Auto, Auto parts, Materials, Chemicals sectors

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26 June 2015

Asia Pacific/Japan

Equity Research

Auto, Auto parts, Materials, Chemicals sectors

Connections Series

Automotive technology insights: Renewed focus on weight saving amid coming “hybrid body” era

■ Weight-saving technology drawing renewed attention: The auto industry is on the verge of a revolution in materials. This reflects stricter environmental standards that are forcing automakers to reduce vehicle weight—not just for powertrains but in other areas as well, all while maintaining the needed strength and rigidity.

■ The coming “hybrid body” era: Automakers are nearing the limits of their

ability to reduce vehicle weight using conventional material composition, especially the ordinary steel that accounts for the lion’s share of overall poundage. This has led them to make increased use of alternative materials in recent years, and we think the industry is now approaching the era of the “hybrid body” made from a combination of different materials. Specifically, we expect ordinary steel to be replaced with high tensile strength steel (HTSS), aluminum, synthetic resins, and carbon fiber.

■ Lightening – not to be taken lightly: Weight reduction is one of the more conventional approaches to improving fuel economy. However, with the tightening of environmental standards, particularly in developed economies, weight-saving technologies are drawing renewed attention as a potential breakthrough area. We look for weight reduction to become increasingly important as it is necessary to: (1) maintain the existing Angel Cycle, (2) offset an increase in weight accompanying vehicle electrification, and (3) attain a breakthrough in thermal efficiency once existing approaches reach their limits.

■ Estimating hybrid body market scale: We forecast the “hybrid body”

market—comprising the HTSS, aluminum, synthetic resins, and carbon fiber that we see as likely replacements for ordinary steel—to expand from ¥6tn in 2015 to ¥10tn in 2020 and ¥20tn in 2030. Our 2030 estimate breaks down as HTSS ¥6.2tn/51.9mn tonnes, aluminum ¥6.1tn/20.3mn tonnes, synthetic resins ¥3.7tn/25.1mn tonnes, carbon fiber ¥4.4tn/3.3mn tonnes.

■ Automotive hybrid body-related names:

Auto parts: Topre Corporation (5975), Unipres Corporation (5949), Nifco (7988), DaikyoNishikawa Corporation (4246), Toyota Industries (6201)

Materials: Kobe Steel (5406), Nippon Steel & Sumitomo Metal (5401), JFE Holdings (5411), Sumitomo Electric Industries (5802), Nippon Electric Glass (5214)

Chemicals: Toray (3402), Teijin (3401), Mitsubishi Chemical Holdings

(4188), Hitachi Chemical (4217), Mitsui Chemicals (4183), Kureha (4023)

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Research Analysts

Masahiro Akita

81 3 4550 7361

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Shinya Yamada

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Masami Sawato

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Jun Yamaguchi

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Koji Takahashi

81 3 4550 7884

[email protected]

26 June 2015

Auto, Auto parts, Materials, Chemicals sectors 2

Automotive hybrid body-related names Auto parts sector

Topre Corporation (5975, OUTPERFORM, TP ¥2,700)

Sophisticated processing technologies for HTSS bode well for sales

Topre is an independent manufacturer of automotive pressed components with particular

strength in processing technologies for HTSS. The company boasts strong earning power

underpinned by its sophisticated processing technologies and in-house production of

molds. It was the first Japanese auto parts maker to introduce hot-press technology for

making HTSS at its North American factory and began mass-production in 2013 of

1,470MPa-class steel components, which had record-high strength for auto parts at the

time. Topre agreed this year to take over the Japanese pressing plant of Honda supplier

Yachiyo Industry, which we think sets the stage for increased sales as industry efforts to

reduce vehicle weight proceed.

Unipres Corporation (5949, NEUTRAL, TP ¥2,900)

Strengthening HTSS technologies via alliance with NSSMC

Unipres is Japan’s largest supplier of pressed components to domestic automakers, with

key customer Nissan accounting for over 90% of total sales. Leading shareholder Nippon

Steel & Sumitomo Metal (NSSMC) increased its stake to 16.5% in 2015, prompting

Unipres and NSSMC to strengthen their joint development efforts for HTSS. Unipres has

been looking in particular to gain more knowledge regarding HTSS, and we await the

emergence of synergies in this area with NSSMC. Our longer-term outlook for Unipres has

profits expanding as product enhancements drive increased sales of pressed HTSS

components.

Nifco (7988, OUTPERFORM, TP ¥6,400)

Leading global maker of plastic fasteners; poised for higher sales of plastic parts

Nifco is a manufacturer of plastic components that controls over 70% of the domestic

market for plastic fasteners and has a leading share worldwide. The auto industry’s drive

to reduce vehicle weight has led it to replace conventional metal fasteners with plastic

alternatives, and Nifco’s market share has surged as a result. Vehicles made in Japan

currently contain an average 720 Nifco plastic fasteners. Nifco is also working on using

plastic in fuel-related powertrain components, and we expect profits to expand as the

company continues to address automakers’ need for weight saving.

DaikyoNishikawa Corporation (4246, OUTPERFORM, TP ¥4,600)

Key maker of plastic components; focused on need for weight saving

DaikyoNishikawa is a manufacturer of plastic automotive components whose primary

customer is Mazda. The company is involved in every aspect of plastic components, from

developing raw material blends to developing and manufacturing finished parts. With

stricter fuel economy regulations driving an increased need for lower vehicle weight,

automakers are replacing conventional steel components with plastic alternatives.

DaikyoNishikawa has strengthened its technological capabilities in plastic components

offering lighter weight and increased design freedom, such that it can now propose a

switch to plastic even for engine components and body panels—areas in which plastic had

been considered unsuitable. The company is also keen on expanding sales to customers

other than Mazda, and we expect profits to increase as it continues focusing on weight

saving.

26 June 2015


Toyota Industries (6201, OUTPERFORM, TP ¥7,800)

Strong potential in plastic windows

Toyota Industries is pursuing a number of new businesses, and we focus on plastic

windows as one with especially strong potential. Plastic windows offer a 30–40% weight

savings over conventional glass windows and therefore have a substantial impact on fuel

economy. The company also unveiled a multi-functional plastic roof at its recent 2015

Automotive Engineering Exposition. This likewise offers a substantial weight reduction,

and we are focused on its use in mass-market vehicles. While cost is an issue at present,

we look for increased takeup to generate volume effects and support an expansion of this

business.

Basic materials sector

Kobe Steel (5406, OUTPERFORM, TP ¥360)

Targeting demand with a multi-material strategy

Kobe Steel is the only company globally with a presence in HTSS, aluminum and welding.

It has leading market shares in all three businesses in Asia. Although the company ranks

only about 50th worldwide in terms of global crude steel production capacity, the above

three businesses mean it is well-placed to offer automakers optimized material and

structural design proposals. A multi-material approach is essential for automakers to make

their cars lighter. In that context, Kobe Steel’s welding technologies, which can join

dissimilar metals, are likely to play an important role. The welding business is already

achieving an RP margin of roughly 10% and is likely to attract growing attention as a

growth driver and source of profits for Kobe Steel.

Nippon Steel & Sumitomo Metal (5401, OUTPERFORM, TP ¥400)

Global HTSS strategy gathering pace

Nippon Steel & Sumitomo Metal (NSSMC) is estimated to be the global leader in

automotive steel sheet. We believe its all-round capabilities, such as its long track record

in the market, technologies, marketing capabilities and supply framework, set it apart from

competitors. NSSMC’s subsidiaries and equity-method affiliates manufacture high-tensile

steel in all continents and major regions apart from Europe and Africa, and we estimate it

also has the leading market share in all key markets. The company is also saving costs

through merger synergies and production line realignment, pointing to significant room for

profit growth over the longer term.

JFE Holdings (5411, OUTPERFORM, TP ¥3,700)

Slow to expand into US

JFE Holdings ranks alongside NSSMC and Kobe Steel as one of the top makers of HTSS

in Japan. However, it has fallen behind NSSMC overseas. The company itself recognizes

that it needs to develop its operations in North America as a matter of priority, so we see

prospects for a serious move into that market in the near future. At a recent briefing, JFE

Holdings said its production costs are not as competitive as NSSMC’s. To close this gap, it

plans to upgrade coke ovens and invest in other facilities, as well as step up personnel

training. The company is strong in technologies that control metal properties using a

water-quench process. Steel made using this process contribute to higher quality press-

formed steel sheets.

26 June 2015


Sumitomo Electric Industries (5802, OUTPERFORM, TP ¥2,400)

Closing in on the top global market share

Sumitomo Electric Industries (SEI)’s share of the global wire harness market in 2014 was

27%, just short of market leader Yazaki’s 28%. Growth in SEI’s share has been rapid over

the last 15 years, rising from just 10% in 2000. It would not be a major surprise if the

company moved into top spot in 2015. We expect growth in aluminum harnesses to drive

gains in market share. Some automakers have already decided to adopt high-strength

aluminum harnesses near the engines of some models from 2H FY3/16. Our simulation

suggests aluminum products will account for roughly 10% of SEI’s total wire harness sales

in FY3/18, rising to 65% in FY3/21 (Figure 37). We estimate the OP margin on aluminum

harnesses is around 2ppt higher than on copper harnesses due to the difference in

material prices.

Nippon Electric Glass (5214, UNDERPERFORM; TP ¥580)

Global leader in glass fiber for high-performance plastics

Nippon Electric Glass (NEG) is the global leader in chopped strands used in fiber-

reinforced thermoplastic (FRTP). Lighter than metal and efficiently malleable into complex

shapes, FRTP is used in a variety of autoparts. We estimate the current market at about

¥100bn and forecast growth to over ¥150bn in 2020 and over ¥250bn in 2030 as the

volume of plastics used in such applications rises. NEG projects its FY12/15 glass fiber

sales at about ¥60bn (23% of its total sales). Profitability is also improving and we expect

this product to drive future earnings. We nevertheless reiterate our UNDERPERFORM

rating because we believe NEG’s LCD glass earnings have peaked in 1Q, inventories and

working capital are rising, and cash flow is declining.

Chemicals sector

Toray Industries (3402, OUTPERFORM, TP ¥1,470)

Mass adoption of carbon fiber in auto sector driving transition to next stage of

growth

Japanese chemical makers own 60% of the global carbon fiber market and lead the world

in related technologies. The Toray group is far and away the individual leader, with a 36%

global share, and we think it could top 40% over the medium term as it adds production

capacity in response to increased automotive demand. We think a combination of

aerospace demand and increased carbon fiber use by automakers as a structural material

from 2016–17 could boost Toray’s carbon fiber OP from ¥26.2bn in FY3/15 to ¥60bn in

FY3/20. This equates to around 29% of our total FY3/20 OP forecast, second only to the

35% we see coming from the core textiles business. We expect OP from automotive

carbon fiber alone to advance from ¥9bn in FY3/17 to ¥15bn in FY3/20, but think this

medium-term profit impact is not yet in the share price.

Teijin (3401, NEUTRAL, TP ¥440)

Awaiting official announcement of contract to supply thermoplastic CFRTP to GM

In spring 2011 Teijin unveiled mass-production technology that forms carbon fiber-

reinforced polymer (CFRP) in under a minute using thermoplastic resin. The same year,

the company decided to develop parts for mass-produced cars jointly with General Motors

(GM). We think the company's carbon fiber business will expand rapidly if it concludes an

official agreement to supply CFRP for GM's mass-produced vehicles. We expect a sales

contribution of roughly ¥50bn around 2020 if CFRP is used as a structural material in 5%

or so of GM's mass-produced cars. In October 2014, Teijin unveiled efficient thermoset

CFRP production technology. Some automakers have already adopted thermoset CFRP

leveraging the new technology, and the company is planning to promote adoption across a

wide range of applications including automobiles.

