Automotive Systems
Business Strategy

June 9, 2010

Kunihiko Ohnuma
President & CEO
Hitachi Automotive Systems, Ltd.

Automotive Systems Business Strategy

Contents
1. Business Overview
2. Market Environment
3. Strategic Targets
4. Growth Strategies
5. Conclusion

1-1. Business Overview
Other （5%）[Environment field]
Powertrain & electronic control
systems（30%）[Information field]
Car information systems (CIS)（25%）[Safety field]
Drive control systems（20%）

FY2009consolidated
revenues¥638.8 billion[Environment field]
Engine management systems（20%）

Develop the above four system businesses in our role as
the company in the Hitachi Group’s automotive-related businesses© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

21-2. Business Domains
Improve fuel efficiency, lower exhaust emissions, reduce size and weight, electrify, add information systems

ICE

Internal combustion engine

HEV
Hybrid electric vehicles

EV

Electric vehicles

Focus on the environment and safety with electronic control and electric drive systems key technologies
Powertrain & electronic control
systems
Engine management systems

Environment

・ HEV systems
・ DIG* systems, etc.

*DIG: Direct Injectionof Gasoline

SafetyInformation

Drive control systems
・ Brake, steering andsuspension systems
・ Outside recognition technologies, etc.

Car information
Systems (CIS)・ Traffic information, map data update service
・ Car navigation systems, etc.

Develop products leveraging Hitachi Group synergies© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

31-3. Consolidated Revenues and Operating Income Ratio Trends
Operatingincomeratio

1.4%(0.8%)

Plus
Minus

889.0

(8.9%)

5%
25%
Revenues(Billion yen)

681.7

638.8

15%

5%
25%

20%

20%

20%

Drive control
systems

20%

20%

30%

30%

Engine management
systems
Powertrain &electronic control
systems

FY2008Results

FY2009Results

35%
FY2007
Results

5%
25%

Other
CIS systems

Results down since 2H FY2008 due to so-called “Lehman Shock” in Sept. 2008
⇒Implemented corporate spin-off and transformed businesses to reform business structures© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

41-4. Implement Business Structural Reforms
Selection and Concentration■Realign bases, reallocate production

Cut Fixed Expenses■Reduced personnel(Total no. of people)

・Closed die-cast base (Nishine, Iwate)・Withdrew from plating business(Hiratsuka, Kanagawa)・Integrated power steering business(Akita)・Withdrew from hydraulicpower-steering for passenger cars
(Closed North American plant)
・Starters: Integrated in China
・ETB*: Integrated in Thailand
・Suspension: Streamlined production lines
・Optimized organization of Gunma and
Sawa works*ETB Electronic Throttle Body

35,700

Reduced headcountby 6,800 in one year
to achieve savingsin Sept. 30, 2009

31,70028,900

Sept. 30, 2008
(Actual)Mar. 31, 2009
(Actual)

Sept. 30, 2009
(Actual)■Rigorous selection of investment and R&D, etc.

Shift to business framework that is profitable even if sales volume goes down
© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

51-5. Results of Business Structural Reforms
Reap results by completing structural reforms in FY2009
OperatingincomeRatio(%)

1.4％

Earnings at
same level

3.3％

Shift to business frameworkthat is profitable even if
sales volume goes down
Secure earnings at same level

Revenues(Billion yen)as FY2007 (pre-financial crisis)
75% levelon revenues of 75%

889.0

of FY2007 level
352.2

2H FY2009 results
FY2007(Actual)6-month conversion

2H FY2009(Actual)Operating income ratio of 3.3%
Returned to profitability© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

6

Automotive Systems Business Strategy

Contents
1. Business Overview
2. Market Environment
3. Strategic Targets
4. Growth Strategies
5. Conclusion

Environment:
2-1. Market
Global Automobile Production Forecast
2010: 90% of 2007 level
Growth rate (From 2007 to 2015): +2.3%/year(2015: 82.0 million units/year)

China and other emerging nations are driving growth(Million units/year)

82.0

72.8

68.6
56.5

+6.2%

Other

61.4

(Asia, South America, etc.)

