CAR Management Briefing Seminars Rewired For Success: Is the Industry Sustainable for Capital

CAR Management Briefing Seminars Rewired For Success: Is the Industry Sustainable for Capital Creation? August 2017 Matthew T. Stover 617.624.7353 matthew.stover@sig.com Brendon E. Mason 617.624.7330 brendon.mason@sig.com Andrew J. Crespo 617.624.7336 andrew.crespo@sig.com Susquehanna International Group, LLP (SIG) is comprised of affiliated entities, including Susquehanna Financial Group, LLLP (SFG). SFG is a provider of research and execution services. SFG is a member of FINRA. Please refer to page 27 for important disclosures and certifications.

Today s Agenda Section I. So much has changed (industry structure) but so much remains the same (cycle, margins & valuation). Section II. CAR.x is upon us. In aggregate terms, the inflection point has been neutral but at the stock level it has been a massive differentiator. Section III. Parting thoughts from an investor this seems an important time to balance risk vs reward. 2

The market is a Discounting Mechanism that Balances Across Three Axes EFFORT Returns Valuation CAPITAL Growth Source: SFG Research Predictability TIME 3

EV/EBITDA We Think The Auto s Are Getting Punished For Lack Of Predictability 14.0x 13.0x 12.0x 11.0x Utilities Materials Healthcare Industrials Consumer Discretionary Consumer Staples Tech 10.0x Financials 9.0x 8.0x AUTOMOTIVE 4 7.0x Telecom 6.0x 2 4 6 8 10 12 14 ROIC % Source: SFG Research, FactSet

Units, Million Despite Volume Growth and Shift East, Cyclical Concerns Loom 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0-2002 2007 2017 APAC Eurozone NA SA 5 Source: SFG Research, AutoForecast Solutions LLC

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 In China, Investors Don t Know What to Make of the Cycle 35,000,000 China Production 2005-2020e 4,000,000 China 2016 Production by OE 30,000,000 3,500,000 25,000,000 3,000,000 20,000,000 2,500,000 15,000,000 2,000,000 10,000,000 1,500,000 5,000,000 1,000,000 0 500,000 0 Source: SFG Research, AutoForecast Solutions, LLC Source: SFG Research, AutoForecast Solutions, LLC 6

1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 mil. units Duration - Years Unfortunately, In The Key NA Market The Market Has Strong Opinions 20 18 10 8 UPTURN 8? 16 14 6 4 2 12 10 8 6 Volker Moment 0-2 -4-6 -8 DOWNTURN??? -10 Source: SFG Research, Ward's Automotive Source: SFG Research 7

1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 OEM Margins Have Peaked 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Ford: Operating Margin - Auto 15% 10% 5% 0% -5% GM: Operating Margin - Auto -2.0% -4.0% -6.0% -8.0% -10% -15% -20% Source: SFG Research, FactSet Source: SFG Research, FactSet 8

and so, too, have the Supplier Margins. 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% Supplier EBITDA % US '01-'16 EU '01-'16 JN '01-'16 9 Source: SFG Research, Company Reports, FactSet

Relative Valuation to SP500 % Bottom Line Market Sees Auto s Through Historical Valuation Crucible Not Likely to Change Until a Recession 120% 100% 80% 60% 40% 20% 0% Pre-Tech Bubble Pre-Crisis Current Growth Value OEM Source: SFG Research, FactSet 10

Today s Agenda Section I. So much has changed (industry structure) but so much remains the same (cycle, margins & valuation). Section II. CAR.x is upon us. In aggregate terms, the inflection point has been neutral but at the stock level it has been a massive differentiator. Section III. Parting thoughts from an investor this seems an important time to balance risk vs reward. 11

CAR.x Is the Big Question Hanging Over the Future Outlook for Auto Autonomy/ Technology Electrification/ Regulatory TaaS/ Behavioral 12

Remember Amara s Law When Opining On Future We tend to overestimate the effect of technology in the short run and underestimate the effect in the long run -Roy Amara 13

MBLY TSLA VC DLPH FCAU DAN BWA TEL ST LEA ADNT SP50 MGA SHLO THRM GM SMP CPS ALV CTB F TEN TOWR GNTX AXL SUP Stock Price YTD Return The Market is Favoring Stock s Leveraged to CAR.x 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% 14 Source: SFG Research, FactSet

Investors & Executives Ask if it Has Gone Too Far? $120 $100 $80 $60 $40 $20 $- Regional Champs Enterprise Value ($ bil.) Contenders 15 Source: SFG Research, Factset

Maybe we need to change our perspective $1,200 Enterprise Value ($ bil.) $1,000 $800 $600 $400 $200 $- OEM/Supplier 1 Tesla 2 16 Source: SFG Research, Factset

Autonomy: Investor Perception Positive Current View Inevitable Vehicle Autonomy vs Autonomous Vehicles? Suppliers: Content opportunity OEM s: Revenue opportunity Non-Auto Players hunting for their position How could we be wrong? Non-Auto player could be the disruptor Delayed timing Regulatory delays Infrastructure build out Regulatory demand creates adverse pricing environment 17

Electrification: Investor Perception Negative Current View Growing Sense of Inevitability Fixed / Variable cost pressure Disruption of Current Industry Order By Company (TSLA) or Government (China) Labor Risk How could that View be wrong? Commonization Outsourcing opportunity for Suppliers Long term opportunity to improve capital returns for OEM s 18

TaaS (Transportation as a Service): Investor Perception Confused Current View Inevitable Everyone wants to be a player: OEM, Supplier, Dealer & Rental, Tech, Government Data is Gold What is the pick axe? Industry unit volume production will decline but $ value likely to go higher How could we be wrong? Heterogeneity of market could lead to slower than anticipate adoption curve Business Models are Complex Slower than anticipated adoption curve some fundamental problems have not been addressed 19

Today s Agenda Section I. So much has changed (industry structure) but so much remains the same (cycle, margins & valuation). Section II. CAR.x is upon us. In aggregate terms, the inflection point has been neutral but at the stock level it has been a massive differentiator. Section III. Parting thoughts from an investor this seems an important time to balance risk vs reward. 20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Investment Rates are Climbing Articulate the Magnitude of Growth Spending The Market Can Look Forward. 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% CEX % RDE % CEX % RDE % Source: SFG Research, Company Documents Source: SFG Research, FactSet OEMs Suppliers 21

AXL ST TOWR ADNT DAN TEN TEL BWA DLPH CPS MGA LEA ALV THRM SUP GNTX VC GNTX ST TEL AXL DLPH BWA THRM SUP ALV VC CPS DAN LEA MGA TEN TOWR ADNT EBITDA % If Stable Cycle Prevails, Growth Investment Can Be Funded 4.0x 3.0x Net Debt/EBITDA 40% 35% 30% FCF% = EBITDA % - CEX % 2.0x 25% 1.0x 20% 15% 0.0x 10% -1.0x -2.0x 5% 0% FCF % CEX % Source: SFG Research, FactSet Source: SFG Research, FactSet 22

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017PF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017PF Think Through the Downside and Please Don t Bet the Ranch Chasing Unicorns Consider Adoption of a PE Approach 400 350 300 250 200 150 100 50 0 Number of Transactions 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Transaction Value ($ mil) Source: SFG Research, FactSet Source: SFG Research, FactSet 23

Closing Thoughts The industry cycle is shifting and the market sees the industry through a historic valuation crucible. CAR.x is complex and will take time Manage capital with respect to risk not just reward Industry may want to adopt PE model to access liquidity and manage risk. THANK YOU VERY MUCH 24

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