26 June 2015


Mitsubishi Chemical Holdings (4188, OUTPERFORM, TP ¥1,000)

Provides unique pitch and PAN carbon fiber solutions, centered on autos

On 1 April, Mitsubishi Chemical Holdings group companies Mitsubishi Rayon and

Mitsubishi Plastics integrated Mitsubishi Rayon's polyacrylonitrile (PAN) based carbon

fiber business and Mitsubishi Plastics' coal pitch-based carbon fiber business. By

supplying unique solutions that combine PAN and pitch carbon fiber, especially in carbon

fiber growth markets such as automobiles, pressure vessels, and wind turbine blades, the

company plans to grow the overall business to ¥100bn by around 2020 (from a total of

¥60bn at present), including shipments to the auto sector of ¥40bn (a roughly four-fold

increase). Earnings at the company's automotive carbon fiber business are steadily

increasing. Precursor (the raw material for carbon fibers) made at Mitsubishi Rayon's

Otake plant by MRC-SGL, a joint venture established by Mitsubishi Rayon and Germany's

SGL, is used in BMW's i3 all-electric car. Given ongoing firm sales of the i3 we expect

precursor production capacity to increase from around 8,000t/year at present to about

20,000t/year in FY3/17.

Hitachi Chemical (4217, OUTPERFORM, TP ¥3,200)

Expecting X-Trail to drive demand for molded auto products

We understand that in FY3/15 Hitachi Chemical’s molded plastic auto parts business

accounted for 10.6% of total sales (¥56.5bn by our estimate). The company has built a

production system for plastic back doors, through which automakers are striving to

achieve weight reductions, spanning three countries (Japan, the US, and China). Its

Chinese subsidiary, the first manufacturing and marketing base for auto interior and

exterior molded products in China, started making back doors for Nissan Motor's new

model X-Trail in 2014. We understand the company has won orders for the new model for

FY3/17, and we look for sales to expand in that year. The overseas production weighting

at the company's auto parts business has been increasing alongside major automakers'

efforts to establish global auto production structures. The overseas production weighting of

auto parts including powdered metals increased from 37% in FY3/13 to 46% in FY3/15.

The company plans to increase the weighting to 55% in FY3/16. Responding to demand

for weight reduction, the company is planning to launch new high-strength plastic gears in

FY3/16 and new expansion molded exterior parts in FY3/17.

Mitsui Chemicals (4283, UNDERPERFORM, TP ¥380)

Bright medium-term growth prospects for metal/plastic integration technology

Mitsui Chemicals is expanding business in mobility, which its medium-term plan sees as a

growth area, sooner than planned due to growth in the auto plastics business. FY3/15 OP

at the mobility business was ¥35bn (initial guidance ¥28bn), beating the FY3/17 target in

the medium-term plan (¥30bn). The company's polypropylene (PP) compound production

capacity is 1mn tons, making it the world's largest company in the sector with a 30% share.

The company has eight production bases worldwide, including in Japan, the US, and in

Asia. In addition to PP compounds, we expect growth in demand for technology for

combining metal and plastic during the molding process developed by the company. The

technology could allow weight savings of 70%, and the company is developing it together

with automakers. The trend toward lighter autos is accelerating, and the use of materials

made with this technology could find traction in two or three years.

26 June 2015


Kureha (4023, OUTPERFORM, TP ¥630)

Leading maker of super engineering plastics such as PPS

Kureha is the world's leading manufacturer of polyphenylene sulfide (PPS) resin with

combined production capacity in Japan and the US of 25,000t. PPS is a super engineering

plastic with outstanding heat and chemical resistance, mechanical strength, and flame

resistance. Made into compounds with strengthening fibers such as glass fiber, the

material is used in the manufacture of electrical parts for autos, electrical and electronic

equipment, office automation (OA) equipment, and housing equipment. However, demand

has expanded especially in recent years to achieve weight reductions in automobiles.

Driven by firm demand from automakers, the company's two plants in Japan and the US

have been operating at full capacity. Accordingly, the company plans to expand capacity,

eliminating bottlenecks, at both plants in 2016. It is also considering building a new plant

on land next to its existing facility in the US, aiming for completion in 2019–20. The

company is putting effort into R&D of cost-competitive PPS resin manufacturing

technology, and will make a decision referencing progress in technology development.

26 June 2015


Renewed focus on weight reduction Prepare for shift to hybrid auto bodies

Nearing limit of possible weight reductions while still using traditional materials

The materials used in automobiles are changing. There is growing demand to reduce the

weight of powertrains and car bodies as much as possible (while maintaining their required

strength and rigidity) in order to meet increasingly stringent environmental regulations (e.g.,

on CO2 emissions and fuel efficiency). However, weight reductions are nearing their limit if

cars continue to employ traditional materials such as ordinary steel, which is the case for

the bulk of cars today. In order to overcome this impasse, in the past few years

automakers have increasingly used alternatives to ordinary steel and other traditional

materials, and we anticipate the advent of hybrid car bodies that feature combinations of

these new materials. We expect materials such as HTSS, aluminum, synthetic resins, and

carbon fiber to replace traditional ordinary steel at an increasing pace.

“Lightening – not to be taken lightly” - expecting renewed focus on weight

reduction as a breakthrough technology

Weight reduction is classified as the most conventional technology for reducing CO2

emissions and improving fuel efficiency. However, with environmental regulations

becoming ever stricter, especially in industrialized nations, we anticipate a renewed focus

on weight reduction as a potential breakthrough technology. We see three factors that will

likely make weight reduction even more important: (1) the need for ongoing weight

reductions to keep the traditional Angel Cycle going, (2) the need to offset increased

vehicle weight due to electrification, and (3) the need for weight reductions as a potential

breakthrough technology after improvements in thermal efficiency reach their limits.

(1) Need to continue the “Angel Cycle”, back to basics

The “Angel Cycle” is the key for weight reduction. In a Angel Cycle, reducing weight in one

area has a knock-on effect, causing weight reduction to spread to other areas, leading to

more efficient powertrains and other parts. This can be called a benefit of sequence from

increased efficiency. In this Angel Cycle, reducing load (body weight reduction) is the

starting point for all weight reductions. For example, reducing the weight of certain body

parts generates a ripple effect that reduces the load on the suspension and body frame,

which supports the body, as a result of which similar weight reduction is possible in the

vehicle's body structure and suspension. In addition, reducing vehicle weight (e.g., in the

body or chassis) leads to lower engine emissions needed for the same performance,

making it also possible to downsize the powertrain. A smaller powertrain generates lower

CO2 emissions and improves fuel efficiency, while reducing engine weight also adds a

knock-on effect. This Angel Cycle is a method automakers have used before, but with CO2

emissions and fuel efficiency regulations tightening, we think a back to basics approach

(i.e., weight reductions to keep the Angel Cycle going) will assume greater importance.

Figure 1: Weight reduction and ripple effects of a Angel Cycle

Mass Ripple Load Reduction Ripple Reduction of Ripple Reduction of Ripple Improvement of

Reduction of of Body Structure Engine Fuel Tank Exhaust Pipe

Interior Part Effect Suspension Effect Displacement Effect Size Effect Efficiency

Mass Reduction Mass Reduction Mass Reduction Mass Reduction Mass Reduction

Mass Akg Bkg Ckg Dkg Ekg

Reduction

(kg)

Incremental

Impact

Source: SAEJ, Credit Suisse

26 June 2015


(2) Need to offset the increase in vehicle weight due to unavoidable electrification

Reducing engine load is a major way to achieve lower CO2 emissions and improve fuel

efficiency, and automakers are promoting powertrain electrification as a way of doing this.

We think electrified vehicles' (i.e., HEVs, PHEVs, EVs, and FCEVs) market weight could

rise from 4% in 2015 to around 30% in 2030. However, an unavoidable drawback of

powertrain electrification is that it drives up vehicle weight. For example, in hybrid electric

vehicles (HEVs), however compact and lightweight internal combustion engines (ICE) can

be made, the weight of other newly necessary parts such as batteries, electric motor

generators, and inverters drives up the vehicle’s weight. For example, Toyota Motor's

gasoline-fuelled Corolla 180S weighs 1,280kg, whereas its HEV Prius S weighs 70kg

more at 1,350kg. While it is not surprising that the Prius S is far more fuel efficient

(30.4km/l in JC08 mode versus 16.2km/l for the Corolla 180S), reducing engine load via

electrification will not be enough to meet even stricter CO2 and fuel efficiency regulations.

Obviously aiming for even greater CO2 reductions and fuel efficiency gains via further

weight reductions will become key.

(3) Need for weight reductions as a potential breakthrough technology after the limit

of improvements in thermal efficiency is reached

We believe automakers have allocated substantial resources to improving powertrains in

the near term as a way of complying with CO2 emission and fuel efficiency regulations.

This also appears clear from European and US automakers’ focus on supercharged

downsized engines, while Japanese carmakers have emphasized development of HEVs

and other electrified vehicles. Among these efforts, be it internal combustion engines or

HEVs, improving internal combustion engines has remained key to reducing CO2

emissions and improving fuel efficiency.

Improving internal combustion engines means increasing thermal efficiency, meaning the

proportion of the thermal energy created via the burning of fuel that is converted into

actual output (power). The most efficient gasoline-fuelled vehicles on the market at

present have just under 40% thermal efficiency. However, we believe it is possible to

increase this to around 50% in the longer term. In general, a 1% improvement in thermal

efficiency is estimated to translate into a 3% improvement in fuel efficiency. A 10%

improvement in thermal efficiency therefore implies scope for an around 30% improvement

in fuel efficiency. However, we believe that if an improvement in thermal efficiency of 10%

or more proves difficult, it will signal the limit to improvements in fuel efficiency via

improvements in internal combustion engines.

Meanwhile, judging by various countries' environmental regulations, we think required

improvements of at least 30% in CO2 emissions and fuel efficiency look likely. In Europe,

as a leading indicator, CO2 emission restrictions will be tightened from 130g/km in 2015 to

95g/km in 2021. This alone will require a 27% improvement in CO2 emissions and fuel

efficiency. The problem facing the auto industry is how to respond to environmental

regulations after 2021. The authorities in Europe are considering reducing the CO2

emission limit to 68–78g/km in 2025. If automakers reach the limits of possible

improvements via increases in thermal efficiency and improvements in internal combustion

engine design, further reducing electrification and overall weighting, which can also be

starting points for fuel efficiency gains, will likely be regarded as more important than they

are today. The need for a breakthrough via bold choices in replacement materials would

then likely increase. We think automakers would then be forced to use more substitute

materials, for which costs are currently a barrier to proliferation, in order to meet the

stricter CO2 emissions and fuel efficiency standards.

26 June 2015


Figure 2: Weight reduction will likely be regarded as more important if automakers reach

the limits of fuel efficiency improvement attainable via thermal efficiency gains

35%

40%

45%

50%

55%

60%

65%

70%55

65

75

85

95

105

115

125

135

EU CO2 Regulation (LHS)

EU Average CO2 Emission Without Mass Reduction (LHS)

ICE Heat Efficiency (RHS)

g/km

Source: EU, SAEJ, Credit Suisse estimates

Hybrid body market forecasts

Hybrid body market likely to expand to ¥10tn in 2020 and ¥20tn in 2030

We have estimated the size of the hybrid body market resulting from vehicle weight

reduction, i.e. the aggregate market for replacements for ordinary steel and other

traditional materials, including HTSS, aluminum, synthetic resins, and carbon fiber. We

expect the market to grow from ¥6tn in 2015 to ¥10tn in 2020 and ¥20tn in 2030. We

forecast market sizes (value/volume) in 2030 as follows: HTSS ¥6.2tn/51.9mn tonnes,

aluminum ¥6.1tn/20.3mn tonnes, synthetic resins ¥3.7tn/25.1mn tonnes, and carbon fiber

¥4.4tn/3.3mn tonnes. Thus, we expect the weighting of ordinary steel used in automobiles

to fall from 51.3% in 2015 to 18.8% in 2030, and that of HTSS to rise from 14.7% to 31.8%.

