Automotive Systems
Business Strategy
Hitachi IR Day 2011

June 16, 2011

Kunihiko Ohnuma
President & CEO
Hitachi Automotive Systems, Ltd.

© Hitachi, Ltd. 2011. All rights reserved.

Automotive Systems Business Strategy
Contents

1. Business Overview
2. Global Growth Strategy
3. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

1-1 Business Overview
Other (10%)[Information field]
Car information
systems (CIS)(20%)[Safety field]
Drive control systems(20%)

Overseas
(44%)

Japan
(56%)

[Environment field]
Powertrain &electronic control
systems(30%)

FY2010Consolidated
revenues¥773.5 billion[Environment field]
Engine management
systems(20%)

Harness cutting-edge technologies in the auto-related environment,
safety and information fields. Accelerate the global business development.
© Hitachi, Ltd. 2011. All rights reserved.

3

1-2 Main Products
Environment field
Powertrain & electronic control systems

Engine management systems<Electromechanical>• Hybrid systems• Lithium ion batteries(Hitachi Vehicle Energy, Ltd.)

Drive control systems<Driving support>• Stereo camera• Suspension
systems• Power steeringsystems• Electrically-driven
intelligent brake

Safety field<Fuel economy improvement>• Engine management
systems• Variable valve
systems• Engine equipment

Car information systems (CIS)<Comfort and convenience>• Car Navigation
Systems (Clarion)• Oil damper for
railway• ICT* solution services
for electric vehicles• In-vehicle terminals for(EV) Solution services commercial vehicles• Vibration-proof
damper for housing

Information field

Other*ICT: Information and Communication Technology© Hitachi, Ltd. 2011. All rights reserved.

4

1-3 Recovery after the Great East Japan Earthquake
Entire Hitachi Group worked as one to restore production facilities rapidly,
through cooperation among Hitachi bases and support from business partners.
Production restarted on March 25.

Overview for FY2011
98%

Revenues

107%
87%

Before* After*
First half

Before* After*
Second Half

Before* After*
Full-Year• Results for the first half of
FY2011 are expected to fall
below initial targets due to cutsin production by domestic
customers in the wake of theearthquake• Aim to make up for this shortfallin the second half as demand
recovers and post on-target
results for the year as a whole*Forecast before the earthquake*Forecast after the earthquake

3 Key pillars for recovery in FY2011

１

Reorganize production
system(Countermeasures for
restrictions in power supply overthe summer months)２

Expedite and secure
procurement ofmaterials

３

Bring forward operation
start at new facilities
Bring forward facility
maintenance schedules© Hitachi, Ltd. 2011. All rights reserved.

5

Automotive Systems Business Strategy
Contents

1. Business Overview
2. Global Growth Strategy
3. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

2-1 Market Environment (1)Global Automobile Production Forecast
by Region

Global Automobile Production Forecast
by Motive Power Type

Total +6.0%(Million units/year)
100
80
60

71.8

96.1
Other

+8.9%

China

: Growth rate (From 2010 to 2015)(Million units/year)
10080

HEV / EV

96.1
+24.9%
+0.4%

71.8

+2.4%

60

+7.1%

40

Japan and South Korea

20

Europe

40
+4.0%

20

Internal combustion
engines

North America
00Performance steady inindustrialized nations while
growth continues apace inemerging nations

Internal
combustion
continues toaccount forover 90%

Sharp growth
in HEV and EV[Upward of HEV and EV]
1 million units
2010

2020

(Source: Data compiled in-house from data provided by IHS Automotive and Nomura Research Institute, Ltd.)© Hitachi, Ltd. 2011. All rights reserved.