China
Japan andSouth Korea

2007

2009

2010

Growth rate/year(From 2007 to 2015))

2012+10.1%-0.9%

Europe+0.2%

North America

-0.2%

2015

Emerging
nations+8.0%

Industrialized
nations-0.2%

Total: +2.3%(Source: CSM Worldwide)© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

8

Trends in Environmental Field
2-2. Regulatory(Stronger CO Emissions Regulations)
2

Various countries are strengthening fuel efficiency (CO2 emissions) regulations,e.g. CAFE* standards in the U.S. and Law Concerning the Rational Use of Energy in Japan
Even in the emerging market of China, regulations are expected to be tightened tothe same level as industrialized nations in the futureState of California, U.S.

CO2 emissions(g/km)

About 12km/L

200

201

Expanding application to 12
other U.S. states

California also is
to European levels

169.8

160

Even China is
expected totighten regulations
to the same level as
industrialized
nations

Strengthening regulations

Japan About 14km/L

161

Europe137.5
Tighter regulationsin Japan, U.S. and Europe

130

127

About 18km/L

2005*CAFE： Corporate Average Fuel Efficiency

2008

2010

2012

Law Concerning the Rational Use of Energy: Law dealing with the rationalization of energy usage

2015(Source: Nikkei BP materials)

Emissions regulations also being strengthened for nitrogen oxide, hydrocarbons, etc. (Euro 5, etc.)© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

92-3. Trends in Regulations and Technology in the Safety Field
Shifting focus from collision safety to preventive safety
Tighter regulations

Regulatory trends(North America)(Europe)Electronic stability control, lane departure warning,
forward collision warning (NCAP: New Car Assessment Program )Electronic stability control, lane departure warning, etc.
(European New Car Assessment Programme)(commercial vehicles)

Vehicle system trends

supportMitigating collision damage, lane
departure warning(commercial vehicles)

Mitigating collision damage, lane departure warning(Japan)Recognition

Pedestrian protection
at rear( ):Hitachi’s applicable products and technologies

Traffic lanedetection(Camera)Pedestrian detection(Camera and radar)

Vehicle detection(Radar)Detection of nearby
obstacles(OVM* camera)

Road edge detection(Stereo camera)

Detection of distantobstacles(Stereo camera and radar)

Expanding scope of outside recognition systems, increasingly advanced control systems

Safedriving
controlsystems

Electronic stability control(Increasing use of VDC * )Emergency avoidance control(Increasing VDC sophistication)

Integrated driving control(Braking, steering, etc.)*OVM:Overhead View Monitor VDC:Vehicle Dynamics Control© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

102-4. Market Environment: Development of Automotive Electronics
Use of electronics in automobiles is developing rapidly inresponse to tougher environmental and safety regulations
Change in share of electronics parts as percentage of total automobile cost

1％

1980s
Mechanical parts
Electronic parts

20％

2004

40％

2015 (Forecast)

Source: Extracted from Nomura Securities Co., Ltd. materials© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

112-5. Competitive Environment(Business presence Yes ○ 、 No －)Hitachi

○

－

－

○

○

○

○

○

○

○

○

Lithium-ion batteries

○

－

－

－

○

○

Brakes

○

○

－

○

○

○

Suspensions

○

－

－

－

－

○

Image recognition
cameras

○

○

－

○

○

○

Traffic information services/Solutions, etc.