We look for the aluminum weighting to rise from 7.6% to 12.4%, that of synthetic resins to

increase from 8.1% to 15.4%, and the carbon fiber weighting to increase from 0% to 2.1%

over the same period.

In terms of material use by region, we expect stepped growth in use of HTSS in regions

outside of Japan, which already has a high weighting. For aluminum, we expect steady

expansion in use especially in Europe and the US, which are already in the lead. We

expect use of synthetic resins to increase uniformly in all regions. We think use of carbon

fiber will increase rapidly, especially in industrialized nations, in the run-up to 2030, when

CO2 emission and fuel efficiency regulations will be tightened in Europe and elsewhere. By

vehicle segment, we look for use of HTSS to expand sharply mainly in C segment models

and below, while aluminum use will likely increase in D segment models and above. We

think use of synthetic resins will increase in all segments, and that carbon fiber use will

expand not only in large and midsize vehicles in the D segment and above but eventually

also in C segment models.

As part of our hybrid body market forecasts, we estimated weight reduction targets by

vehicle segment (A/B/C/D/E/F) necessary to achieve the regulatory target for each region

based on CO2 emission and fuel efficiency regulations in Japan, North America, Europe,

China, and other regions. We exclude from our weight reduction targets the effects in

reducing CO2 and improving fuel efficiency via previous thermal efficiency gains, including

those achieved via powertrain electrification. We also calculated the ultimate market sizes

26 June 2015


(yen values) and usage volumes for each material based on current material weightings in

each region and each segment, factoring in changes in materials weightings so that it is

possible to reach weight reduction targets at each point in time.

Figure 3: Hybrid body market likely to expand to ¥10tn in 2020 and ¥20tn in 2030

0

5,000

10,000

15,000

20,000

25,000

Carbon Fiber Plastic Composites Aluminium High Tensile Strength Steel

Billion Yen

Source: JAMA, SAEJ, WardsAuto, Credit Suisse estimates

Figure 4: Hybrid body materials usage likely to increase to 100mn tonnes in 2030

0

20

40

60

80

100

120

Carbon Fiber Plastic Composites Aluminium High Tensile Strength Steel

Million Ton

Source: JAMA, SAEJ, WardsAuto, Credit Suisse estimates

26 June 2015


Figure 5: 2015 per-vehicle material usage weightings Figure 6: 2030 per-vehicle material usage weightings

Ordinary Steel/ Sintered / Other

Steel, 51.3%

High Tensile Strength Steel,

14.7%

Aluminum, 7.6%

Magnesium, 0.7%

Plastic Composite,

8.1%

Rubber, 5.3%

Glass, 2.4%

Fluid/Lubricants, 5.5%

Other Materials, 4.4%

Ordinary Steel/ Sintered / Other

Steel, 18.8%

High Tensile Strength Steel,

31.8%Aluminum, 12.4%

Magnesium, 1.1%

Plastic Composite,

15.4%

Carbon Fiber, 2.0%

Rubber, 5.7%

Glass, 3.0%

Fluid/Lubricants, 5.5%

Other Materials, 4.4%

Source: JAMA, SAEJ, WardsAuto, Credit Suisse estimates Source: JAMA, SAEJ, WardsAuto, Credit Suisse estimates

Figure 7: Use of HTSS likely to also expand outside of

Japan

Figure 8: Expecting usage of HTSS to expand sharply in C

segment models and below

0

10

20

30

40

50

60

Other Region China EU US Japan

Million Ton

0

10

20

30

40

50

60

F Segment E Segment D Segment C Segment B Segment A Segment

Million Ton


Figure 9: Use of aluminum increasing mainly in Europe

and the US

Figure 10: Use of aluminum has increasing sharply in D

segment models and above

0

5

10

15

20

25


Million Ton

0

5

10

15

20

25

F Segment E segment D Segment C Segment B Segment A Segment

Million Ton


26 June 2015


Figure 11: Use of synthetic resins expanding in all

regions

Figure 12: Use of synthetic resins continuing to expand in

all segments

0

5

10

15

20

25

30


Million Ton

0

5

10

15

20

25

30


Million Ton


Figure 13: Use of carbon fiber likely to increase sharply

from 2025 in industrialized nations

Figure 14: Use of carbon fiber likely to increase eventually

in C segment

0

1

2

3

4

China EU US Japan

Million Ton

0

0.5

1

1.5

2

2.5

3

3.5

4


Million Ton


Hybrid auto bodies already exist

Steady advance of ordinary steel replacement

Automakers have been working for years on reducing vehicle weight as a means to

improve fuel economy, boost power performance, and offset weight increases that come

with content upgrades aimed at producing cleaner, safer, and more comfortable cars. This

process has driven a significant change over the past 20 years in the type and

composition of materials used in cars. Tracking by WardsAuto of changes in the weight

ratios of different materials used from 1995 to 2012 in the average North American vehicle

shows a sharp reduction per vehicle amounts in ordinary steel and cast iron. Conversely,

use of such materials as HTSS, synthetic resins, and aluminum has jumped over the same

period. Ordinary steel in particular is way down, having dropped from 44.1% of vehicle

weight in 1995 to 34.3% in 2012. Cast iron has similarly dropped, from 12.6% of total

weight to 7.1%. These materials are in effect being replaced with HTSS (up from 8.8% to

15.5%), aluminum (6.3% to 9.3%) and synthetic resins (6.5% to 9.1%). As emissions and

fuel economy standards continue to tighten, we expect to see further acceleration in usage

of ordinary steel alternatives such as: (1) HTSS, which affords an advantage in terms of

gauge thinness; (2) aluminum and synthetic resins, which are significantly lighter; as well

as (3) carbon fiber-reinforced plastics (CFRP) and other carbon fiber products, an area

with remarkable advances in processing technology.

26 June 2015


Figure 15: Material composition of average vehicle by weight, 1995–2012

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Source: MLIT, Credit Suisse

Figure 16: Per-vehicle usage of materials by weight Unit: Kg/Vehicle

Regular Steel 739 44.1% 751 42.4% 741 40.4% 699 38.1% 653 35.7% 611 34.3%

High Strength Steel 147 8.8% 185 10.5% 223 12.2% 254 13.9% 276 15.1% 275 15.5%

Stainless Steel 23 1.4% 28 1.6% 32 1.8% 33 1.8% 33 1.8% 31 1.7%

Other Steels 21 1.2% 12 0.7% 16 0.9% 15 0.8% 15 0.8% 14 0.8%

Iron Casting 211 12.6% 196 11.1% 149 8.1% 108 5.9% 120 6.6% 127 7.1%

Aluminum 105 6.3% 122 6.9% 143 7.8% 156 8.5% 161 8.8% 165 9.3%

Magnesium 2 0.1% 4 0.2% 5 0.2% 6 0.3% 5 0.3% 5 0.3%

Copper and Brass 23 1.4% 24 1.3% 32 1.8% 29 1.6% 33 1.8% 33 1.8%

Lead 15 0.9% 16 0.9% 17 0.9% 18 1.0% 18 1.0% 17 0.9%

Zinc Castings 9 0.5% 6 0.3% 5 0.2% 4 0.2% 4 0.2% 4 0.2%

Powder Metal 13 0.8% 16 0.9% 19 1.0% 19 1.0% 19 1.0% 20 1.1%

Other Metals 2 0.1% 2 0.1% 2 0.1% 3 0.2% 2 0.1% 2 0.1%

Plastics and Plastic Composites 109 6.5% 130 7.3% 151 8.3% 171 9.3% 164 9.0% 161 9.1%

Rubber 68 4.0% 75 4.3% 81 4.4% 91 5.0% 101 5.5% 95 5.4%

Coatings 10 0.6% 11 0.6% 12 0.7% 15 0.8% 15 0.8% 15 0.8%

Textiles 19 1.1% 20 1.1% 22 1.2% 24 1.3% 23 1.2% 22 1.3%

Fluids and Lubricants 87 5.2% 94 5.3% 95 5.2% 103 5.6% 100 5.5% 98 5.5%

Glass 44 2.6% 47 2.6% 47 2.6% 43 2.3% 44 2.4% 43 2.4%

Other Materials 29 1.7% 32 1.8% 39 2.2% 42 2.3% 42 2.3% 41 2.3%

Total 1,676 100.0% 1,770 100.0% 1,833 100.0% 1,833 100.0% 1,830 100.0% 1,778 100.0%

20121995 2000 2005 2010 2011

Source: WardsAuto, Credit Suisse

The key is to use alternative materials where they best leverage their advantages

The average vehicle comprises 20,000 to 30,000 components, each composed of

materials chosen for their specific properties. When replacing a material, it is important to

carefully select the best alternative material for the job based on the advantages offered

by its properties. In the case of HTSS, its high tensile strength might allow for use of a

thinner gauge of steel sheet to reduce weight, but as the sheet becomes thinner the cross-

sectional area is also reduced, resulting in a loss of rigidity. So for parts/locations that

require rigidity, a thicker steel must be used even though it may not be as strong.

Aluminum, commonly used for outer panels, has a specific gravity of just 2.7, significantly

lower than steel, which makes it a strong candidate for a replacement material, but it also

presents challenges with respect to moldability and bonding, as well as electrolytic

corrosion when it is combined with other materials. Other important factors common to all

replacement materials include cost and ease/likelihood of repair. In the final analysis, the

26 June 2015


shift to hybrid bodies entails achieving weight reduction, safety performance enhancement,

and lower cost in ways that cannot be achieved through simple combinations of substitute

materials.

Figure 17: Properties of major vehicle materials Classification

Material Ordinary SteelHigh Tensile

Strength Steel

Ultra High Tensile

Strength SteelAluminum Magnesium

Compound Plastic

(Thermoplastics)Carbon Fiber

Specific Gravity 7.8 7.8 7.8 2.7 1.80.9-

2.01.5 range

Tensile Strength340-

490MPa

490-

790MPa

980-

1800MPa

310-

750MPa

270-

540MPa80MPa

1500MPa

range

Specific Strength44-

63MPa

63-

101MPa

126-

231MPa

115-

222MPa

150-

300MPa89MPa

1000MPa

range

Specific Rigidity 7.6MPa^(1/3)/kgf/m3

7.6MPa^(1/3)/kgf/m3

7.6MPa^(1/3)/kgf/m3

15MPa^(1/3)/kgf/m3

20MPa^(1/3)/kgf/m3

16MPa^(1/3)/kgf/m3

22MPa^(1/3)/kgf/m3

Shock Absorption A AA AAA A A B B

Material CostAA,

300 JPY/kg rangeB AA

B, 1500JPY/Kg

range

Weight Reduction

(versus Ordinary Steel)0 -20% -30% -40% -60% -35% -65%

AA, 100 JPY/Kg range

Steel Non-steel Metals Non-Metals

Source: METI, Credit Suisse

26 June 2015


The environment is key Environmental regulations—the main driver of

automotive technology trends

Technological developments aimed at reducing CO2 emissions likely to accelerate

We believe that without question, the main impetus today for automotive technology

comprises regulations. Regulations can be broadly divided into: (1) emissions standards,

such as those in Europe targeting reductions in particulate matter (PM) and nitrogen oxide

(NOx), and (2) fuel economy standards, such as EU regulations EC 443/2009 and Japan’s

Energy Conservation Law, which regulate both fuel performance and CO2 levels. In the

area of CO2 emissions and fuel economy, European targets have become leading

indicators, setting CO2 reduction targets by year as follows: 130g/km by 2015 and 95g/km

by 2021, a proposed target of 68–78g/km by 2025, followed by a similar pace of

reductions from 2030 onward. Japanese regulations similarly call for reducing CO2

emissions over time from 136g/km in 2010 to 125g/km in 2015 and 115g/km by 2020, with

a strong possibility that even stricter reduction targets will be set for 2025 and later. The

US is also gradually tightening its regulations, with a mandatory reduction equivalent to

102g/km by 2025. With these regulations providing the motivation for automakers to focus

their energies on reducing CO2 emissions and improving fuel economy, technological

advances in these areas should only accelerate.

