This is extra Just Goldman Sachs, where people from our firm share their insights on developments currently shaping markets, industries in the global economy, I'm Jake, seaward global head of corporate communications here at the firm Gormans Research Department, recently put out a new report: cars. Twenty twenty five, that's gotten a lot of people talking. The report identifies report, identifies and seven mega trends that are expected. Redefine the car industry and the car of the future. I'm joined today by one of the authors of the report: Stefan Bergs Dollar, who leads the european automotive Equity research team here at Goldman Sachs. Stefan welcome to the problem. Jake figure out some start with the title: Newport Cars, twenty twenty five: why are the next ten years so significant for the car industry

in the report we highlight four key themes and seven powerful make trends. We believe we transformation, mom on the global amount of industry or the next decade? But at the core we see three disruptive changes accelerating simultaneously over this period, one zero emission mobility, the aggressive tightening of global emissions standards. This will drive costly proliferation. Opportunities, powertrain technologies beyond internal combustion engines to hybrid plug in hybrid electric, and if we choose our vehicles to go to Norma's driving, this is reality already today. The next decade will see the diffusion of vehicles this will shape are we utilise our cars and what we do was driving and finally connectivity we talk.

About the internet of things, but take autonomic vehicle and add connectivity, and you have the internet of cars with legal to veto connectivity. This will drive new mobility concepts like sharing, but also will be a significant source of big data beyond the home and the workplace. All of this will not only start to shape mobility of the future, but also shape the global automotive industry of the future. That's why we talk about disruptive new era of the if each stuff- and I had a topic in the Space- has to be a Thomas cars self driving cars. The prospect of self driving cars has huge potential to affect all kinds of industries from insurance companies, entertainment. The way cities themselves are developed constructed. What are some of the different approaches were seeing to developing self driving cars revolution is really challenging the evolution when it comes to say

driving cars, so technology companies have entered the fray and on site of revolution. Undecided revolution perfectly stated: objective commitment to deliver to the market, even in this decade Self driving car autonomous self driving com. If you contrast, is with the automotive industry, which is used to operate and more gradual pace, so they are committed to gradually introduce autonomy, striving features, for instance, automatic breaking lane departure warning systems. The next will get features enabled a cop to handled itself on the highway and then with more complicated urban driving, Kip It is further down the line and those kinds of features the features we're starting to see in cars today self Parking and the like a sort of incremental approach. Yes, so you have active safety features, as you say, hello, automatic, breaking lane departure systems. The next step will add features which enable. Ass, to drive on and handle himself on the highway and

down. The line will have more complicated urban driving features and capabilities in the car, so autonomous driving is on its way time is very different to that of Toyota industry. That's going to create that interesting tension. That should be not surprising, because Google is a technology companies, customs, too reading in probably product cycles in months and years We live in the street, thinks of proposals in seven years and that kind of philosophy and minds. It is going to create a very productive tension in my mind, but irrespective of I'm lines and strategies autonomous driving philosophise. Some key challenges: we ve no human back up the

She will have to be able to handle all possible driving scenarios. You still have to navigate than regulatory frameworks in the? U S, between state and federal, but then globally. You'll have to do with cyber security. There is still the challenge for the consumer for you and me, and the rest of the population to actually accepts the value added of autonomous cars and ultimately be willing to pay for them stuff. It seems that the push for soft driving cars is kind mostly from the manufacturers, not that consumers in your research. What response to see from the consumers want to know to thinking about self driving cars are people ready to give up driving their own cars of people will have time to get ready for the autonomous vehicle of into pitch is pretty compelling. Autonomous vehicles offers free big changes to today's automotive experience for the consumer. It's more convenient it safer and offer ultimately betterment.