○

－

－

－

○

－

Car navigation systems

○

○

－

○

○

○

Environment HEV inverters

Information

Company D Company E○

HEV motors

SafetyCompany A Company B Company C

Hitachi can provide motors, inverters and batteries as an “HEV system”
Hitachi possesses outside recognition, car navigation and solutions technologies© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

12Automotive Systems Business Strategy

Contents
1. Business Overview
2. Market Environment
3. Strategic Targets
4. Growth Strategies
5. Conclusion

3-1. Hitachi’s Business Environment and Responses
Suppliers must respond globally to commoditization, and use of electronics and electrification systems→ Respond to increasing use of automotive electronics, strengthen global strategy

Global situation
Stronger environmental
regulations around the world
Rising fuel prices due toincreasing demand in emerging
markets

Auto industry
Increasing use of electronics in
carsElectric drive systems in cars
(Idling stop, HEVs, EVs)

Hitachi's responses
Create new productswith electronic control/electric drive systems

Yen staying high(perhaps over long term)
Suppliers required to cut costs
more
Polarization of automobile
demand in industrialized nations(Lower prices, and highquality/more sophistication)

Changing structure of car sales:
Sluggish in industrialized
nations, increasing in emerging
nations

Cut costs ofcommoditized products

Must develop engines matchingregional characteristics(Japanese automakers)
Shifting from exports to local
manufacturing

Strengthen global
support for automakers© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

143-2. Business Targets up to FY2015
Implemented businessstructural reforms

Shift to growth phase
4.0%

4.5%

Over 5.0%
PlusOver¥1 trillion

1.4%(0.8%)
889.0

681.7

638.8

FY2008(Actual)

750.0
Minus

Increase of revenues making to electronics andelectrification systems progressing in the samebusiness composition ratio.
[Powertrain & electronic control systems：30％][Engine management systems：20％][Drive control systems：20％][CIS ：25％][Other ：5％]

(8.9%)

FY2007(Actual)

680.0

730.0

FY2009(Actual)

FY2010(Plan)FY2011(Plan)FY2012(Plan)

Operating income ratio

Revenues(Billion yen)

2.5%

FY2015(Plan)

Achieve full-year profitability in FY2010 (V-shaped recovery) as a result of
business structural reforms
Aim in FY2015 to achieve revenues of over ¥1.0 trillion and an operating income
ratio of over 5.0%
© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

15

3-3. Strengthen Global Business
Improve worldwide presence to become global supplier driving automotive systems market

Strengthen foundation of European business,double revenues in China and the rest of Asia
In FY2015, achieve overseas revenue ratio of over 50%

EuropeChina
Asia except
200
China and Japan
210

140

Japan

100

100

100

120

Americas

100
2010
Plan

160
2010
Plan

2015
Target
2010
Plan

2015
Target2015
Target

100
2010
Plan

2015
Target
2010
Plan

2015
TargetOverseas revenue ratio transition
FY2009FY2010FY2011FY2012FY2015

40%

42%

43%

44%

Over 50%

Revenue index by region (FY2010: 100)

* Exchange rate difference division© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

16

Automotive Systems Business Strategy

Contents
1. Business Overview
2. Market Environment
3. Strategic Targets
4. Growth Strategies
5. Conclusion

4-1. Basic Strategy by Value Chain
MONOZUKURI

R&D/Design(Manufacturing capabilities)

・ Strengthen platform/
systems technologies
・ Standardize hardware/key device
specifications

・ Produce nearcustomers’ production
sites
・ Create general-purpose
production lines
・ Conduct “scalable”*
investments infacilities, strengtheninternal production

Marketing and sales
・ Bolster global
marketing・ Develop markets
in emerging nations
・Strengthen aftermarket
business

Global business foundation
Strengthen company-wide governance(Strengthen company-wide control functions and regional management)
Deepen alliances within regions and create frameworks for autonomous operations*Corresponding to the change in the scale flexibly© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

18

Policies
4-2. Priority(Strengthen Business Foundation and Earnings Capabilities)

1

Bolster “Multifaceted MONOZUKURI”

2

Strategic cooperation with domestic and overseas manufacturers

3

Achieve global operations (Accelerate localization)

Strengthen R&D
into electronic
control/electric drive
systems for cars・Develop distinctive technologies:
Electronic control/electric drive systems(Develop next-generation electric drive
systems for vehicles)
・Strengthen global R&D framework
・Realign global production, strengthen core technologies

Innovate
production
technology
globally・Strengthen joint development activities with automakers, etc.
・Consider forming alliances in emerging nations, etc.