In 2012, Fiat had the lowest average CO2 emission volume among European automakers,

while Daimler had the highest, reflecting differences in the general size of their fleets'

vehicles. Among Japanese automakers, Toyota had the second lowest average CO2

emission level after Fiat, thanks to strong sales of HEVs like the Prius. It is difficult to

estimate each company’s progress toward hitting its target with respect to the 130g/km

mandated for 2015 because the weight of individual models is also factored in, but with the

gradual introduction of penalties for excess emissions since 2012, automakers across the

board have been rushing to roll out new low- CO2 models. Meeting the 2021 requirement

of cutting CO2 emissions to 95g/km will force automakers to maintain an annual 4%

reduction rate from here on out. This will of course require fuel economy improvements in

larger vehicles that currently exceed the 130g/km level, but even with such reductions

manufacturers will still need to cut CO2 levels in small models occupying the volume zone

to well below the 95g/km level in order to achieve an overall fleet average of 95g/km.

Figure 18: CO2 emission regulations in major markets

140

130

95

136125 100

180161

120

168

151

97

0

50

100

150

200

Europe Japan China US

g/km

Source: ICCT,MLIT, Credit Suisse estimates

26 June 2015


Figure 19: Average CO2 emissions volume in Europe by maker/model

Fiat 500

YarisHybrid

3008 Hybrid4

Focus 1.6d

i10 1.0

Polo 1.2d

InsightMicra 1.2

1 Series 1.6d

E300 Hybrid

Prius

308 1.4

Focus 1.4

Santa Fe 2.2d

Passat 1.6d

Fit HV

Qashqai 2d

ActiveHybrid7

S400 Hybrid

Yaris 1.4d Sonata Hybrid

Golf 1.6d

ActiveHybrid3

VW Touareg Hybrid

Smart 0.8d

Audi A8 Hybrid

LS 600h

RAV4 2.2d

70

90

110

130

150

170

190

210

230g/km ◆ーCompany Average

130 g/km

95 g/km

Source: JSAE, Credit Suisse

Beyond CO2 of 95g/km

Limits to thermal efficiency mean new breakthrough is needed

In addition to their efforts to reduce weight, automakers are also putting significant

resources into power train improvements as a means to meet CO2 emissions/fuel

economy regulations. Key technologies related to powertrain improvement fall into three

broad categories: engine load reduction, energy efficiency enhancements, and internal

combustion engine improvements. Recently, powertrain advances in these areas, not

weight-reduction efforts, have been the focus of attention. Reducing engine load is

typically achieved through power train electrification technologies such as found in HEVs,

an area where Japanese automakers have generally led. Energy efficiency improvements

center on raising transmission unit efficiency through use of multi-stage automatic

transmissions, continuously variable transmission (CVTs), and dual-clutch transmissions

(DCTs). Internal combustion engine improvements are typically achieved through

downsizing/variable control technologies. We assume that traditional gasoline/diesel-

powered internal combustion engine vehicles (ICEVs) will still account for about 70% of

the market in 2030 and for this reason look for automakers to begin focusing more closely

on internal combustion engine improvements aimed at meeting CO2 emission and fuel

economy targets as well. These improvements would also make their way into HEVs too,

of course, as they also use internal combustion engines.

Improvements to internal combustion engines hinge on boosting thermal efficiency, which

boils down to what proportion of energy generated by burning the fuel is actually converted

into output (power). Basically, the higher the thermal efficiency, the lower the loss of

energy through exhaust, cooling, pumping, and mechanical systems. Currently, the

thermal efficiency of gasoline vehicles on the market is still under 40% at best.

Automakers can likely raise this to about 50% over the medium/long term through

continuous innovations in internal combustion technologies such as supercharging

(downsizing), Atkinson cycle engines, cylinder deactivation, heat management, and lean

burn (including homogenous charge compression ignition, or HCCI). It is estimated that a

1% increase in thermal efficiency translates to about a 3% improvement in fuel economy,

so a 10% boost in thermal efficiency could lift current fuel economy levels a further 30%.

Looking at the environmental regulations enacted around the world, it seems likely that

CO2 emissions/fuel economy improvement of at least 30% compared with current levels

will be required. European targets calling for CO2 reductions from 130g/km in 2015 to

26 June 2015


95g/km in 2021 already assume a 27% reduction. The question is how environmental

regulations beyond 2021 are to be met. As noted, Europe is considering a 68–78g/km CO2

cap for 2025. If further innovations in thermal efficiency improvements were to reach a limit,

the emphasis would then have to shift to electrification and weight reduction. This makes it

that much more critical that some sort of significant breakthrough be achieved involving

material substitution, which suggests that automakers will have no choice but to make

greater use of alternative materials currently not widely used due to cost considerations.

This approach would be one of few levers left to meet ever-tightening CO2/fuel economy

standards, and we assume this will inevitably hasten the shift to hybrid bodies.

Figure 20: Major technologies for reducing CO2 emissions

Key technologies to reduce CO2 emission

ICE improvement

Downsizing

Variable control

Friction reduction

Engine management improvement

Energy efficiency improvement

Transmission effeciency improvement

Running resistance reduction

Engine load reduction

Electrification

Mass reduction

Material change

Structure change

Source: JSAE, Credit Suisse

Safety performance & weight reduction: a dual

imperative

Collision safety standards also continuing to tighten

Regardless of what material substitutions are made to reduce weight, any changes will

also have to be compatible with the safety performance of the vehicle. This means they

will have to meet collision safety standards, which are also being tightened. NHTSA/IIHS

in the US, EURO-NCAP in Europe, NASVA in Japan, and C-NCAP in China have all

established collision safety standards that include full-wrap collision protection, full offset

collision, side collision protection, and standards for pole collision and other safety tests. In

each of these areas there are minimum requirements for cabin penetration of materials

and degree of dummy impact at preset speeds. As these standards tighten around the

world, higher test speeds and introduction of new pole collision requirements are under

consideration. When alternative materials are used to reduce weight, not only will their

ability to absorb energy in a collision be closely scrutinized, but so too will their strength of

fasteners/bonds between different materials. In short, automakers will have to take both

weight reduction and safety concerns seriously as they move forward with hybrid bodies.

26 June 2015


Figure 21: Collision safety standards in major countries

NHTSA 〇56km/h 〇62km/h 〇32km/h

IIHS 〇64km/h 〇50km/h

〇64km/h 〇50km/h 〇29km/h

NASVA 〇55km/h 〇64km/h 〇55km/h TBD

C-NCAP 〇50km/h 〇64km/h 〇50km/h

EURO-

NCAP

Full-Lap Head-On

Collision

Offset Head-on

Collision

Side Impact Pole Collision

Source: Kobe Steel, Credit Suisse

26 June 2015


Use of hybrid bodies by automakers Toyota Motor (7203, OUTPERFORM, TP ¥10,500)

Shifting to hybrid bodies; Mirai the world's first mass-produced car to use

thermoplastic CFRP

Toyota has announced the next-generation Toyota New Global Architecture (TNGA)

platform for the C segment. The platform is expected to be used for the new model Prius

due for launch in 2015. Toyota has increased the weighting of HTSS used in the platform

underbody from 60% to 77% and has increased body rigidity by 30–65%. Most of the

HTSS used in the body has a strength of 590–980MPa. However, Toyota has used

1.5GPa hot stamped HTSS in place of 590MPa steel for the section under the driver and

passenger seats through the back seats. The company has also made efforts to switch to

resin body parts. It adopted a resin back door in the Corolla Fielder, which was launched

in 2012, and offers a resin panoramic roof as an option on the Prius α. For next-generation

models, we expect the company to newly adopt multifunction plastic roofs announced by

Toyota Industries at the Automotive Engineering Expo.

Toyota is also working on switching to aluminum bodies. Current Prius models feature

hoods made from 6000 series aluminum alloy panels used for the outside and inside.

Toyota has also used aluminum alloy in the Toyota 86 hood, in this case 5000 series. We

think Toyota might switch from steel to aluminum for parts such as front hoods, fenders,

doors, and bumpers, especially in luxury models such as the Lexus, and could eventually

expand use of aluminum parts in other models. We expect Toyota to also use aluminum—

mainly for exterior body panels—in the next-model Prius, where it is aiming for a

substantial improvement in fuel efficiency.

The company used CFRP for 65% of the body of the Lexus LFA supercar, which was

produced in limited numbers through 2012, achieving a 100kg weight reduction. It has also

made extensive use of carbon fiber in the Mirai fuel cell vehicle launched at the end of

2014. The model features three types of carbon fiber made by Toray Industries: (1)

thermoplastic CFRP used in a part called the stack frame, (2) carbon paper used fpr the

electrode substrate of the fuel cell stack, and (3) high-strength carbon fiber used in the

high-pressure hydrogen tank. The thermoplastic CFRP used in the stack frame (which is

equivalent to the car floor) was developed jointly by Toyota and Toray. It is a new material

suited to mass-production, enabling press molding to be completed quickly by leveraging

the special characteristics of thermoplastic resin. Its use in the Mirai represents the first

example in the world of its commercialization as a structural component in a mass-

produced vehicle.

Figure 22: New platform based on Toyota Motor's TNGA Figure 23: Carbon fiber materials used in Toyota's Mirai

Source: Toyota Motor Source: Toyota Motor, Toray

26 June 2015


Nissan Motor (7201, NEUTRAL, TP ¥1,200)

Plans to expand use of ultra-HTSS to 25%; has adopted CFRP for GT-R trunk lid

Nissan Motor has used 1.2GPa ultra-HTSS with high formability since the current Skyline

and Infiniti Q50. This, combined with other weight reduction efforts, enable it to decrease

weight by around 40kg in these models. The company plans to further adopt 1.2GPa and

other ultra-HTSSs, making such steel account for 25% by weight of new models launched

from 2017. Nissan developed 1.2Gpa ultra-HTSS jointly with Nippon Steel & Sumitomo

Metal and Kobe Steel. The material features high ductility, achieved via optimal blending

of the materials used. This makes it possible to produce strong, lightweight panels that still

have a high degree of formability. The material can be used for parts with complex forms

that were difficult to fabricate using previous ultra-HTSSs. Coupled with the establishment

of welding processes suited to the material and high-precision mold design in the

production process, the company has substantially widened the range of applications for

such steel to include complex body structural parts such as center pillar reinforcement,

front roof rails, and side roof rails.

The New Energy and Industrial Technology Development Organization (NEDO) once

contracted Nissan, together with Toray, for R&D in carbon fiber-reinforced composite

materials for automobile weight reduction. The research centered on four themes: (1) high-

cycle integrated forming technology, (2) joining technologies for metals and other materials,

(3) safety design technology, and (4) recycling technology. The researchers proved that

carbon fiber-reinforced composite materials can be formed in a 10-minute cycle, reduce

weight 50% versus steel, and result in a 1.5-fold or better increase in collision safety. The

results were leveraged in Daimler's adoption of carbon fiber mass-production. Nissan

adopted CFRP for trunk lids for its GT-R from the 2014 model. The lids were

manufactured using a prepreg compression molding (PCM) technology developed by

Mitsubishi Rayon. They are as or more rigid than aluminum lids while weighing only half as

much.