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2-1 Market Environment (2)Regulatory trends in environment field

Roadmap for environmental technologies■ Strengthening fuel efficiency (CO2 emissions) andemissions regulations■ Even in emerging markets, regulations are expected tobe tightened to the same level as industrialized nations
going forward■ Increase efficiency of internal
combustion engines and develop
electric drive technology for HEV
and EV

0

201

200
California State:
Strengthening regulations
to European levels

Japan

160
EuropeChina: Regulations
are expected to betightened to the samelevel as industrialized
nations going forward

137.5

Tighter regulations inJapan, U.S. and Europe

127
130

2010

2012

2015
*ICE: Internal Combustion Engine

ICT* solutions

Ｐ-ＨＥＶ Electric drive braking
ＨＥＶ
Motor
InverterBattery(Underconsideration)

95[About 24.5 km/L]

About 18km/L

2008

ＥＶ

BetterSate of California, U.S.

CO2 emissions

CO2 emissions(g/km)

2020

Optimize for
ISS*/HEV engines
Thermal management

ＩＣＥ* Downsizing
DI*, VTC*

2005

HCCI*

(Reduce number of superchargers
and cylinders)

2010

2015

FY
2020

*ISS: Idling Stop System*HCCI: Homogeneous Charge Compression Ignition*DI: Direct Injection*VTC: Valve Timing Control(Source: Nikkei BP materials) *ICT: Information and Communication Technology© Hitachi, Ltd. 2011. All rights reserved.

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2-2 Structure of Automotive Systems Segment
New segment created in FY2011 to include Battery Systems Company
Strengthen technologies in all areas relating to battery products from materials tocontrol technology particularly for automotives, and aim for greater growth anddevelopment through integrated management of the business as a whole

FY2009Automotive Systems
Business Management
Division
Hitachi Automotive
Systems, Ltd.

ClarionCo., Ltd.

FY2010FY2011[Integration of vehicle battery businesses][Integrated management of battery businesses]

Automotive Systems
Business Management
Division
Hitachi Automotive
Systems, Ltd.

ClarionCo., Ltd.
Hitachi
VehicleEnergy, Ltd.

Battery Systems Company

Hitachi Maxell,
Ltd.

Hitachi
VehicleEnergy, Ltd.

New segment
Automotive Systems
Business Management
Division
Hitachi Automotive
Systems, Ltd.

ClarionCo., Ltd.

Strengthened
cooperation

Battery Systems Company

Hitachi Maxell
Energy, Ltd.*

Hitachi
VehicleEnergy, Ltd.

*Established through a corporate spin-off from
Hitachi Maxell, Ltd.
Takes over manufacturing and sales activities forbattery operations (Apr., 2011)© Hitachi, Ltd. 2011. All rights reserved.

92-3 Business Targets up to FY2015
FY2015 targets: revenues: over ¥1 trillion, operating income ratio: over 5.0%
Automotive Systems segment

Battery Systems Company(Figure of 2009 and 2010 are restated based on new organization in 2011)

3.5%
2.4%

773.5

2.5%

Over ¥1 trillion
800.0

830.0

Promote growth anddevelopment throughintegrated management

671.0

Target expansion
in scope of battery
applications from consumer
and automotive
to industrial

FY2009(Actual)

FY2010(Actual)

FY2011(Forecast)

FY2012(Target)Operating income ratio (%)

Revenues (Billion yen)

(2.2%)

Over 5.0%

FY2015(Target)© Hitachi, Ltd. 2011. All rights reserved.

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2-4

Global Growth Strategy – Meeting FY2015 Business Targets

Become a global supplier driving the automotive systems related market
Reinforcing withthe three “G”s(1) Global
sales strategy(2) Global
distinctive
technologies

123(3) Global
managementfoundations

Double revenues of“Global customers” and “Emerging nations”
Increase share of e-product market(electronics and electromechanical products)
E-product composition ratio (compared with FY2010)
Revenues 45% → more than 65%, operating income 50% → more than 80%

Accelerate local production for local consumption,and speed up management decision-making(From April 2011 onwards)© Hitachi, Ltd. 2011. All rights reserved.

