large companies, research centers Two-stage application procedure: 1. Submit project outline at any time to program managing authority (NOW GmbH) 2. Submit formal application

8 Industry Overview 2009

How to Prot from Public R&D Spending To participate in R&D funding programs, companies must dene an R&D project with clear objectives and a xed time line. The project application should highlight the innovative character of the project and the technological risks involved. An application for R&D funding also has to set out a commercialization plan, detailing how research results will be transformed into products, processes or services which generate additional turnover and/or employment in the region where the R&D project is located. The total amount of incentives a project may receive depends on the size of the company (small, mediumsized or large), whether the project is conducted in cooperation with other companies or research institutes, and the research category of the project (fundamental research, industrial research, experimental development).

Special Program for Mobility Research Incentives available for application-oriented research in the areas of: (selection) Hybrid drives Fuel cell technologies Innovative battery technologies ICT for electric mobility Incentives are provided in the form of: R&D grants (maximum 50 percent of eligible project costs) and R&D loans Overall budget: EUR 500 million for 2009 through the end of 2011 The program is open to: SMEs, large companies, research centers Application procedure R&D grants: calls for proposals for specic research areas by the relevant ministry R&D loans: application at any time to federal KfW Banking Group

Photo: Daimler

NECAR Concept Study: cutaway model (side view), access oor, fuel cell
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10 Industry Overview 2009

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Photo: xxx Daimler