Figure 24: Body frame structure of Nissan Motor's Inifiniti

Q50

Source: Nissan Motor

Honda Motor (7267, NEUTRAL, TP ¥4,000)

Developing technology for joining different metals; might adopt carbon fiber in

mass-produced autos in 2020s

Honda Motor has to date commercialized aluminum and steel joining technologies such as

3D lock seam and friction stir welding (FSW). The company used aluminum for the outer

door panel in the Acura RLX launched in 2013, commercializing the 3D lock seam method

26 June 2015


in which aluminum panels are bent in two stages (so-called hemming) and joined to steel

using an adhesive. In the Accord, Honda adopted a hybrid structure (using steel and

aluminum) for the front subframe, commercializing FSW as a method of joining different

metals. Honda achieved an around 35kg weight reduction compared with using steel in the

fifth-generation Legend, launched in 2014, via steps that included using aluminum, for

example for the outer door panel, hood, and front fender, and adopting the previously

mentioned welding technologies. The company expanded the weighting of HTSS used

from 50% in the previous model to 55% and for the first time used 980MPa ultra-HTSS,

mainly around the cabin.

Honda has already used carbon fiber in supercars such as the NSX, and is engaged in

R&D with a view to adopting the material in mass-production models in the longer term.

The company is developing a floor monocoque it calls Super Light Structure using CFRP,

aiming for commercialization in the 2020s. Use of 80kg of CFRP reduces vehicle weight

by 30% and body weight by 50%. The CFRP floor of a prototype vehicle based on the CR-

Z, which was announced in 2013, is made using the autoclave method. However, pressing

or resin transfer molding (RTM) will likely be used in mass-production due to cost

considerations. We understand Honda is thinking of using carbon fiber in models other

than sports cars when production begins in earnest in the 2020s.

Figure 25: Honda Legend body

Source: Honda Motor

Mazda Motor (7261, OUTPERFORM, TP ¥3,100)

Has realized lightweight open body via SKYACTIV technology and substitute

materials

Mazda's fourth-generation new model Roadster (the MX-5) has a substantially evolved

body structure. The company has applied its SKYACTIV-BODY approach to an open body,

realizing a body that beats previous generations while also boosting performance in the

Roadster model, in which weight reduction is directly connected with product value. The

body shell weighs 25kg or more less than the previous model. In the SKYACTIV-BODY,

the framework is straightened and made continuous, while cross-sectional forms are

optimized in order to make the panels thinner to reduce weight while maintaining strength.

For example, the front frame has a cross-shaped cross-section, while the rear frame has a

double hat-shaped cross-section. In addition, the company has increased the weighting of

HTSS and has for the first time adopted aluminum in parts such as the front and rear

bumper reinforcement structures and front fenders.

The company increased the weighting of HTSS and ultra-HTSS from 58% in the previous

model to 62%. The weighting of the newly-adopted aluminum is 9%. The company

reduced the weighting of 270MPa, 390/440Mpa, and 780MPa steel, and increased the

weighting of 590MPa and 1,500MPa steel. It also used 980MPa and 1,180MPa HTSS and

ultra-HTSS for the first time. In addition, the company for the first time used 1,500MPa

26 June 2015


grade hot stamped steel for the compression load input section of the model's backbone

frame. It also uses 1,800MPa hot stamped steel (the world's strongest) in the current CX-

5's bumper beam. Hot stamped steel was used as front member reinforcement in the

model prior to the new model Roadster (the MX-5). However, the new model instead uses

7000 series aluminum, realizing a 3.6kg weight reduction in the front and rear. The

company also adopted aluminum for parts including the front fender, the rooftop, and the

front knuckle for the first time.

Figure 26: Comparison of weightings by material quality in the new and previous model

Mazda Roadster

Source: Mazda Motor

Daihatsu Motor (7262, UNDERPERFORM, TP ¥1,500)

Has reduced body weight around 20kg via use of lightweight, rigid body structure,

resin exterior panels

Daihatsu Motor's new model Move features its newly developed D monocoque lightweight,

high-rigidity body structure. Combining this with the use of resin outer panels, the

company has reduced the body weight by around 20kg versus the previous model. In the

D monocoque structure, all the side outer panels are now made of HTSS, while eliminating

structural breaks means that force is absorbed by the entire structure. This structure

realizes the same collision strength as before while reducing weight. Applying optimal

reinforcement to the underbody makes the structure highly rigid, improving driving

performance and ride quality.

The company has adopted resin outer panels for various parts, including the hood, fuel lid,

rail cover, fenders, and back panels incorporating spoilers. The 20kg weight reduction

versus the previous model breaks down into 8kg due to the adoption of HTSS for side

outer panels, 6kg from resin outer panels, and 6kg from other panels and optimization of

component shapes. While other carmakers are increasingly adopting high-price materials

replacement technologies such as carbon fiber and ultra-HTSS, Daihatsu is developing

car bodies based on the concept of using a conventional material, namely steel, as

effectively as possible.

26 June 2015


Figure 27: The new body structure of Daihatsu's Move

Source: Daihatsu Motor

Overseas automakers

Daimler: Hybrid body standard-bearer

In the Mercedes-Benz S-Class, which Daimler launched in 2013, the company realized a

low body weight of 362kg via the use at the body-in-white stage of steel (64.5%),

aluminum (32.5%), and resin (3%). The company is also moving toward hybrid bodies in

its C-Class, having expanded the aluminum weighting at the body-in-white stage to 24.8%.

Aluminum is used in the C-Class’ hood, front fender, side doors, roof, trunk hood, and

other outer panels. The vehicle does incorporate steel, but only in areas such as the roof

side rails and rear quarter panels. Aluminum is also used structurally in areas such as the

front and rear suspension damper mounts and to reinforce the floor between the rear left

and right wheel housings. The use of so much aluminum necessitates technologies for

joining steel and aluminum. The company uses a combination of such technologies

including ImpAct high-speed riveting, MIG welding, FSW, structural adhesives, self-

piercing rivet (SPR) and mechanical clinching.

Daimler is also working on CFRP development. In 2011, it established a joint venture with

Toray Industries to manufacture and sell CFRP auto parts. In 2012, it adopted CFRP for

the trunk lid of the Mercedes SL-Class AMG. The F 015 Luxury in Motion next-generation

self-driving concept car Daimler unveiled at the 2015 Consumer Electronic Show (CES)

features a so-called smart body structure (SBS). This is an innovative new body structure

that makes extensive use of CFRP, aluminum, and HTSS to achieve a body shell weight

reduction of 40% versus current models. We think adoption of CFRP could also increase

in stages in new mass-production models that are set to launch. With numerous large-

sized vehicles in its model portfolio, we think Daimler has a major incentive to move

aggressively toward hybrid bodies in the European market, which is in the lead in terms of

environmental regulations.

BMW: Has adopted an innovative aluminum and CFRP body, a first for affordable

passenger vehicles

BMW has adopted an innovative aluminum and CFRP body in its i3 EV, representing a

first for affordable passenger vehicles. The i3 chassis, known as the Drive module, is

made of aluminum, while the cabin, called the Life module, uses CFRP. Adhesives and

other methods are used to join the two parts. As a result, the company has made a car

that at 1,260kg is lighter than vehicles of the same class powered by a conventional

engine. The Drive module, which is 100% aluminum, is used as space for the high-voltage

battery. It also houses other parts, including the suspension, structural and shock resisting

26 June 2015


components, and the drive train. The CFRP Life module components are manufactured

using resin transfer molding (RTM). Thickness can be varied by component to give the

required strength, enabling a balance between weight reduction and rigidity. The

polyacrylonitrile (PAN) based carbon fiber precursor used in the i3 is manufactured by

MRC SGL Precursor, a joint venture established by Mitsubishi Rayon and SGL. The

precursor is converted to carbon fibers at SGL Automotive Carbon Fibers that are then

processed into carbon fiber fabrics, which are incorporated into the i3 after being formed

using RTM.

VW/Audi: Audi's new model R8 uses multi-material ASF

Audi has led carmakers in aluminum body technology since it adopted the fully aluminum

body Audi space frame (ASF) for the A8, which it launched in 1994. The Audi space frame

uses extruded aluminum for the structure and aluminum panels for the skin. Audi also

used the Audi space frame in the first-generation R8. However, in line with the recent

trend toward using a variety of materials, the company has adopted hot-pressed HTSS in

parts such as the B pillar of the current model A8. The new model R8 will for the first time

feature multi-material ASF, which combines aluminum with CFRP. By using CFRP in the

R8's B pillar, center tunnel, and rear bulkhead, the company has reduced the weight of the

body shell by around 15% compared with the previous model to 200kg while boosting

static torsional rigidity by around 40%. The company is also making progress in terms of

reducing the weight of the MQB platform, the platform module used in the current VW Golf

VII and Audi A3 Sportback. The company has increased the weighting of high strength

steel used in the VW Golf VII from 66% in the previous model to 80%, and the proportion

of ultra-HTSS (1,000MPa or higher) from 6% to 28%. Use of these materials makes it

possible to reduce panel thickness, with the result that the VW Golf VII is 23kg lighter than

the previous model at the body-in-white stage.

Ford: Has fully adopted aluminum for F-150 body

We believe the trend toward hybrid bodies garnered renewed attention within the

automobile sector due to Ford's decision to use a fully aluminum body in its popular F-150

model, the best-selling car in the US. Ford adopted HTSS for the ladder frame in the lower

part of the body and aluminum for the cabin and cargo bed. By boosting the weighting of

HTSS in the frame from 23% in the previous model to 77%, the company reduced the

frame's weight alone by 30kg. In the cabin and cargo bed the company switched from

steel in the previous model to aluminum. By using around 600kg of 6000–7000 series

aluminum, the body weight was reduced by around 300kg versus the previous model. This,

combined with the frame weight reduction, realized an around 15% weight reduction

compared with the prior model. Alcoa and Novelis supply the aluminum Ford uses. The

company joins the aluminum using Alcoa 951 surface treatment bonding technology. Ford

has indicated that it is unlikely to adopt aluminum bodies for passenger vehicles, and even

if it did, it would probably limit its use to hoods and doors. This is because use of

aluminum in pickup trucks helps reduce weight and boosts drive power and load capacity,

whereas it is not possible to gain such benefits with passenger vehicles. We expect the

company to opt for an aluminum body for the next Super Duty series of pickup trucks.

26 June 2015


Promising materials for hybrid bodies; key stocks Manufacturers of materials and processed products

take center stage

Opportunities to add value increasing in tandem with growth of hybrid body market,

higher premiums for weight savings

As vehicles increasingly use hybrid bodies, their manufacturers and makers of processed

components are likely to grow in prominence. We believe the shift to hybrid bodies will

mean growth in materials usable as weight-saving substitutes, including HTSS, aluminum,

compound plastics, and carbon fibers. We expect a number of companies in our coverage

to benefit from market growth for products for hybrid bodies and from greater added value

(higher premiums for materials, components contributing to lighter auto bodies). In

materials, these include Kobe Steel, Nippon Steel & Sumitomo Metal, JFE Holdings,

Sumitomo Electric Industries, and Nippon Electric Glass; in chemicals, Toray, Teijin,

Mitsubishi Chemical Holdings, Hitachi Chemical, Mitsui Chemicals, and Kureha; and in

processed products, Topre, Unipres, Nifco, DaikyoNishikawa, and Toyota Industries

Tighter demand for emissions and fuel efficiency solutions is forcing automakers to devote

more resources to developing lighter vehicles. This is likely to fuel demand for lighter

alternative products made by manufacturers of materials and processed inputs, and it

could also mean greater premiums for these products. Thus far, premiums for lighter

inputs have been limited by the extent to which automakers have been able to raise prices

for the benefits of their use. Looking ahead, however, we believe this premium will grow in

tandem with demand for lighter inputs. We think suppliers stand to benefit from both higher

volumes and stronger margins.