11

2-5 Global Sales Strategy (1)Example of global customer strategy targets (FY2015 revenues)
Customer Base Composition
by Revenue (FY2009)

FY2015 (Target)

8 companies/groups*
Total revenues for FY2009: ¥230.0 billion¥230 billion(36%)*Customers comprising 10% or less

Double revenues
Increase revenue share to 10%

Mazda 2%
Isuzu 2%
VW/Audi2%¥460 billion(46%)

Suzuki3%

Ford Group9%Honda
4% GM Group5%

Toyota Group 9%(including Fuji Heavy
Industries Ltd.)

Introduce, reorganize andentrench GAM / GAT system
GAM: Global Account Manager
GAT: Global Account Team

Reconfigure global customer strategy
and reinforce global customer support

Propose new products
and technologies(core technologies)• HEV and EV system products• High-efficiency engine systems, etc.
© Hitachi, Ltd. 2011. All rights reserved.

12

2-5 Global Sales Strategy (2)Double the revenues in emerging nations by FY2015 (compared to FY2010)
Increase Overseas Revenue Ratio for Global Customer Bases*from 49% (FY2010) to over 60% (FY2015)
China
300
100
2010 2015
Actual Target

Asia except
China

Emerging nations: total200

Central andSouth America
100

100

150

2010 2015
Actual Target

200
100
2010 2015
Actual Target

2010 2015
Actual Target

Revenue index (FY2010: 100)

Overseas Revenue Ratio for Global Customer Bases* (Billion yen/year)

FY2010 (Actual)

FY2011 (Total)

FY2012 (Total)

FY2015 (Total)

376.9 (49%)

420 (53%)420 (51%)

600 (60%)*These are combined ratio with figures of automotive systems that are equipped with vehicles atcustomer„s base and figures of mobile batteries„s overseas revenues.

Excluding exchange
rate differences© Hitachi, Ltd. 2011. All rights reserved.

13

2-5 Global Sales Strategy (3)Implement measures to expand business in emerging nations

１ Develop compliance initiatives for Chinese environmental regulations(EURO5/CAFE*) and expedite development of locally-based operations

China

Direct injection systems, VTC*, injectors, pistons, etc.

２ Expand business targeting independent Chinese automobile manufacturers
Expand sales through a locally-accelerated management covering R&D, production
and sales

１ Reinforce business foundation in Thailand and expand business into ASEAN markets

Asia
exceptChina

Promote locally-led operations in Thailand (ECU* production),develop Indonesia and Malaysia markets

２ Build business foundation to cultivate the market in India
Reinforce R&D for small- and medium-sized car products (e.g.: ECU*, etc.)*CAFE: Corporate Average Fuel Economy*VTC: Valve Timing Control*ECU: Engine Control Unit

© Hitachi, Ltd. 2011. All rights reserved.

14

2-5 Global Sales Strategy (4)Example of measures to expand business in emerging nations – New business scheme in Mexico

CentralAnd
South
America

１ Start optimizing production across global facilities,
including product supply to the Americas
２ Increase collaboration with Clarion Co., Ltd.

UNISIA MEXICANA

United States

Electronica Clarion

Mexicomaterials to the North and
1 Supplies
Central American markets

2

Manufactures mechanical products
for the North and Central American
marketsbase to reinforce the business3 Supplyin the South American market

navigation
1 Manufactures
and audio integrated
systems
electronic
2 Manufactures
products for the North
and Central American
markets- Cooperation with the newly establishedoffice in Brazil© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (1)Promote in-house development of comprehensive control system fornext-generation electric drive vehicles*ADAS: Advanced Driver Assistance System*DCM: Data Communication Module

