Automotive Systems
Business Strategy
Hitachi IR Day 2013

June 13, 2013

Kunihiko Ohnuma
Chairman & CEO
Hitachi Automotive Systems, Ltd.

© Hitachi, Ltd. 2013. All rights reserved.

Automotive Systems Business Strategy

Contents
１. Business Overview
２. Market Trends
３. Growth Strategy
４. Business Targets© Hitachi, Ltd. 2013. All rights reserved.

1-1. Business Concept
Harness advanced technologies in the environment,
safety and information fields to create new value for people,
automobiles and society, and a richer society

Become the most globally trusted
corporate group

Environment
Eco-friendly energy control withhigh efficiency

Information

SafetyInformation and telecommunication
solutions for improving the riding
experience inside automobiles andconvenience

Optimal safe driving control in termsof driving, steering and braking© Hitachi, Ltd. 2013. All rights reserved.

31-2. Business Structure
Drive control systems
Electrically-driven intelligent brake

Powertrain & electronic control systems

Stereo camera

Hybrid systems
Motors

Suspension systems

20%
Safetyfield

Car information systems
ClarionCar Navigation Systems
Smartphone
controller

30%

FY2012
Consolidated
Environment
revenues
field
Information
field 806.8 billion yen

Lithium-ion batteries(Hitachi Vehicle Energy)

Engine management systems

20%

Variable valve systems

Other

Other

Inverters

10%

20%
Direct Injection systems

Seismic isolation oil damper
for buildings

Hydrogendispenser(TOKICOTECHNOLOGY)

Engine components systems© Hitachi, Ltd. 2013. All rights reserved.

41-3. Hitachi’s Management Structure
Hitachi Ltd., President

Infrastructure Systems Group
Information & Telecommunication
Systems GroupPower Systems Group
Construction Machinery Group

Established as
an independent groupfrom the Infrastructure
Systems Groupon April 1, 2013

High Function Materials &Components Group
Automotive Systems Group

Grow the automotive components business as a core businessby operating the business and marketing management decisions
closer to the market as a market-responsive organization© Hitachi, Ltd. 2013. All rights reserved.

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Automotive Systems Business Strategy

Contents
１. Business Overview
２. Market Trends
３. Growth Strategy
４. Business Targets© Hitachi, Ltd. 2013. All rights reserved.

2-1. Global Auto Production Trends
By region(Million unit/year)

By auto-manufacturers
108

108

93

93

81
Emerging
nations’markets

By vehicle segments

Local

81

16%

93
Middle,big cars

12%

35%
38%

Globalmanufacturers

49%

34%

81

14%

58% manufacturers
54%

108

84%

Small cars

86%

Industrialized
nations’markets

66%

88%

51%

46%

42%

2012

2015

2020

62%

2012

2015

2020

2012

65%

2015

Emerging
markets
account
for 70% of
small cars

2020

Source: Data compiled in-house from data provided by IHS Automotive Global carmakers will capture a large share as emerging nations’ markets expand Small car production in particular will expand in emerging markets© Hitachi, Ltd. 2013. All rights reserved.

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2-2. Global Regulatory Trends
Environmental regulations

Safety evaluation

CO2 regulations[gCO2/km](Normalized to NEDC)

200

regionEvaluate
institution

2012 2013 2014 2015 2016 2017

NCAP
/IIHS*

Collision warning / Lane departure warning

U.S.

U.S.
Europe150

Japan

Europe

50
2005

2010

2015

2020

Collision avoidance / Mitigate damage
Excessive speed warning

China

100

Euro
-NCAP

Lane departure warning
Low-medium-high speed
collision avoidance
Mitigate damage

2025

Collision avoidance
pedestrians

Stringent emission regulations

Collision avoidance / Mitigate damage(Nitrogen Oxide, Particulate Matter, etc )New long-term

Japan regulations
U.S.