As demand shifts from ordinary steel and other traditional inputs to alternatives, such as

HTSS, aluminum, compound plastics, and carbon fiber materials, the flexibility of materials

used in autos will likely increase. We believe this will prompt a transition from a phase in

which a vehicle's materials were determined largely by the body to one in which the

materials change the nature of the vehicle. As seen with BMW’s i3, for example, aluminum

and CFRP have allowed the creation of a ground-breaking new body and greatly

enhanced brand value, while also sparking innovation in production processes and other

areas. For their part, manufacturers of materials and processed products and other

suppliers have moved beyond simply delivering alternative inputs. Their roles have

expanded to include comprehensive solutions aimed at cost optimization,

chassis/component design and composition, molding/shaping, and their interplay with

other materials and components. This in turn increases the added value created by the

automotive supply chain.

26 June 2015


Figure 28: Supply chain for hybrid bodies

Material Supplier Product Range

1 Aisin Seiki Body Frame Parts

1 Futaba Industry Body Frame Parts, Exhaust System Parts

1 Gestamp Body Frame Parts, Chassis Parts

1 G-Tekt Body Frame Parts, Transmission Parts

1 H-One Body Frame Parts

1 Magna International Body Frame Parts

1 Pacific Industrial Body Frame Parts

1 Topre Body Frame Parts

1 Toyota Iron Works Body Frame Parts

1 Unipres Body Frame Parts, Transmission Parts

1 Yorozu Body Frame Parts

1 2 Aichi Steel Sheet, High Tensile Strength Steel

1 2 Kobe Steel Sheet, High Tensile Strength Steel

1 2 Nippon Steel Sheet, High Tensile Strength Steel

1 2 JFE Holdings Sheet, High Tensile Strength Steel

1 Ahresty Aluminum Casting Parts

1 Aisin Seiki Aluminum Casting Parts

1 Hiroshima Aluminum Aluminum Casting Parts

1 I-Metal Technology Aluminum Casting Parts

1 Sumitomo Electric Industry Aluminum Wire Harness

1 Taiho Industry Aluminum Casting Parts

1 2 Kobe Steel Aluminum Alloy, Panels

1 2 Alcoa Aluminum Alloy, Panels

1 2 Constellium Aluminum Alloy, Panels

1 2 Novelis Aluminum Alloy, Panels

1 APM Plastic Compound, Powertrain/Body Parts

1 Aisin Seiki Plastic Compound, Powertrain/Body Parts

1 Asahi Kasei Plastic Compound, Powertrain/Body Parts

1 BASF Plastic Compound, Powertrain/Body Parts

1 Calsonic Kansei Plastic Compound, Powertrain/Body Parts

1 Kureha Plastic Compound, Powertrain/Body Parts

1 DaikyoNishikawa Plastic Compound, Powertrain/Body Parts

1 Dupont Plastic Compound, Powertrain/Body Parts

1 Faurecia Plastic Compound, Powertrain/Body Parts

1 Hitachi Chemical Plastic Compound, Powertrain/Body Parts

1 Inteva Plastic Compound, Powertrain/Body Parts

1 Magnetti Marelli Plastic Compound, Powertrain/Body Parts

1 Mitsubish Engineering Plastics Plastic Compound, Powertrain/Body Parts

1 Mitsui Chemical Plastic Compound, Powertrain/Body Parts

1 Nifco Plastic Compound, Powertrain/Body Parts

1 Plastic Omnium Plastic Compound, Powertrain/Body Parts

1 Shigeru Industry Plastic Compound, Powertrain/Body Parts

1 Teijin Plastic Compound, Powertrain/Body Parts

1 Toyoda Gosei Plastic Compound, Powertrain/Body Parts

1 Toyota Industries Plastic Compound, Body Parts

1 Visteon Plastic Compound, Powertrain/Body Parts

1 2 Toray Carbon Fiber Reinforced Plastc Parts

1 2 Teijin Carbon Fiber Reinforced Plastc Parts

1 2 Mitsubishi Chemical Holdings Carbon Fiber Reinforced Plastc Parts

Tier

High Tensile Strength Steel

Aluminum

Carbon Fiber

Compound Plastic

Source: Marklines, Credit Suisse

26 June 2015


High tensile strength steel (HTSS) Accelerating shift from ordinary steel to HTSS

Resolving contradictory needs for strength and formability

Steel is of course the main input for autos, accounting for about 60% of total vehicle

weight in 2014. Over the last few years there has been a sharp rise in the use of HTSS in

order to reduce vehicle weight. Automakers have made HTSS the predominant material

for maintaining the required strength while reducing the gauge/thickness of the steel sheet.

In Japan’s auto market, the weighting for HTSS versus total vehicle weight has risen from

2.7% in 2001 to 17% in 2014. We believe this trend of replacing steel with steel will only

accelerate.

HTSS is generally defined as steel with tensile strength of at least 490MPa, but the

precise definition varies from country to country. The high-precision alloy steel uses

carbon, silicon, manganese, titanium, and other inputs to increase tensile strength (the

maximum stress that can be applied without failure). HTSS boasts much greater tensile

strength than ordinary steel, but there is no real difference between the two in rigidity,

making it difficult to completely replace ordinary steel with HTSS. As a result, HTSS is

found in frames, pillars, members, and other areas requiring high resistance to fatigue and

deformation, and also in front hoods, trunk lids, and other exterior panels that need dent

resistance.

Figure 29: HTSS as part of total vehicle weight: 2001 Figure 30: HTSS as part of total vehicle weight: 2014

Ordinary Steel 69%


3%

Other Materials 29%

Ordinary Steel 45%


17%

Other Materials 38%

Source: JAMA, Credit Suisse Source: JAMA, Credit Suisse

Steel in autos must meet contradictory demands for strength and pliability, which is to say

it has to be strong but it must also retain formability, i.e., its ability to be stamped or

pressed. This has long been a challenge to steelmakers. In the 2000s, the primary metric

for HTSS was 590MPa, but advancements in formability have allowed 780MPa steel to

come into use, followed eventually 980MPa (known as ultra-HTSS). Conventional cold-

formed steel such as that used in Nissan’s Skyline/Infiniti Q50 offers its greatest strength

at 1.2GPa (1,200MPa). Hot stamping is in the spotlight now as a promising forming

process offering tensile strengths of 1.5GPa or higher while retaining formability. In this

process, 300–500MPa steel is heated and transferred to a press machine, where it is

formed and quenched by cooled dies. Automakers in Europe and the US were early to

adopt this process, but recently it has begun to win traction with Japan’s automakers.

Toyota, for example, is expected to use hot stamping for 1.5GPa steel in its TNGA

platform, and Honda uses the process for steel in its N-series and Fit. Mazda uses the

greatest tensile strengths in the hot stamping process, featuring 1,800MPa steel in bumper

beams for its CX-5.

26 June 2015


Japanese steelmakers already have strong positions in HTSS, and the shift from ordinary

steel to HTSS is likely to boost their competitiveness further. There is almost nothing

separating the three main makers of HTSS in Japan: NSSMC, JFE Holdings and Kobe

Steel. Overseas makers POSCO, ArcelorMittal and Baosteel are lining up to target the

Japanese companies. The market for HTSS, a growth market with high barriers to entry, is

in a better position than the market for ordinary steel, which is currently facing a global

supply glut. Over the last decade, HTSS has seen strong growth in added value, defined

here as the price difference between HTSS and hot-rolled coil, a commodity-grade steel

(Figure 31). The Japanese steelmakers are therefore likely to develop long-term strategies

that prioritize growth by tapping into rising demand for HTSS.

Figure 31: Added value over HRC: High-tensile steel

0

100

200

300

400

'06/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1 '14/1 '15/1

($/t)

Source: MoF, Credit Suisse

NSSMC (5401, OUTPERFORM, TP ¥400)

Global HTSS strategy gathering pace

NSSMC is estimated to be the global leader in automotive steel sheet. We believe its all-

round capabilities, such as its long track record in the market, technologies, marketing

capabilities and supply framework, set it apart from competitors. NSSMC’s subsidiaries

and equity-method affiliates manufacture HTSS in all continents and regions apart from

Europe and Africa, and we estimate it also has the leading market share in all key markets.

NSSMC is also saving costs through merger synergies and production line realignment,

pointing to significant room for profit growth over the longer term.

JFE Holdings (5411, OUTPERFORM, TP ¥3,700)

Slow to expand into US

JFE Holdings ranks alongside NSSMC and Kobe Steel as one of the top makers of HTSS

in Japan. However, it has fallen behind NSSMC overseas. The company itself recognizes

that it needs to develop its operations in North America as a matter of priority, so we see

prospects for a serious move into that market in the near future. At a recent briefing, JFE

said its production costs are not as competitive as NSSMC’s. To close this gap, it plans to

upgrade coke ovens and invest in other facilities, as well as step up personnel training.

The company is strong in technologies that control metal properties using a water-quench

process. Steel made using this process contribute to higher quality press-formed steel

sheets.

26 June 2015


Topre (5975, OUTPERFORM, TP ¥2,700)

Advanced HTSS technologies could fuel sales growth

Topre is an independent manufacturer of pressed products for the auto industry. Its

advanced processing technologies in HTSS and other areas and its high weighting for in-

house mold work underpin its strong profitability. HTSS is as strong as ordinary steel, but

offers weight savings because it allows thinner steel sheets to be used. The downside is

that HTSS has been substantially more difficult to form or press. Topre was quick to begin

working with HTSS and has leveraged its expertise in processing technologies to mass

produce 1,180MPa steel. Topre was the first Japanese manufacturer to introduce hot

press processing for ultra-HTSS in North America. In 2013, it began mass production of

auto body products boasting what was at the time the greatest tensile strength in the world

(1,470MPa). The company has used its strengths in processing technologies to win

demand for HTSS for used in exterior panels for autos and frames and other body

components, and this has allowed it to maintain margins that are higher than those of its

pressed products rivals.

In 2015, Topre reached a deal to acquire the press business of Yachiyo Industries, a

Honda-affiliated manufacturer. Topre is buying Yachiyo’s sheet metal press plant in

Yokkaichi (Mie Prefecture) as well as all operations of consolidated subsidiary YG Tech.

The transfer is set for October 2015, and associated costs will mean only a limited effect

on Topre’s FY3/16 earnings, but the move increases the company’s ability to expand its

ongoing work with Honda and other domestic automakers. Over the longer term, the deal

could also help increase sales of pressed products featuring HTSS.

Figure 32: Advanced HTSS technologies support healthy

margins

Figure 33: Difficult-to-form parts made of HTSS

8.3%8.8%

14.7%

12.2%

15.1%

12.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

FY3/10 FY3/11 FY3/12 FY3/13 FY3/14 FY3/15

Topre - Stamping Business OPM

Pacific Industrial - Stamping Business OPM

Unipres - Stamping Business OPM

Source: Company data, Credit Suisse Source: Topre

26 June 2015


Unipres (5949, NEUTRAL, TP ¥2,900)

Aiming to build out HTSS technologies through alliance with NSSMC

Unipres is Japan’s largest manufacturer of pressed products for the auto industry. Nissan

Motor and its affiliates account for more than 90% of its sales. Nippon Steel & Sumitomo

Metal (NSSMC), Unipres’ leading shareholder, increased its stake in the company from

11.5% to 16.5% as part of efforts to strengthen joint development of HTSS. With HTSS

sales growth on the horizon, the partnership is intended to increase the added value of the

company’s products by stockpiling technological know-how about HTSS. For NSSMC, the

deal could allow it to access Unipres’s international network to meet overseas demand.