Global data center
DCM*
Car navigation

Small motor
inverterStereo camera

Exhaust-heat recovery system

ADAS*

Energy integration controller

Electric drive braking system
Electric power steering

Battery
Suspension

Under the development of leading systems for both efficiency andenergy-saving technology[Example] System leveraging the information from stereo camera and car navigation, andcooperating with the electric drive brake system and battery to maximize regenerative energy⇒FY2015 Targets: Increase maximum mileage by more than 30% compared to current EVs(Based on identical battery capacity)© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (2)Example [Environment field]: HEV systems (motors, inverters, lithium-ion batteries)
Drive adoption of electronic control and electromechanical systems with industry-leading
distinctive Hitachi technologies, and systems development capabilities(1) Inverters:
Made smaller with high-efficiency cooling system(by 1/3 compared with our current model)

Strengths(2) Motors:
Small, high-efficiency, high output, optimum design of magnetic circuits withanalysis technology(3) Lithium-ion batteries:
cumulative shipments in excess of 1.2 million cells , high quality and highreliability in all aspects from materials to control technology

Inverters

MotorsBattery packs

Powertrain & electronic control systems business: target revenues for FY2015 : ¥300 billion© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (3)Example [Environment field]: High-efficiency engine system (DI* system, VTC*)
Increase fuel efficiency for gasoline engines, by far the leading engine type,and develop global operations based on the principle of local production for local consumption

Strengths(1) Improved fuel efficiency, higher compression for injectors
and high-pressure fuel pump(2) Reduced pump loss: VTC etc.
(3) Reduced friction in pistons, valve lifters, etc.
Promote local production*DI: Direct Injection*VTC: Valve Timing Control

High-pressure
fuel pumps

DI* systems• High pressure fuel pumps: production in North
America to start in FY2011• VTC: production in China to start in FY2011

Injectors

VTC**DI: Direct Injection *VTC：Valve Timing Control

Engine management systems business: target revenues for FY2015 : ¥200 billion© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (4)Example [Safety field]: Electrically-driven intelligent brake
Develop and mass produce new electric drive braking system⇒ Accelerate the development as a series (compact version, low-cost version,
version w/ brake booster, etc.) and increase sales globally

Strengths(1) Develop regenerative braking system that maximizes energy
regeneration for EVs and HEVs without negative pressure(2) Improve vehicle fuel efficiency based on coordinated controlof regenerative brakes
Mass production began in August 2010, installed on Nissan Fuga Hybrid and Nissan LEAF

EV: Nissan LEAF

Electrically-driven
Intelligent brake
Image: Official Nissan website

Awarded “Technical R&D Award” by Society ofAutomotive Engineers of Japan, Inc.

Drive control systems business: target revenues for FY2015 : ¥200 billion© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (5)Example [Information field]: ICT* solution for EVs
Support EVs via global telematics centers~ Strengthen collaboration with Clarion navigation system and DCM* ~Strengths

Onboard system for Nissan Leaf

(1) EV drive support function
Notify driver when recharging becomes necessary andgive directions to the nearest recharging stand(2) Remote operation function(via data center)
Air conditioning can be controlled using a mobile
phone when vehicle power has been turned off(3) Vehicle status manager function(via data center)
Transmits vehicle location, equipment status etc., to thedata center, and generates probe traffic information

DCM

Timer for air conditioner

Timer for recharging

Recharging stand information

Electric power efficiency data and power consumption meter

Car information systems (CIS) business:target revenues for FY2015 : ¥250 billion*ICT: Information and Communication Technology*DCM: Data Communication Module© Hitachi, Ltd. 2011. All rights reserved.

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2-6 Global Distinctive Technologies (6)Developing methods to increase differentiation and efficiency in production
Develop production capabilities that surpass all others through improvements
in differentiation methods and technologies• Friction Stir Welding technology

Calipers
HEV inverters[Caliper for motorcycles]• Rectangular wire
technology• New center
for Forging
and Molding
Prototypes
established

Lead time
reductionby 1/3for Die
casting
prototypeHEV motors• Global introduction of remote• High precision assembly/heat suppression maintenance facilities in FY2011
Welding joint

Welding joint[ESC gear pump]Brake booster
e-ACT*+ ESC*, etc.
* e-ACT: electric drive braking system* ESC: Electronic Stability Control© Hitachi, Ltd. 2011. All rights reserved.

