May China Auto Demand: Weak SAAR Leaves Lingering Headwinds for 2H

China Autos: A Few Thoughts on 2018 Industry Demand and Initial Expectations for 2019

A Few Thoughts on China VI's Impact on Auto Demand

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

Brazil Automobiles and components / Thematic (Sector/Industry)

EU demand growth continues to defy gravity through April and in fact is currently responsible for keeping global demand growth in positive territory based on our observations of global SAAR through April.In this month we will focus primarily on fuel mix in Western Europe in the wake of Dieselgate:<ul><li>Dieselgate has exposed the public to the fact that fuel efficiency of the Diesel ICE vehicle is not as high as once thought.  This has led to declining diesel demand, but the slack has been taken up by gasoline and gasoline HEV models, not EVs as may have been anticipated by financial markets a few years back.</li><li>Diesel is cheaper than gasoline in the EU, although the preferential excise tariff that is the main cause may be phased out especially as governments see opportunities to reclaim lost tax revenues in the years to come.  In more ways than one, diesel ICE demand may slowly die out over the next 10-20 years.</li><li>It is likely cheaper for automotive OEMs to develop EVs to meet 2025 emissions standards than to exhaust development gaps for ICE technologies.  This at least partially explains the number of new EV offerings planned by OEMs in the next 2-3 years.</li><li>Car buyers are not flocking to buy EVs despite push marketing because existing distribution infrastructure inadequately satisfy buyers' needs.  Tesla is the only OEM that understands why but the cost of following Tesla's distribution model is very expensive, to say the least.</li></ul>In this regard, it has been very clear to us that Toyota is the winner in the alternative fuel space.We will summarize our observations of selling rates in key regional markets in the concluding section of this piece.<table class="table table-striped"><tbody><tr><td colspan="13"><h2>Global Light Vehicle Demand in Key Regions</h2></td></tr><tr><td>(Mn Units)</td><td style="text-align: center;">2010</td><td style="text-align: center;">2011</td><td style="text-align: center;">2012</td><td style="text-align: center;">2013</td><td style="text-align: center;">2014</td><td style="text-align: center;">2015</td><td style="text-align: center;">2016</td><td style="text-align: center;">2017</td><td style="text-align: center;">2018YTD SAAR***</td><td style="text-align: center;">YoY 18/17</td><td style="text-align: center;">CAGR '10-'17</td><td style="text-align: center;">CAGR '07-17</td></tr><tr><td>NAFTA</td><td style="text-align: center;">14.0</td><td style="text-align: center;">15.3</td><td style="text-align: center;">17.2</td><td style="text-align: center;">18.4</td><td style="text-align: center;">19.5</td><td style="text-align: center;">20.7</td><td style="text-align: center;">21.1</td><td style="text-align: center;">20.8</td><td style="text-align: center;">20.7</td><td style="text-align: center;">-0.5%</td><td style="text-align: center;">5.9%</td><td style="text-align: center;">1.0%</td></tr><tr><td>EU+EFTA</td><td style="text-align: center;">13.8</td><td style="text-align: center;">13.6</td><td style="text-align: center;">12.5</td><td style="text-align: center;">12.3</td><td style="text-align: center;">13.0</td><td style="text-align: center;">14.2</td><td style="text-align: center;">15.1</td><td style="text-align: center;">15.6</td><td style="text-align: center;">16.3</td><td style="text-align: center;">4.7%</td><td style="text-align: center;">1.8%</td><td style="text-align: center;">-0.3%</td></tr><tr><td>BRICs</td><td style="text-align: center;">21.7</td><td style="text-align: center;">23.5</td><td style="text-align: center;">25.3</td><td style="text-align: center;">27.3</td><td style="text-align: center;">28.5</td><td style="text-align: center;">28.3</td><td style="text-align: center;">31.1</td><td style="text-align: center;">32.2</td><td style="text-align: center;">32.5</td><td style="text-align: center;">0.8%</td><td style="text-align: center;">5.8%</td><td style="text-align: center;">9.6%</td></tr><tr><td>Other APAC*</td><td style="text-align: center;">7.7</td><td style="text-align: center;">7.2</td><td style="text-align: center;">8.8</td><td style="text-align: center;">9.0</td><td style="text-align: center;">9.0</td><td style="text-align: center;">8.5</td><td style="text-align: center;">8.6</td><td style="text-align: center;">8.8</td><td style="text-align: center;">8.7</td><td style="text-align: center;">-1.0%</td><td style="text-align: center;">1.8%</td><td style="text-align: center;">1.9%</td></tr><tr><td>Key Global Regions</td><td style="text-align: center;">57.2</td><td style="text-align: center;">59.6</td><td style="text-align: center;">63.8</td><td style="text-align: center;">67.1</td><td style="text-align: center;">70.0</td><td style="text-align: center;">71.7</td><td style="text-align: center;">75.9</td><td style="text-align: center;">77.4</td><td style="text-align: center;">78.2</td><td style="text-align: center;">1.1%</td><td style="text-align: center;">4.4%</td><td style="text-align: center;">3.5%</td></tr><tr><td>ROW</td><td style="text-align: center;">5.6</td><td style="text-align: center;">6.0</td><td style="text-align: center;">5.4</td><td style="text-align: center;">5.5</td><td style="text-align: center;">5.8</td><td style="text-align: center;">6.0</td><td style="text-align: center;">5.9</td><td style="text-align: center;">6.3</td><td style="text-align: center;">NM</td><td style="text-align: center;">NM</td><td style="text-align: center;">1.6%</td><td style="text-align: center;">1.3%</td></tr><tr><td>Global Light Vehicle** Demand</td><td style="text-align: center;">62.8</td><td style="text-align: center;">65.6</td><td style="text-align: center;">69.3</td><td style="text-align: center;">72.6</td><td style="text-align: center;">75.8</td><td style="text-align: center;">77.7</td><td style="text-align: center;">81.8</td><td style="text-align: center;">83.7</td><td style="text-align: center;">NM</td><td style="text-align: center;">NM</td><td style="text-align: center;">4.2%</td><td style="text-align: center;">3.3%</td></tr><tr><td>  Key Global Regions as a % of Global</td><td style="text-align: center;">91.0%</td><td style="text-align: center;">90.8%</td><td style="text-align: center;">92.2%</td><td style="text-align: center;">92.4%</td><td style="text-align: center;">92.4%</td><td style="text-align: center;">92.3%</td><td style="text-align: center;">92.8%</td><td style="text-align: center;">92.5%</td><td style="text-align: center;"></td><td style="text-align: center;"></td><td style="text-align: center;"></td><td style="text-align: center;"></td></tr></tbody></table><div class="content-caption">* - Australia, Indonesia, Japan, Korea, Thailand &amp; Vietnam.  </div><div class="content-caption">** - Sedans + SUVs, Crossovers, MPVs &amp; Pickup trucks</div><div class="content-caption">*** - Calculated from known factors</div><div class="content-caption">Sources: ACEA, Autodata, CAAM, ECB, JAMA, KAMA, Marklines and OICA</div>