If we take this in terms of their is driving will be more convenient. The world's urban population is expected to grow fifty percent to six billion people by twenty. Fifty by twenty thirty, we expect the number of megacities societies with more than ten million inhabitants, to almost had to forty eight Citys worldwide. From currently twenty eight. As result, traffic congestion is, is only getting worse, thriving will be more complex and challenging in U S so you spend, on average a whole working week in traffic jams. The economic losses, a hundred thousand dollars, that's estimated by official sources. On average, a driver in the developed world spends three hundred to four hours in the car that compares to eight hundred hours surfing the internet in a thousand hours on their mobile phone, so urgent driving could completely change. How are we going to use this time and experiencing the time in the car so fast forward to the extreme

dispense earlier this year to see us in LAS Vegas introduce their fully electric luxury in motion concept, the F, zero one, five car and doktor tat you and you announced that he made this point, which I think sums it up nicely. If you just focus on the technology of autonomous cars, you miss the point. The autonomous car is going to change how we use mobility in ours, piety and the car is growing? In his words, beyond the role of mere means of transport, it will ultimately become a mobile living space. Second point: highlight, is autonomous. Drivers will be safer Every year, half a million people die in traffic accidents. More than seven then get injured. Seven out of AIDS traffic accidents are caused by human error. Machine means have zero reaction times. There will not be distracted, cannot be tired and not be upset minded, so the autonomous

car should significantly carrying their smartphones. They won't be checking this month. Phones, I want to have a separate process to check this month. Lastly, autonomous diving should make driving so much safer and finally mobility, options They much more tailored to our individual needs. The autonomous vehicles of the future, together with connectivity, www innovative mobility concepts, particularly in urban centres. These Allergies have the potential to revolutionize the way we think about car ownership and there's a lot of search- and you put it in your report about the way which millennials think about car ownership very differently. The older generations? I might that change the way in which we think about owning a car,

what we think. The way we own and use and sure to mobile into future will change, and the Milanese will be a significant driving force in this process. The automobile today is the most underutilized asset we purchase and on average, between two thousand miles, we ve ever be the thirty miles power that means funded hours in the car at listed. Five percent utilization. Then you pay for setting a garage and son is employed as well as in a way. The automobile concept today is a very poor capital allocation decision by households mention to the millennials unnecessarily recently found it more than a third of the twenty one to thirty four year olds would actively share products was

says, and this ratio was evil. High Heine, emerging markets, keel with IE will be held. This attitude is gonna change change, as this group of consumers is growing older and finally, the cost of a ship is rising, but taken in emerging countries where developing countries take pride, for instance, unemployed, costumes, dollars contrast is to California sixty nine dollars put it all together. This should lead to new culture in concept being a future. Is for a moment in innumerable Eighty caution in services grabbing the headlines at the moment and I'm a daily of one of them in London. So if a car was truly, two autonomously drive could use my own car, which could drive me to work, I could send it back in and my wife could use it and if you take it step.

And on the way back to make the capacity available to somebody else who wants to go just the opposite direction and adjusted, and I could make some comments on money, so autonomous driving capability connectivity, I think, provides the basis for new mobility concepts regime. Certain will emerge in the next So climate change, you talked a little bit about zero emission cars. Climate change, odyssey playing a significant role, this industry after years and years of talk about it? You can see the manufacturers really responding on efficiency. The governments are getting much much tighter european miss him in time for a long time that the Eu S governments raised cafe standards here. What are some animals promise? developments were seeing on that front.

Emission regulations poses a huge challenge for the industry, but it's at the same time, driving very interesting and really exciting new technologies, so just to frame the context of the challenge in Europe. The twenty fifteen targets ask the manufacturers to produce the free sales on average to have a hundred fifty grams of co2 per kilometre. The twenty twenty one targets will be. Ninety five crumbs and some regulators are contemplating to introduce a twenty twenty five target of. Seventy two gram is not been confirmed, but their contemplating should this become reality. That means the new fleet vehicles would have to have this year to emissions over the next decade and, given that they operate, Product cycles of seven years is less than one an opera cycles that a huge challenge. So, furthermore, when we think about or look at how regulators of trying to regulate that the move towards zero emission mobility, look at California from twenty eighteen