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2-7 Global Business Foundation (1)Start full operation of regional HQ systems based around 4 key overseas regions■ Previous
framework
Management
structure centeredon businessdivisions in Japan
Corporate

Product
Business Divisions(Japan)■ New framework(1) Achieve speedy management by expediting decisionmaking
Objectives (2) Start operation of locally-led management, and local
production for local consumption (conformed to thecharacteristics and needs of the home market)
Product Business
Division / Domestic
group companies

GlobalCorporate[Optimization of group operations]

Europe RHQ*

Asia RHQ*

China RHQ*

Americas RHQ*

Hitachi Automotive
Systems Europe

Hitachi Automotive
Systems Asia

Hitachi Automotive
Systems China

Hitachi Automotive
Systems Americas

Group companies
and bases

Group companies
and bases

Group companies
and bases

Group companies
and bases

Americas Europe China Asia

*RHQ: Regional HQ© Hitachi, Ltd. 2011. All rights reserved.

22

2-7 Global Business Foundation (2)Increase investment in electronic control and electric drive
products and overseas bases to execute global strategy
1 Global investment
70% increase in cumulative investment forthe period FY2011 to 2013 (compared to
FY2008 to FY2010)

Composition of global investment and investment
in electronic control and electric drive initiatives
Japan
60%

Japan
45%

Overseas40%

2 Triple investment in electronic control
and electric drive initiatives

Overseas
55%(compared to cumulative total for the period
FY2008 to FY2010)¥150 billion

3 Increase the number of engineering
personnel from 3,500 (FY2010) to 4,000(FY2015)
4 Increase personnel at 4 key technicalcenters overseas from 200 (FY2010) to400 (FY2015)¥90 billion

50％
30％

Electronic
control andelectric drive

Overseas
investment
40%55%Globalinvestment
70% increase
Investment inelectronic
control andelectric drive
products
Threefoldincrease

FY2008 to FY2010 FY2011 to FY2013(Actual - cumulative) (Plan - cumulative)© Hitachi, Ltd. 2011. All rights reserved.

23

2-7 Global Business Foundation (3)Strengthen global procurement capabilities
Promote measures to maintain procurement networks to ensure stable supply lines
1 Expand local and international
procurement by accelerating “local
production for local consumption”
Increase local procurement rate from 65%(FY2010) to 80% (FY2015)

2 Reinforce VEC* and sourcing ofdevelopment functions*VEC:
Value Engineering for Customers, creating greater value for a lower cost

3 Establish global demand/supply system
Share information globally in real time to
expedite responses

Information sharing for establishinga consistent supply chain of parts
that require long production lead time

Customer (car manufacturers)

HitachiBasesin JapanCustomers’ production plans Overseas

bases
Database

Data-sharing
systems
Information of production
capability andagreement/confirmationof futuresupplyForecast for mid- andlong-term production
and order

Suppliers© Hitachi, Ltd. 2011. All rights reserved.

24

2-7 Global Business Foundation (4)Strengthen global quality assurance initiatives
Achieve the standard of craftsmanship, high reliability and high quality that
expected of Japanese products at all bases worldwide
1 Reinforce global quality assurance
framework

Corporate Quality
Assurance Division

Global Quality
Assurance Committee• Reconfigure global quality assurance policies
and related responsibilities (organization)

2 Assure the quality of newly introduced
and locally sourced materials• Bolster quality assurance evaluation
framework, etc.