Lane departure warning

Post new long-term regulations

Tier2

Europe Euro4
China Euro3
2005

2020

Japan

Tier3
Euro5
Euro4

Euro6

Euro7
*NCAP: European New Car Assessment Programme
IIHS: Insurance Institute for Highway Safety

Euro5

2010

Collision avoidance
pedestrians
Night timepedestrians
collision
avoidance

JNCAP

2015

2020

Environmental regulations are slowly
being applied in emerging nations
as well as industrialized countries: Car safety evaluation: Safety evaluation for pedestrians

Requirement of safety evaluation
more on pedestrian protection thancars collision avoidance© Hitachi, Ltd. 2013. All rights reserved.

8

2-3. Global Technology Trends
サステナブルな社会を実現するモビリティテクノロジーへ
Increased focus on mobility technology for creating a sustainable society
Environment

Enhancing state-of-the-art electronic control
and electric drive technologies
 Creation of more efficient internal combustion engines
 Improvement of power-saving technologies for
P-HEVs and EVs
Leverage

SafetyAdvance from collision safety to preventive safety
Create automobiles that don’t collide using outside
recognition sensors and chassis electronic control
technologies

next-generation
mobility technology
to make automobiles smarterand realize automated driving

Information

Link automobiles and society with IT
Use information technology as a bridge between
automobiles and the outside to improve comfort andconvenience as well as add value to automobiles

P-HEV: Plug-in Hybrid Electric Vehicle EV:Electric Vehicle© Hitachi, Ltd. 2013. All rights reserved.

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Automotive Systems Business Strategy

Contents
１. Business Overview
２. Market Trends
３. Growth Strategy
４. Business Targets© Hitachi, Ltd. 2013. All rights reserved.

3-1. Global Position Analysis
Electronics products* share of TOP 10 global parts
suppliers by revenue in FY2011
100％

Source: Arthur D. Little

Electronics products Share

Global TOP 10
domainby revenues
in FY2011

FY2020 target 60%
FY2015 target 50%

Company I

50％

Company B

Company F

HitachiCompany A

FY2011 45% (18th by revenues)

Company C

Company E
Company H
Company J
1 trillion yen

Company D
Company G
2 trillion yen

Revenues
3 trillion yen

Enhance growth potential by increasing
electronics products* share to world-leading level*Electronics products: Electronic control and electric drive products such as electronic control units, hybrid systems, etc.
© Hitachi, Ltd. 2013. All rights reserved.

113-2. Global growth strategy
Global-winning global growth strategy
Customer strategy

Regional strategy

Product strategy

Expand sales toglobal automakers

Produce locally for local
consumption in regions
around the world

Build next-generation
environment,
safety systems

Strengthen proposals
matched to customers’
strategies

Focus onemerging nations

 Increasing electronics
products share
ダウンサイジング Standardize globally システム統合制御
Enhance core products

Strengthen the global management foundation with an eye on 2020

Execute cost structure reform and cash flow
management to make business operations stronger© Hitachi, Ltd. 2013. All rights reserved.

12

3-3. Customer Strategy
Expand sales to global automakers
Customer composition and Targets
1 trillion yen
811.5 billion yen
60% oftheprojected
revenueincrease

Other
30%
Mazda 1%
Isuzu 2%

40%

Suzuki 2%
VW/Audi 2%
Honda 3%37%

Ford 7%Use GAM/GAT tostrengthen global response
Bolster customer strategy-matching proposals
by strengthening integrated contact points
for customers expanding their businesses globally

Improve global design anddevelopment capabilities
Make speedy product and system proposals tocater to the various needs of customers
developing business globally Increase overseas development personnel
by 2.4 times (FY 2015)
 Expand application of simulation/analysis
technologies shared across the Hitachi GroupGM Group 9%
Toyota Group 9%

RENAULTNISSAN33%

FY2011

Strengthen proposal capabilities

FY2015(Target)

GAM : Global Account Manager
GAT : Global Account Team
© Hitachi, Ltd. 2013. All rights reserved.