Synergies for both companies could mean products with greater added value as demand

for weight savings rises.

In additional to burnishing its technological strengths, Unipres is also focusing on the

production side by shoring up its manufacturing network for pressed products. Work is in

its initial stages now, but these moves could make a meaningful contribution to medium-

term earnings. Consolidated earnings have faced headwinds, including repercussions

from the cancellation of Russian facilities slated for completion by end-FY3/15, work to

realign production centers in China, and losses in the Americas arising from production

turbulence following expansion. Downside in Russia will be limited, as plans were shelved

before expenditures escalated, but realignment in China and the normalization of

production activity in the Americas are urgent management issues with regard to earnings

improvements. Our outlook for the hybrid body market anticipates that growth in HTSS

demand will extend beyond the domestic market and become global, which will raise the

importance of overseas supply infrastructure.

26 June 2015


Aluminum Signs of greater use, particularly in mid-sized and

larger autos

Technologies for combination with other materials is key

Aluminum has a specific gravity of 2.7, against steel’s 7.8, but aluminum on its own is not

particularly strong. Instead, aluminum alloys, featuring manganese, magnesium, copper,

zinc, and other additives to increase strength, have seen predominant use. Aluminum has

a long track record in automotives and currently accounts for about 10% of total vehicle

weight. It has been used in a range of areas, including engines, transmissions, and wheels.

More recently, potential applications have grown to include hoods, fenders, doors, roofs,

and other external body panels as demand for weight savings has grown. As mentioned

above, HTSS allows the use of lower gauge steel, but there are still limitations in

formability. This means the use of aluminum to reduce the weight of auto body

components could grow considerably. Aluminum alloys are broken down into those that

are not heat treated (the 1000, 3000, 4000, and 5000 series) and those that are (the 2000,

6000, and 7000 series). So far, the 5000 and 6000 series have seen the greatest use in

auto bodies because they offer the best balance of strength and formability. In particular,

5000 and 6000 series sheet aluminum has been used in hoods, doors, roofs, and other

exterior panels. For body frames, greater strength demands have led to the use of 6000

series products, although Ford’s F150 uses the 7000 series products that are also used in

aircraft.

Figure 34: Aluminum alloys and key automotive applications Name Composition Characteristics Strength Formability Main auto component use

Non-heat-

treatable types

1000

series

At least 99% aluminum

Small amounts of Fe/Cu/Si

Superior ease of working, anti-corrosion

properties

Low Superior Wire harness radiator fins, etc.

3000

series

Al-Mn series Reduced anti-corrosion, but high strength Radiator fins, heat insulators, etc.

4000

series

Al-Si series

Some types have Cu/Ni/nm additives

Reduced thermal expansion coefficient, but

improved wear resistance

Forged pistons, etc.

5000

series

Al-Mg series Types with large amount of Mg added are

strong

Seat frames, body panels, covers, etc.

Heat-treatable

types

6000

series

Al-Mg-Si series Superior in terms of both strength and anti-

corrosion properties

Hoods, doors, external body panels, body structural

components, etc.

2000

series

Al-Cu-Mg series

Duralumin/super duralumin

Strong, but inferior anti-corrosion properties Limited examples, but can be used for body

structural components

7000

series

Al-Zn-Mg series

Extra super duralumin when Cu added

Strongest of the aluminum alloys High Inferior Body structural components for which strength is

required, chassis, suspension, etc.

Source: MFI, Credit Suisse estimates

The use of aluminum in auto bodies began in 1980, but it was generally limited to all-

aluminum bodies for luxury autos, such as the Audi A8 (featuring the Audi Space Frame

[ASF]) in the 1990s and the Jaguar XJ in the 2000s. The ASF used extruded sections for

the chassis and aluminum panels for externals. Jaguar’s XJ used an aluminum version of

its standard monocoque chassis. More recently, Land Rover, part of the same group as

Jaguar, used an aluminum body for its Range Rover Sport, a mass-produced SUV. Ford

has switched to an all-aluminum body for its F-150, the most popular pickup in the US, and

this has put the use of aluminum in autos back into the spotlight. Among Japan’s

automakers, Honda was the first to roll out an all-aluminum monocoque chassis with its

NSK sports car in 1990, but it lagged its European and US rivals in using aluminum in

mass-market models, particularly in the chassis. Now, however, with its 3D lock seam

technology for joining steel and aluminum, Honda’s use of aluminum in outer door panels,

hoods, and other external panels has begun to rise. Toyota’s Prius and the 86 sports car

use aluminum bonnet hoods, and more use of aluminum is planned for the Lexus and

other higher-end brands. The next Prius is likely to have more aluminum, particularly in

26 June 2015


exterior body panels, in order to improve fuel efficiency. Mazda is expected to shift from

steel to aluminum for front member reinforcement bars in its next MX-5.

We believe the key to increasing the use of aluminum in autos is joining it to steel, the

material with the heaviest weighting relative to total vehicle weight. When conventional

spot welding is used to join aluminum and steel, a brittle intermetallic layer forms that

adversely affects joint strength. Electrolytic corrosion, which arises when different

materials are joined, is another problem. In short, the development and adoption of new

technologies for joining different materials is the key to increasing the use of aluminum.

Techniques using both mechanical joining technologies, such as self-piercing rivets, and

adhesives have begun to find traction. Using self-piercing rivets to join two sheets of

material, the rivet’s tail penetrates the top sheet, then spreads in such a way that the rivet

cannot be extracted. Other mechanical joining techniques include punch riveting, in which

a cylindrical shaft is forced through the materials and bucked, and mechanical clenching,

which uses a punch and die process rather than rivets. Another technique with an

established track record is friction stir welding (FSW), which represents a dramatic step

away from traditional welding. In FSW, a tool rotating at high speed is applied to the joint,

and the resulting friction heat is used to join the two materials. Japanese automakers are

already using FSW.

Kobe Steel is also marketing its MIG and laser braze welding technology, which uses

aluminum flux-cored wires (FCW). This technology can join aluminum alloy and steel

without melting the base steel. Using FCW is not significantly more expensive than

welding only steel materials, making it a promising new technology for welding aluminum

and dissimilar metals. Kobe Steel was awarded a technology development prize for FCW

by the Japan Aluminum Association on 11 June 2015.

US and European aluminum firms such as Alcoa, Novelis and Constellium are leading the

way in developing automotive aluminum panel materials, mainly because the aluminum

panel market has taken off more quickly in their regions than in Japan and other parts of

Asia. Japanese company UACJ (5741) plans to set up an aluminum automotive panel

plant in the US with Constellium. The new plant, scheduled to come on stream in 2016,

will have an annual capacity of 100,000t and cost $150mn to build. Kobe Steel, which has

the top share in Japan, is currently building a new aluminum panel plant in China. Due to

start operations in 2016, the plant will have an annual capacity of 100,000t and cost

around RMB1.15bn (around ¥23bn). We estimate Kobe Steel has the top share in

aluminum panels in Asia. The company is also looking into building a plant in North

America, with a target completion date of 2017 or 2018.

Shift to aluminum wire harnesses

The shift to aluminum wire harnesses is likely to happen much faster than the adoption of

aluminum panels. As explained earlier, the shift for wire harnesses is from copper to

aluminum, rather than from steel to aluminum in the case of many other automotive

components. The high cost of copper means the switch to lower-cost aluminum will

happen more rapidly than steel, which is currently cheaper than aluminum. This adoption

of lower-cost materials should also boost margins at wire harness makers. This win-win

situation for suppliers and automakers will be an important driver.

Carmakers have been looking to reduce the weight of wire, as it accounts for more than

60% of wire harnesses' total weight. Per-vehicle weight can be between 20kg and 40kg

depending on the vehicle's size and the amount of electrical and electronic equipment

fitted. Copper has been used to date due to its high conductivity and ease of processing,

but by using aluminum, harnesses can be made around 30–45% lighter, as aluminum

weighs less than copper (less than a third copper’s weight, at 2.7g/cm³ vs. 8.96g/cm³).

However, using aluminum in harnesses poses a number of problems. First, it is not as

conductive as copper (The conductivity of pure aluminum is only 62% of copper). It is

weak in terms of tensile strength, poses difficulty when connecting aluminum wire to

connectors, and also entails problems such as galvanic corrosion where aluminum and

26 June 2015


copper come into contact. Solving these problems via technology development makes it

possible to replace copper in harnesses with aluminum. SEI spends more than rivals on

R&D, and we estimate it has 50% or more of the global market for aluminum harnesses.

Figure 35: Weight breakdown of wire harness

Wire64%Connector

9%

R/B4%

Protector4%

Terminal4%

Tube4%

Grommet2%

Tape2%

Clamp2%

Fuse0% Others

5%

Source: Furukawa Electric

Figure 36: Lightweight effect of aluminum harnesses

Size (mm²) Unit weight (g/m) Size (mm²) Unit weight (g/m)

0.50 5.40 0.75 3.10 50% -43%

0.75 7.60 1.25 5.00 67% -34%

1.25 13.10 2.00 9.10 60% -31%

2.00 21.20 2.50 11.70 25% -45%

Copper wire Aluminum wire Increase

in size

Lightweight

effect

Source: Sumitomo Electric Industries

Kobe Steel (5406, OUTPERFORM, TP ¥360)

Targeting demand with a multi-material strategy

Kobe Steel is the world’s only company with a presence in high-tensile steel, aluminum

and welding. It has leading market shares in all three businesses in Asia. Although the

company ranks only about 50th worldwide in terms of global crude steel production

capacity, the above three businesses mean it is well-placed to offer automakers optimized

material and structural design proposals. A multi-material approach is essential for

automakers to make their cars lighter. In that context, Kobe Steel’s welding technologies,

which can join dissimilar metals, are likely to play an important role. The welding business

is already achieving an RP margin of roughly 10% and is likely to attract growing attention

as a growth driver and source of profits for Kobe Steel.

Sumitomo Electric (5802, OUTPERFORM, TP ¥2,400)

Closing in on the top global market share

Sumitomo Electric Industries (SEI)’s share of the global wire harness market in 2014 was

27%, just short of market leader Yazaki’s 28%. Growth in SEI’s share has been rapid over

the last 15 years, rising from just 10% in 2000. It would not be a major surprise if the

company moved into top spot in 2015. We expect growth in aluminum harnesses to drive

gains in market share. Some automakers have already decided to adopt high-strength

aluminum harnesses near the engines of some models from 2H FY3/16. Our simulation

suggests aluminum products will account for roughly 10% of SEI’s total wire harness sales

26 June 2015


in FY3/18, rising to 65% in FY3/21 (Figure 37). We estimate the OP margin on aluminum

harnesses is around 2ppt higher than on copper harnesses due to the difference in

material prices.