3 Introduce integrated management
system for global quality assurance• Improve the speed of response throughreal-time information sharing with suppliers
and others (From July 2011 onwards)

Global Quality
Improvement
Committee

Cross-sharingof quality
information

AmericasQuality
Assurance
Divisions

EuropeQuality
Assurance
Divisions

China
Group-wide
・ Quality indexes
corrections
・ Quality standards andimprovements

Cross-sharing of
quality information

Domestic bases

Quality
Assurance
Divisions

Asia
Quality
Assurance
Divisions

Suppliers© Hitachi, Ltd. 2011. All rights reserved.

25

Automotive Systems Business Strategy
Contents

1. Business Overview
2. Global Growth Strategy
3. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

3 Conclusion

FY2015 Targets
Revenues: Over ¥1 trillion
Overseas Revenue Ratio for
Global Customer Bases* : Over 60%
Operating income ratio: Over 5.0%
Achieving the goals set out in this global
growth strategy will increase ourcompetitiveness on the world stage.
*These are combined ratio with figures of automotive systems that are equipped with vehicles atcustomer„s base and figures of mobile batteries„s overseas revenues.
© Hitachi, Ltd. 2011. All rights reserved.

27

Cautionary Statement
Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking
statements” reflect management‟s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or
current fact. Words such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify“forward-looking statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ
materially from those projected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of
future events which may not prove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.
Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to:■economic conditions, including consumer spending and plant and equipment investment in Hitachi‟s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of demand in the
major industrial sectors Hitachi serves, including, without limitation, the information, electronics, automotive, construction and financial sectors;■exchange rate fluctuations of the yen and other currencies in which Hitachi makes significant sales or in which Hitachi‟s assets and liabilities are denominated, particularly against the U.S. dollar and the euro;■uncertainty as to Hitachi‟s ability to access, or access on favorable terms, liquidity or long-term financing;■uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write down equity securities that it holds;■the potential for significant losses on Hitachi‟s investments in equity method affiliates;■increased commoditization of information technology products and digital media-related products and intensifying price competition for such products, particularly in the Components & Devices and the DigitalMedia & Consumer Products segments;■uncertainty as to Hitachi‟s ability to continue to develop and market products that incorporate new technologies on a timely and cost-effective basis and to achieve market acceptance for such products;■rapid technological innovation;■the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term contracts for which Hitachi uses the percentage-of-completion method to recognize revenue from sales;■fluctuations in the price of raw materials including, without limitation, petroleum and other materials, such as copper, steel, aluminum and synthetic resins or shortages of materials, parts and components;■fluctuations in product demand and industry capacity;■uncertainty as to Hitachi‟s ability to implement measures to reduce the potential negative impact of fluctuations in product demand, exchange rates and/or price of raw materials or shortages of materials, partsand components;■uncertainty as to Hitachi‟s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;■uncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitiveness and other cost reduction
measures;■general socioeconomic and political conditions and the regulatory and trade environment of countries where Hitachi conducts business, particularly Japan, Asia, the United States and Europe, including, without

limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms and conditions and labor relations;■uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key products;■uncertainty as to Hitachi‟s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;■uncertainty as to the outcome of litigation, regulatory investigations and other legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may become parties;■the possibility of incurring expenses resulting from any defects in products or services of Hitachi;■the possibility of disruption of Hitachi‟s operations in Japan by earthquakes, tsunamis or other natural disasters, including the possibility of continuing adverse effects on Hitachi‟s operations as a result of theearthquake and tsunami that struck northeastern Japan on March 11, 2011;■uncertainty as to Hitachi‟s ability to maintain the integrity of its information systems, as well as Hitachi‟s ability to protect its confidential information or that of its customers;■uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its significant employee benefit related costs; and■uncertainty as to Hitachi‟s ability to attract and retain skilled personnel.

The factors listed above are not all-inclusive and are in addition to other factors contained in Hitachi‟s periodic filings with the U.S. Securities and Exchange Commission and in othermaterials published by Hitachi.

© Hitachi, Ltd. 2011. All rights reserved.

28