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3-4. Regional Strategy
Increase production bases in emerging nations
19 bases+4

23 bases+4

27 bases

FY2008FY2011FY2012

China

13

15

16

Thailand4

4

4

Mexico2

2

4Czech Republic

0

1

1

India

0

1

2

BrazilDispatch sales representatives

RussiaConsidering plans for entry

Indonesia

Considering plans for entry

Considering plans for entry

Advance into emerging nations to accelerate local production for local consumption© Hitachi, Ltd. 2013. All rights reserved.

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3-5. Emerging Nation Business Expansion
Emerging nation revenue target indices
China
300
100 94EasternEurope2010 20122015 (FY)
TargetEmerging nations
total
200
Asia

100

121

South andCentral America
150
100 1352010

100 146
2010 2012

200
2010

2012

2012

2015 (FY)
Target2015 (FY)
Target2015 (FY)
TargetRevenue index (FY2010:100)

Double revenues in emerging nations by FY 2015 (Vs. FY2010)© Hitachi, Ltd. 2013. All rights reserved.

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3-6. Global Product Standardization
Promotion of modular design- Standardization of product specifications Standard portion

Standardize MONOZUKURI
Sync

Build global standard
production lines

Variable portion

・ Reduce types of components
making up products・ Facilitate local procurement

Facilitate the startup ofoverseas production

・ Facilitate response
to individual customer
specifications

・ Improve cost competitiveness・ Increase global development

・ Expand local production
for local consumption
・ Production cost reduction

Expand customers

Results of Global Standardization of VTC
320(Revenue index)

100

2008

200

2012

2015

Grow revenues
3.2 times
compared with
FY2008(FY)

EasternEuropeIndia
China

Production
base increase: Current production sites: Future production sites

North America
MexicoJapan

Quickly provide products matched to customer needs in terms of price and quality competitiveness
VTC: Valve Timing Control system© Hitachi, Ltd. 2013. All rights reserved.

16

3-7. Enhance Core Products
Differentiate next-generation systems by enhancing core products
Contribution to creation of
automobiles attractive to customers

Next-generation system differentiation

Next-generation
powertrain control
UltraElectric drivefuel-efficientsubsystem
systemNext-generation
chassis control
Drive
Safety support
stabilization
systems
systems

Enhancement of core productsElectronic control and electric drive products
High-performance mechatronics

Enginecontrol unit

MotorsStereo camera

Semi-active
Suspension
systems

ESC

Global design and development capabilities
Electric valve
timing control

Inverters

Outsiderecognition
sensors

ISS Starter

Lithium-ion
batteries

ADAS

MONOZUKURI capabilities

Electricallydriven
intelligent brake

Global standardization of production facilities
and quality assurance technologies

ISS : Idling Stop System
ESC : Electronic Stability Control

Electricallydriven PKBADAS : Advanced Driver Assistance Systems
PKB : Parking Break© Hitachi, Ltd. 2013. All rights reserved.

173-8. Helping Create Next-generation Vehicles
Contribute by synergy to the creation of next-generation vehicles fit for a sustainable society

Hitachi’s key technologies support sustainable society
Hitachi Automotive Systems
Environment

SafetyInformation

Infrastructure /advanced technologies

Next generation
mobility technology
Technology
related energy

IT

Autonomous
mobility robot
technologies

Big Data

Traffic control andmanagement
systems

Help automakers
createnext-generation
vehiclesEnergymanagement
solution of EV

Cloud

Smart mobility

Propose solutions
by key technologies
withinthe Hitachi Group

Next-generation
vehiclesSmart grid

Fusion smart cities

Smart cities
Hitachi Group© Hitachi, Ltd. 2013. All rights reserved.

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3-9. Investing in Growth
Investment in electronic control and electric drive globally
Investment composition
Overseas40%
Domestic
60%

R&D expenditure
52.8
billion yen

Domestic40%
Over-seas
60%

200 billion yen

2.2 times

24
billion yen
FY2011

58.3
billion yen

29billion yen
FY201280.0
billion yen

48
billion yen

1.5 times(Vs. FY2011)

2 times(Vs. FY2011)

FY2015(Target)Global engineering personnel
3,700

4,000

500

530

1,000

FY2011FY2012FY2015(Target)3,600

90 billion yen(Number of
personnel)

3.7times

50％
30％
Total sum of
FY2008 – FY2010

Total sum of
FY2011 – FY2013(Target)2 times(Vs. FY2011)

Related electronic control and electric drive products© Hitachi, Ltd. 2013. All rights reserved.