I'm gonna incentivize low emission vehicles we faster fuelling times so their basic, pushing manufacturers to fast charging batteries or hydrogen fuel cells in which have fostered feeling of times. So all this means that there's more investment necessary for manufacturers into these different alternatives powder options and also investment into the infrastructure to support them yeah. It depends what you looking at, so the bulk was still go into the internal combustion engine. They still twenty thirty percent of efficiency gains possible. It is the most amazing development. What has happened there over the last ten years, but now focusing on term inefficiencies. Dyke, food injection, turbo, downsizing, the cylinder management, so that that is, the core of the development, and then you add hybridization electrification here it still about the cost of the battery and is still about the range of the battery and then, as as you point out, its alternative fuels at him

Maybe talk about how to infuse endeared revealing infrastructure is a stumbling block which has to overcome so as results. We see a proliferation of powdering technologists beyond that of the traditional internal combustion engine and that should drive they moping in the industry to pursue scale to offer these alternative power drains at competitive cosplay. So there's two dinner is possible. Either we see approve the collaboration amongst manufacturers and power drains, which is forty percent of devalued forty to fifty two of the value of the industry, or you see industry conciliation. Stefan in the report, you have done a fight to major factors. They're keeping adoption rates down for the most efficient vehicles, hybrids, plugins fuel cell cars in those factors are cost in range. Cars are generally much more expensive and can't go as far as traditionally powered vehicles

What are the manufacturers doing to address those issues, and can we expect to see substantial progress here? We believe we should anticipates of social progress in an old is irresolute politically with unexpected. At the end, these technologies are still in their infancy and there is still much scope for improvement to four battery technology of cost and range or the issue. For example, we believed that the cost of battery technology will have over the next decade. This doesn't mean that electric vehicles prices will folder Typically, initially, we expect manufacturers to extend vehicle ranges which will make them more, usable and broaden their appeal to the consumer, but we believe truly, must market electric vehicles with a five hundred kilometre range and the battery way the round eighty kilograms, whereas today, tuna to free hundred kilograms, will not become a reality until around twenty thirty so suck. Let the big new markets for cars, the biggest merging our markets are China, India Country.

That it can meet the scent of the car market for the next decades. What striving the growth there in what's unique about those markets, they could change the way cars are designed, mentally. We believe people regard this where the army mobility and what we observed. It in emerging markets when people's wealth levels rise above a certain level. Mobility starts to accelerate. These levels are typically defined of gdp per capita around ten thousand twenty thousand dollars. So these wealth levels militarization and co ownership. Israel momentum, so we forecast the global or to sales to increase from eighty million in twenty fifteen two hundred million in twenty twenty in hundred twenty million and twenty twenty five thrift, largely by developing markets, and if you just pick to China in

which, as you say in the center of this development, because most of the grove will be an emerging markets. In the moment, China is in the news about the growth rates are slowing, but it s really distract us from the underlying potential of this market so the next decade. We believe this market will grow on average five percent per Annum India and is often looked at as the next China so of the last decade, China's market quintupled in size. We don't think India will be able to replicate this, but still India is gonna double to seven one in seven and a half million costs by twenty twenty five making it the third largest car market in the world, and, as you say, it is DR different technology packages. In order to access this growth tension, India, you probably need smaller car small download button engines. Cleaner fuels such as natural gas, were also called micro hybrids in China.

There we already seeing stringent ownership management of cars, and you can see that in an attempt to steam pollution and congestion that cost sharing concepts could become more prevalent, particular India's Mega Citizen, China, staffing. You talk a little bit about safety, and the numbers here are just staggering: five hundred thousand people a year dying in car accidents and injuries to nearly seven million people. Governments are concerned about this, and rightly so, how our manufacturers going to approach the safety needs of the twenty first century, especially since historically at least a safer car has been a bigger heavier less fuel efficient one road safety, its costs and wait. Safer causa have your caused by definition and in an arrow towards zero emission mobility. That's a challenge. In the past we focused on passive safety. Are you protecting passengers once an exit is actually happened, and so we added site bars, airbags, reinforced the carbon that all added weight

