The Road Ahead: Navigating Innovation & Disruption in Autos: Electric, Autonomous & Ecosystem Platforms

Please refer to page 86 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 8 October 2018 Global EQUITIES Inside Electric, Autonomous & Ecosystem Platforms 4 Electric Vehicles a Necessary First Step 10 Drivers to Push OEMs to Electric 11 Drivers To Push Consumers to Electric 23 Autonomous the Key Enabler to New Business Models 38 Who Will Win? Other Disrupted Industries Give Hints 41 Ten Trends to Play in Electric & Autonomous 49 1) OEMs leading in electric / autonomous 50 2) Rising Vehicle Content Driven by Electrification Content Increase as Bill of Materials Changes 51 3) Battery and Battery Materials 57 4) Centralized Computing 62 5) Autonomous Drive 64 6) Lightweighting 66 7) Power Semiconductors 67 8) Charging 68 9) Thermal Management 69 10) Connected Car 70 Appendices 73 The Hybrid Vehicle Market 74 Tesloop Maintenance Record Details 79 Changes to ZEV Regulations Could Help ZEV Demand 83 Analysts Macquarie Capital (USA) Inc. Maynard Um +1 212 231 8098 maynard.um@macquarie.com Macquarie Capital Securities (Japan) Limited Damian Thong, CFA +81 3 3512 7877 damian.thong@macquarie.com Janet Lewis, CFA +81 3 3512 7856 janet.lewis@macquarie.com Macquarie Securities Korea Limited Daniel Kim +82 2 3705 8641 daniel.dw.kim@macquarie.com Macquarie Capital Limited Allen Yuan +86 21 2412 9009 allen.yuan@macquarie.com The Road Ahead: Navigating Innovation & Disruption in Autos Electric, Autonomous & Ecosystem Platforms Key points  We believe the auto industry is on the verge of a multi-decade long transformation, driven by disruptive innovation and technology  History shows big tech disruption winners focused on ecosystem platforms; auto ecosystem platforms will enable new businesses, disrupt existing ones  Electric & autonomous two critical steps to ecosystem platforms. We identify 10 investable sub-themes, 33 Outperform stocks from 15 Macquarie analysts Auto Industry Heading into an Unprecedented Era of Tech Disruption We believe the auto industry is on the precipice of a multi-decade long transformation, driven by disruptive innovation and technology – the same dynamic forces that have transformed many other technology industries. While there have been many vehicular enhancements in the past, the industry has not fully embraced the technological shifts that have created meaningful new business models and revenue streams for others in the technology platform ecosystem. But we believe this is about to change. OEMs Should take the Ecosystem Platform Route... We believe the biggest winners from the coming disruption will be those focused on software ecosystem platforms. We envision commercial platforms that will allow companies to write software on the platform to program vehicles to become specific applications with the business model revolving around licensing/royalties. Vehicle owners will convert cars into ridesharing vehicles by downloading the app or, later, turn them into delivery vehicles using another app. We believe the automotive ecosystem platform will enable as-yet-unknown applications and significantly disrupt businesses in much the same way that the internet enabled e-commerce and disrupted brick & mortar retail, the cloud enabled as-a-service and disrupted servers, and smartphone ecosystems enabled ridesharing and disrupted taxis. ... Electric & Autonomous Are the Mile Markers... We believe there will be necessary steps – electric & autonomous – along the way to ecosystem platforms and while we expect regulation and lower emissions to be key drivers, we see risk of competition from the Chinese as the biggest driver. History has shown that the Chinese have been able to build scale domestically and use those profits to fund global expansion (smartphones, PCs, telecom equipment). ... With Numerous Investable Themes along the Way We identify ten investable sub-themes (OEM leaders, electronic content growth, batteries, centralized compute, autonomous driving, lightweighting, power semiconductors, charging, thermal management, and connected car) and 39 Outperform-rated stocks covered by 18 Macquarie analysts globally that we expect will benefit from these trends. Macquarie Research The Road Ahead: Navigating Innovation & Disruption in Autos Contributing Analysts Macquarie Capital (USA) Inc. Maynard Um +1 212 231 8098 maynard.um@macquarie.com Benjamin Schachter, CFA +81 3 3512 7877 ben.schachter@macquarie.com Srini Pajjuri, CFA +81 3 3512 7856 srini.pajjuri@macquarie.com Amy Yong +82 2 3705 8641 amy.yong@macquarie.com Cooley May +86 21 2412 9009 cooley.may@macquarie.com Macquarie Capital Securities (Japan) Limited Janet Lewis, CFA +81 3 3512 7856 janet.lewis@macquarie.com Damian Thong, CFA +81 3 3512 7877 damian.thong@macquarie.com Macquarie Securities Korea Limited Daniel Kim +82 2 3705 8641 daniel.dw.kim@macquarie.com Anna Park +82 2 3705 8669 anna.park@macquarie.com James Hon