EU demand growth continues to defy gravity through April and in fact is currently responsible for keeping global demand growth in positive territory based on our observations of global SAAR through April.In this month we will focus primarily on fuel mix in Western Europe in the wake of Dieselgate:Dieselgate has exposed the public to the fact that fuel efficiency of the Diesel ICE vehicle is not as high as once thought.  This has led to declining diesel demand, but the slack has been taken up by gasoline and gasoline HEV models, not EVs as may have been anticipated by financial markets a few years back.Diesel is cheaper than gasoline in the EU, although the preferential excise tariff that is the main cause may be phased out especially as governments see opportunities to reclaim lost tax revenues in the years to come.  In more ways than one, diesel ICE demand may slowly die out over the next 10-20 years.It is likely cheaper for automotive OEMs to develop EVs to meet 2025 emissions standards than to exhaust development gaps for ICE technologies.  This at least partially explains the number of new EV offerings planned by OEMs in the next 2-3 years.Car buyers are not flocking to buy EVs despite push marketing because existing distribution infrastructure inadequately satisfy buyers' needs.  Tesla is the only OEM that understands why but the cost of following Tesla's distribution model is very expensive, to say the least.In this regard, it has been very clear to us that Toyota is the winner in the alternative fuel space.We will summarize our observations of selling rates in key regional markets in the concluding section of this piece.Global Light Vehicle Demand in Key Regions(Mn Units)201020112012201320142015201620172018YTD SAAR***YoY 18/17CAGR '10-'17CAGR '07-17NAFTA14.015.317.218.419.520.721.120.820.7-0.5%5.9%1.0%EU+EFTA13.813.612.512.313.014.215.115.616.34.7%1.8%-0.3%BRICs21.723.525.327.328.528.331.132.232.50.8%5.8%9.6%Other APAC*7.77.28.89.09.08.58.68.88.7-1.0%1.8%1.9%Key Global Regions57.259.663.867.170.071.775.977.478.21.1%4.4%3.5%ROW5.66.05.45.55.86.05.96.3NMNM1.6%1.3%Global Light Vehicle** Demand62.865.669.372.675.877.781.883.7NMNM4.2%3.3%  Key Global Regions as a % of Global91.0%90.8%92.2%92.4%92.4%92.3%92.8%92.5%* - Australia, Indonesia, Japan, Korea, Thailand &amp; Vietnam.  ** - Sedans + SUVs, Crossovers, MPVs &amp; Pickup trucks*** - Calculated from known factorsSources: ACEA, Autodata, CAAM, ECB, JAMA, KAMA, Marklines and OICA

May Global Auto Demand Tracker: EV Versus ICE in Western Europe - Implications for Push Marketing