・Expand regional management frameworks
・Strengthen sourcing of development functions andglobal procurement capabilities
・Build global TSCM ** Total Supply Chain Management© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

19

Development and Proposal
4-3. Strengthen
Capabilities of Systems/Components
Increase business opportunities with electronic control
and electric drive systems as distinctive technologies
Components

Electric drive vehicles

Conventional-engine vehicle

Powertrain

Engine transmission

Motors/inverters/batteries

Control

Combustion control/transmission control

Electric/thermal energy control

BrakingEngine negative-pressure booster

Electric actuation booster

Steering

Hydraulic/electromotive systems

Electric drive system

Energy-saving technology with integrated control of electricity/thermal energy⇒ FY2015 target: To increase driving range over 30% from that of current EV systems(for same battery capacity)

Car navigation

Motor
InverterBrakesSteering

Camera/radar

Energy integration
controller
Exhaust-heatrecovery system

Onboard recharger

Battery

Suspension© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

20

4-4. Development Framework to Raise Product Competitiveness (1)Apply the Hitachi Group's simulation/analysis technologies
to automotive systems to create strong unique Hitachi products
High-precision combustion simulation/Electromagnetic field analysis technology
Develop high-precision engine simulation and electromagnetic field analysis of motors based on
combustion analysis of gas-turbine generators from power systems business, and on electromagnetic
field analysis technology

High-precision simulation* DIG:Direct Injection of Gasoline

DIG* injector/high-pressure
fuel pump
Combustion analysis technology

Fuel spray analysis technology

Electromagnetic field analysis technology

Reduction of cogging torqueMotor© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

21

4-5. Development Framework to Raise Product Competitiveness (2)Improve reliability through various strict field tests
in cold regions and elsewhere on our own test courses
Own test courses (4 locations)
Tokachi test course

Sawa test course

A test drive through snow

Yamanashi test course

Atsugi test course© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

22

4-6. Nurture Strong Businesses (1) – Improve Engine Efficiency(1)DIG system

Strengths
・ System proposals

ECU* (for DIG)

- Combustion design- Compatible with small engines
due to multiple injection,
reduced PM*1

・DIG*2 system: 7% improved fuelefficiency*1 PM: Particulate Matter*2 DIG: Direct Injection of Gasoline

PolicyHigh-pressure fuel pump

Injector*ECU:Engine Control Unit

DIG System Revenue Index
Index (FY2009: 100)

190
150

100

FY2009FY2010FY2015・Increase and bolster global sales
by improving productcompetitiveness

Detailed measures
・Establish global production
framework
・ Develop next-generation systems
and increase sales toglobal customers© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

23

4-7. Nurture Strong Businesses (1) – Improve Engine Efficiency (2)Variable valve business

Strengths
・ Control and other system proposal
・ In-house sintering technology
・ VEL: 10% improved fuel efficiency

VTC*

VEL*
*VTC: Valve Timing Control System*VEL: Variable Valve Event and Lift

VTC/VEL Revenue Index
220
Index (FY2009: 100)

100

110

FY2009FY2010

PolicyCapture No. 1 global share(VTC currently No. 3; own estimate
on unit basis)

Detailed measures
・ Develop new products(Mid pin VTC, 4-cylinder VEL, etc.)
・ Increase sales globally and expand
local production

FY2015© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

24

4-8. Nurture Strong Businesses (2) – HEV Business
Strengths
MotorsLithium-ion batteries