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3-10. Progress of Hitachi Smart Transformation Project
Main past initiatives
Production
costs
Direct material
costs
Indirectcosts

Promotion of modular design - Standardization of product specifications and MONOZUKURI Strengthening of high-efficiency production and quality at optimal production locations

Lower costs through global procurement system and centralized purchasing
Reduction of overall costs through VEC activities
Globally unify core IT systems
Centralize and standardize administrative operations

VEC: Value Engineering for Customers

Main future initiatives (Continue and strengthen above initiatives)
Production
costs
Direct material
costs
Indirectcosts

Globally develop low-cost, standard production lines

Cost reduction due to defective work through Zero Defects activities
Costs reduction by VEC activities and rigorously adopting overseas materials
Maintain procurement networks compatible with global TSCM
Optimize Global logistics
Optimize logistics route, integration and re-use of logistics packing materials

TSCM: Total Supply Chain Management© Hitachi, Ltd. 2013. All rights reserved.

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3-11. Strengthening Cash Flow Management
Initiatives for improving free cash flows
Issues and areas to strengthen

Earnings improvement initiatives

Improve operating
cash flows

Raise inventory turnover ratio

Bolster global production management
to optimize global inventories

Shorten develop
and prototype timeframes

Strengthen simulation technologies

Improve investment efficiency

Improve capital expenditure efficiency

Increase internal production of
production facilities

Internal production rate 20%⇒60%(FY2012 ⇒ FY2015)

Develop standard automatedproduction lines globallyStandard automated production lines⇒Develop 12 in FY2013

Create low-cost production lines
for handling small production
lots for emerging nations

Lower costs by 30% to 70%
with low-cost production lines© Hitachi, Ltd. 2013. All rights reserved.

21

Automotive Systems Business Strategy

Contents
１. Business Overview
２. Market Trends
３. Growth Strategy
４. Business Targets© Hitachi, Ltd. 2013. All rights reserved.

4-1. Business Targets
FY2015 targets: revenues: 1 trillion yen, EBIT ratio : 7.0%
Overseas revenue ratio for global customer bases*

50%

48%

55%

50%

1 trillion yen

1,000

811.5

7.0%

820.0

806.8

737.9

5.0%
4.6%

60
50

4.5%

600

40

70.0

3.2%

30

400
200

37.0

41.0

36.4

20

23.7
FY2010Powertrain & electronic control
systems

10

FY2011Engine components
systems

FY2012
Drive control
systems

FY2013(Forecast)Car information
systems

Other

～

0

80
70

～

800

EBIT
(Billion yen)

60%～

Revenues(Billion yen)

FY2015(Target)EBIT

0EBIT ratio

EBIT： Earnings before Interest and Taxes* Customer bases that install automotive components in finished vehicles. This is different from overseas revenues in the consolidated accounts.
Excluding exchange rate differences© Hitachi, Ltd. 2013. All rights reserved.

23

4-2. FY2015 targets

FY2015 targets
Revenues: 1 trillion yen(Overseas revenue ratio for global customer bases 60%)

EBIT (Operating income): 7.0%
Gross margin:1 point improvement (Vs. FY2012)
SG&A expense ratio: 2 point improvement (Vs. FY2012)

Become the most globally trusted
corporate group© Hitachi, Ltd. 2013. All rights reserved.

24

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 thoseprojected 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 notprove 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 against 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, 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 Digital Media &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 suchproducts;
 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, synthetic resins, rare metals and rare-earth minerals, orshortages 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 shortagesof materials, parts and 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;
 uncertainty as to the success of 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 andconditions 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 by earthquakes, tsunamis 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 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 other materials published by Hitachi.

© Hitachi, Ltd. 2013. All rights reserved.

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