eight, yet less fuel efficient, and now we are focusing more active safety, utilizing technology to anticipate the risk of an accident and actually prevent the accident. You talked about lane departure warning systems or link, keeping assistance, automatic breaking a distant control, all sort of censure. Aspects of driving a car, but that only add more weight to a car and to counter that we believe would want to see in an increased usage of lightweight material, so heightens our steel, aluminium and even com fibre is gonna, find application in the car industry to no other way to counter the Incas of wait for the safety of back then reduce it to meet or help me to co2 targets, so the tech companies looking at a car, that's completely full autonomy autonomous, whereas the National car makers are looking at something that gradually gets us used. The the of giving up the wheel technology companies Britain product cyclist, probably mission. In months the kindest dream

it's in the product cycle, measured in years, sort of dead mindset is already giving. Explanation about the different emission levels. These two different companies show today also when you look at the balance sheet of the technology companies that are much better in doubt, and so they can actually take that risk when it takes to go right to the technological frontier, a car company, he has to still maintain on existing measures? in an industry with very little returns and cause of capital and therefore more conducive to this gradual approach, and it fits with their traditional products cycle adding feature here, adding a feature there rather than presenting a fully revolutionized product. Yes, what most people think that the next five years. It's all about the more fuel efficient cars to achieve these targets and an autonomous features will be the export cycle where we really see the industry preparing this calls for a more dynamic world,

so one thing you report talks about is the capturing of all this data from the cars and the way in which the connected cars could General changes in other industries. What are the sectors that could be the most impact by the changes we seen in how data is collected from cars and how they're moving and other performing stepped back. I think that the self driving call will drive the biggest checks and we talked about improving utilization. That's one aspect: we know where we're going and what the traffic situation is. We could see much more efficient traffic flow management that could help management in cities. You could see how we could tax people based on how to use the roads the much more efficiently and maybe more fairly infotainment is related opportunity, given that we are not driving to Conny Mobile, we still on as the thought that such a set the living space or what are we gonna

Are we going to surf? The internet is down opportunity. There are we gonna, consume services in a different way and the most profound impact could be on the insurance industry. So if the autonomous Creakle makes no errors and causes no traffic accidents that the insurance premium should come down or maybe the insurance business is gonna change, I remember a third of most insurance revenues what premiums generated in the developed world come from other modifications so that maybe we go from in ensuring the driver to them. The manufacturer Eve covered the automotive industry for a long time now, and

it's, been a really watershed period. Recently. What surprise you the most the industry's ability to change and adopt, is actually the most surprising when you go back in the middle of last decade, the automotive industry struggled with rising raw material prices. In Europe we had a strong euro which made exports less profitable, the. U S was sitting an overcapacity and on huge losses we had prospects of punitive co2 targets being introduced across the world and this all, against the backdrop, very low profitability fast forward ideas. Volumes have increased to eighty million from sixty million, the prophet port has almost doubled. Two hundred twenty billion dollars from sixty four billion dollars and margins are at six point two percent on average. Whereas is four point four

two thousand and seven, so the automotive industry is a tough industry. The industry has to deliver a lot to us, the consumer, and we tend to not be willing to pay for it. The industry is not very good in anticipating change, but the industry has proven track record in actually adapting to change before we see a timely. So I don't expect this capability to change, but the trends we have just been discussing, or the most thirty minutes will increase the challenge of leadership of these companies beyond. Just a me understanding of how to produce and sell a good cop. Stefan last question take us forward to twenty twenty five it is the world's fleet of cars. Look like we gotta, be very careful when we took the fleet was this new causes, because every year we adding new cars with new features and days s law of penetration process. But if you just talk about what new car sales look like. I think there will be more fuel efficient still rely, heavily on internal combustion engine me believe. Seventy five percent,

there will be more electric powered him systems being available, run about twenty five percent, and we would have seen the broad introduction of plugin hybrid systems. The food two thousand and twenty five- should be ready for tournament driving, particularly in the premium segment, with a broader penetration, most likely occurring beyond two thousand and twenty five and then finally, the carton, one thousand and twenty five will be connected to the internet and starting to wave the internet, of course, Stephan. Thank you very much, foods. This episode of exchanges of Goldman Sachs on Jake Seaward. Thanks for listening, this podcast was recorded on July twenty first, two thousand fifteen. This podcast should not be copied distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or Iraq

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