Inverters

Highly durable starters
for idling stop system

Index of Revenues forMotors/Inverters/Batteries for HEV Systems

320

Index (FY2009: 100)

100
FY2010

Policy・ Factor in costs by strengthening
technological capabilities
・ Increase sales by making system proposals

Detailed measures

140

FY2009・Motors: Small, high-efficiency, high output
Torque density 75Nm/L (Starter core volume
ratio)
Optimum design of magnetic circuits withanalysis technology
・ Inverters: Made smaller with high-efficiency
cooling system (by 1/3 comparison with ourcurrent model)
・ Lithium-ion batteries (For PHEV): Achieveboth high energy (120Wh/kg) and high output(2,400W/kg)
・ Idling stop systems: highly durable starters

FY2011・ Reduce costs and strengthen our own
technological capabilities(Cut materials costs, produce core parts
internally, develop standardized products, etc.)© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.
25

Strong Businesses (3)4-9. Nurture– Outside Recognition Technology
EyeSight (ver. 2) fromFuji Heavy Industries Ltd.

Strengths“The new EyeSight advanced driverassistance system actively manages ・Offers multifunctional, high-performancevarious safety functions and further
vehicle control with only advanced-recognition
enhances Subaru drivers’ all-roundstereo camera technology
safety driving experience.”(From Fuji Heavy Industries’ April 22, 2010press release)

Subaru 2.5i Legacy touring wagon with EyeSight(High-precision recognition detects not only
other vehicles but also motorcycles and pedestrians)
If our EyeSight system were to be
introduced into all vehicles on the road, we projectthat damage caused by major accidents would be
cut by 20-30%!
(From Fuji Heavy Industries’ April 22, 2010 press conference)

If the system judges there isa danger of a collision
with an object, etc.,
it applies “brake control”

The system simultaneously
detects vehicles,
objects, pedestrians andthe traffic laneIndex of Revenues of Outside Recognition Cameras
Index (FY2009: 100)
(Includes overhead view monitors)

100
FY20091,000

300
FY2010FY2011

Policy・Expand business by further improving
product capabilities

Detailed measures
・Develop small, high-performancenext-generation stereo cameras withadvanced functionality
・ Expand application of outside recognition
technology to view cameras, car navigation
systems, etc.
© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

26

Strengthen MONOZUKURI
4-10. Rigorously(Manufacturing Capabilities) (Lighter Products)

Monoblock calipers for motorcycles
Compared to conventional calipers: 20% lighter and body is 10% more rigid

・ Friction Stir Welding is used to make the monoblock calipers
・ Used for aluminum pistons

Friction Stir Welding of aluminum alloys is also usedin the manufacture of Hitachi railcars© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

27

Automotive Systems Business Strategy

Contents
1. Business Overview
2. Market Environment
3. Strategic Targets
4. Growth Strategies
5. Conclusion

5. Conclusion

Establish a presence as a global supplier1

2

Reinforce businessfoundation

Shift to growth phase

Improved businessframework by completingbusiness structural reforms
in FY2009
Return to profitability
in FY2010

Implement global
strategy to achieve
Revenues of over ¥1.0 trillion(Overseas revenue ratio of over 50%)
Operating income ratio of over 5%

FY2015 strategic targets© Hitachi Automotive Systems, Ltd. 2010. All rights reserved.

29

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 investments in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of demand in the majorindustrial sectors which Hitachi serves, including, without limitation, the information, electronics, automotive, construction and financial sectors;- exchange rate fluctuations for 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 Digital Media &Consumer Products segments;- uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technology 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;- 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;- 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 socio-economic and political conditions and the regulatory and trade environment of Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, including, without limitation, direct orIndirect restrictions by other nations on imports, or 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 or other natural disasters;- 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 and that of its customers;- uncertainty as to the accuracy of key assumptions Hitachi uses to valuate 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 Automotive Systems, Ltd. 2010. All rights reserved.

30