Figure 37: SEI: Simulation of increased adoption of aluminum harnesses

15/3E 16/3E 17/3E 18/3E 19/3E 20/3E 21/3E

Sales (¥mm) 1,089,600 1,125,991 1,163,239 1,260,541 1,397,003 1,529,560 1,706,418

　　Copper harness 1,088,510 1,121,618 1,154,195 1,160,510 1,109,977 1,008,164 699,152

　　Aluminum harness 1,090 4,372 9,044 100,031 287,025 521,396 1,007,266

Composition ratio

　　Copper harness 100% 100% 99% 90% 75% 60% 35%

　　Aluminum harness 0% 1% 1% 10% 25% 40% 65%

Per-vehicle average unit price (¥1,000)

　　Copper harness 50 50 50 50 50 50 50

　　Aluminum harness 39 39 39 39 39 39 39

OP (¥mm) 78,760 81,163 83,943 92,860 106,612 121,078 144,015

　　Copper harness 80,757 83,102 83,557 79,918 72,588 50,339

　　Aluminum harness 407 841 9,303 26,693 48,490 93,676

OP margin 7.2% 7.5% 7.8% 8.1% 8.4% 8.7% 9.1%

　　Copper harness 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2%

　　Aluminum harness 9.3% 9.3% 9.3% 9.3% 9.3% 9.3%

Global market share 27% 27% 27% 29% 33% 36% 42%

　　Copper harness 27% 27% 27% 27% 27% 27% 27%

　　Aluminum harness 50% 50% 50% 50% 50% 50% 50%

Excess growth rate over automobile market 0% 0% 8% 12% 11% 16% Source: Credit Suisse estimates

26 June 2015


Synthetic resins Poster child of non-metallic materials

Light weight and high moldability offer maximum design freedom

The automotive industry has a long track record of using synthetic resins, the poster child

of non-metallic materials, which even now account for nearly 10% of the average vehicle’s

weight. These plastics are also used in a wide variety of applications, including interior and

exterior parts, engine parts, electronic components, fuel system components, air bags,

and seat belts. The greatest advantage offered by synthetic resins apart from their light

weight is the high degree of design flexibility afforded by their high moldability. The main

synthetic resins used in automobiles are polypropylene (PP), polyvinyl chloride (PVC),

polyurethane (PUR), acrylonitrile-butadiene-styrene (ABS) resin, polyethylene (PE), and

phenol formaldehydes (PF). PP is by far the most popular of these, accounting for about

70% of all synthetic resins used in autos due to its superior heat resistance, rigidity, and

moldability.

Most Japanese manufacturers have adopted resin bumpers and typically use a PP base

with rubber added. Some would argue that the Japanese automakers are behind their US

and European peers when it comes to using plastics, but the use of these key materials in

hybrid bodies seems likely to grow in line with the continued growth in weight reduction

requirements. Reflecting the design freedom afforded by their high degree of moldability,

we expect to see expanded use of single-piece molding of multiple parts in particular as a

means to boost value added.

Daihatsu, in the Tanto and its new Move, already uses resin exterior panels in a wide

range of applications and areas, including hood, fuel cap, frame rail covers, fenders, and

single-mold panels with fully integrated spoilers. Toyota, meanwhile, is already using

resins in body parts, including a plastic rear door on its Corolla Fielder and an optional

resin panorama sunroof on the Prius Alpha. The company is also expected to begin using

a new multi-function resin roof produced through single-piece molding in its next

generation of affordably priced passenger vehicles. Finally, Nissan has also started using

a resin rear door on its Rogue/X-Trail that took the Grand Award and the Body Exterior

Award at the 2013 SPE Automotive Innovation Awards Competition and Gala. The all-

olefin rear lift gate is made of 100% recycled materials, offering the minimum possible

environmental impact and a 30% reduction in weight over traditional steel, allowing for

improved fuel economy and reduced CO2 emissions.

Engineering plastics should help reduce body weight by replacing metal & glass

In addition to the general-purpose synthetic resins mentioned above, we also anticipate

growth in demand for high-value-added engineering plastics in the auto sector. With

growing demand for more environmentally friendly automobiles, including via weight

reductions, we think engineering plastics will become increasingly important. We believe

they will not merely replace existing materials such as metal and glass, but rather that

there is demand for high-value-added materials and processing technologies that

anticipate potential market needs. The main engineering plastics used in automobiles are

polyamide (PA), polycarbonate (PC), polyacetal (POM), modified polyphenylene ether (m-

PPE), and polybutylene terephthalate (PBT). Among super engineering plastics, use of

polyphenylene sulfide (PPS) and polyether ether ketone (PEEK) stands out.

PA is the most widely used engineering plastic. The plastic is used extensively in engines

for intake manifolds, engine covers, and radiator tanks and the like due to its favorably

balanced heat resistance, strength, oil resistance and cost. In recent years, attention has

focused on PA11 and other vegetable oil-derived PA. Electric vehicles use less PA than

combustion-engine vehicles as they do not have fuel systems, which is a negative.

However, makers are securing fresh demand, such as for UBE nylon 1218 IU from Ube

26 June 2015


Industries, which Toyota Motor has adopted for the hydrogen tanks in its fuel cell vehicles.

PC is highly valued for its outstanding heat resistance, transparency, and shock resistance.

Headlamp lenses account for 60% of automotive PC demand. We expect the range of PC

applications to widen, including as a substitute for glass glazing and for metal body parts

in pursuit of auto weght reduction. However, there are still issues with plastic glazing,

including the establishment of mass-production technology and technical problems such

as improving scratch and weather resistance, so we expect its full adoption to take time.

New York taxis (the so-called yellow cabs) have been fitted with transparent security

partitions made from PC manufactured by Teijin. PC is hard to break and highly

transparent. It also affords around 30% weight reduction versus glass.

POM is valued for its fuel resistance, slipperiness, and heat resistance, among other

properties. It is mainly used to make structural parts such as fuel system modules, gears,

and cams. This plastic has become the standard material for fuel modules.

Figure 38: Demand growing for engineering plastics for use in automobiles

Types of engineering plastics Main applications Major manufacturers

Polyamide (PA) Fans, fasteners, radiator end tanks, engine covers, cylinder

head covers, chain levers/guides

Du Pont, BASF, Ube Industries, APM, DSM, Rhodia,

Asahi Kasei Chemicals, Toray

Polycarbonate (PC) Headlamp lens, meter panels, door handles, roof rails, glazing

(resin windows)SABIC Innovative Plastics, Bayer MaterialScience,

Mitsubishi Engineering-Plastics, Teijin, Styron,

Idemitsu Kosan

Polyoxymethylene (POM) Gears, lever parts, meter parts, door locks, seatbelts, seatbelt

adjusters, tri-zone HVAC, audio systemsTicona, Du Pont, Polyplastics, Mitsubishi Gas

Chemical, Yunnan Yuntianhua (China), Asahi Kasei

Chemicals

Polybutylene terephthalate (PBT) Lighting parts, harness connectors, ignition coils, current-

carrying parts for airbag systems, gears, door lock material,

millimeter wave radar sensors

ChangChun Group (Taiwan), SABIC Innovative

Plastics, BASF, Du Pont, Sinopec Yizheng Chemical

Fibre (China), Mitsubishi Chemical

Modified-Polyphenyleneether (PPE) Body panels, front fenders, door handles, sunroof covers, brand

marks/emblems, wheel caps/covers, lithium-ion battery

housings for electric vehicles

SABIC Innovative Plastics, Asahi Kasei Chemicals,

BASF, Mitsubishi Engineering-Plastics

Polyphenylene Sulfide (PPS) Switches, connectors, sensors, fuse cases, lamp reflectors,

light sockets, EV/HEV inverters, IPM materialFortron Industries, Kureha, Chevron Phillips Chemical,

Toray, DIC EP, Tosoh

Liquid Crystal Polymer (LCP) Connectors, connector cases, fuel tanks Polyplastics, Sumitomo Chemical, Ticona, Du Pont,

JX Nippon Oil & Energy, Toray Source: The Heavy & Chemical Industries News Agency, Credit Suisse

What are the impacts of plastic window development on automotive glass makers?

The major Japanese automotive glass makers are Asahi Glass, Nippon Sheet Glass, and

Central Glass, while major overseas makers include Saint-Gobain (France), PPG (USA),

Guardian (USA), and Fuyao (China). It remains unclear the degree to which automakers

will adopt plastic windows, making it difficult to make quantitative estimates, but there is

the potential risk of plastic windows substituting automotive glass to some degree in the

future. We believe applications of plastic windows for the time being are likely to be limited

to rear and side windows and sunroofs due to safety and performance characteristics, and

adoption into windshields, which has the highest value-added, is likely to prove difficult.

Normally, cars have a windshield, side windows and rear windows, but amongst these

only the windshield has a resin membrane sandwiched by two layers of glass (the other

windows usually has only a single layer of reinforced glass). If we take into account factors

like double the use of glass for windshields as opposed to other windows (twice the

amount of glass is required to produce windshields due to the use of two layers), required

performance characteristics (including safety), and the amount of potential value-added

(additional features such as heads-up displays, digital TV antennas, soundproofing, and

UV/IR reduction), we estimate that windshields account for more than 40% of the weight of

all the glasses used for automotive windows, and well over half of the value. For other

windows, we also expect the plastic-for-glass substitution rate for other windows to remain

low for the time being, and therefore the negative impact on the automotive glass market

as a whole should be limited. Moreover, in addition to adding the above-listed value-added

26 June 2015


features to windshields, glassmakers are also working to reduce mass by using thinner

glass, an area in which we think there remains additional scope for technological progress.

Hitachi Chemical (4217, OUTPERFORM, TP ¥3,200)

Expecting X-Trail to drive demand for molded auto products

We understand that in FY3/15 Hitachi Chemical’s molded plastic auto parts business

accounted for 10.6% of total sales (¥56.5bn by our estimate). In a Japan first, the

company developed a plastic back door module consisting of an inner panel made of high-

strength, high rigidity glass fiber-reinforced thermoplastics attached with adhesive to a

visually appealing outer panel made of engineering plastic. Hitachi Chemical launched

mass production of the module from 2001. The company improved productivity and cost

by changing of the inner panel from press molding to injection molding and changing the

outer panel to general-purpose plastic, and it commenced mass production of a highly

versatile back door module from October 2004. The company has built a production

system for plastic back doors, through which automakers are striving to achieve weight

reductions, spanning three countries (Japan, the US, and China). Its Chinese subsidiary,

the first manufacturing and marketing base for auto interior and exterior molded products

in China, started making back doors for Nissan Motor's new model X-Trail in 2014. We

understand the company has won orders for the new model for FY3/17, and we look for

sales to expand in that year. It has become imperative for parts suppliers to deploy

globally as major automakers have rolled out a global production structure for each of their

markets. In keeping with this trend, the company’s overseas production weighting of auto

parts including powdered metals increased from 37% in FY3/13 to 46% in FY3/15. The

company plans to increase the weighting to 55% in FY3/16. Responding to demand for

weight reduction, the company is planning to launch new high-strength plastic gears in

FY3/16 and new expansion molded exterior parts in FY3/17.

Mitsui Chemicals (4283, UNDERPERFORM, TP ¥380)

Bright medium-term growth prospects for metal/plastic integration technology

Among mobility, healthcare and food & packaging, the three areas in which Mitsui

Chemicals aims to achieve growth as part of its medium-term management plan, the

company’s plan for expansion is already running ahead of schedule in mobility thanks to

growth in auto plastics business. FY3/15 OP at the mobility business was ¥35bn (initial

guidance ¥28bn), beating the FY3/17 target in the medium-term plan (¥30bn).

Among general-purpose plastics, polypropylene (PP) is most widely used for automotive

applications and accounts for about 50% of weighting. PP is also the centerpiece of the

company’s auto plastics business. It is lightweight, easy to mold, and highly cost effective.

PP is extremely well suited for recycling and its rigidity can be improved by making it into a

compound by adding fillers or the like. It is widely used in inner panels and door panels of

auto interior and also used in large-sized exterior parts such as bumpers and radiators.

With PP compound production capacity of 1mn tons, Mitsui Chemicals is the world’s

largest producer and boasts a market share of 30%. The company has eight production

bases worldwide, including in Japan, the US, and in Asia. Currently, major domestic

automakers account for bulk of the output, but with outlook for demand growth spurred by

stricter environmental regulations on CO2 emission and fuel efficiency in Europe heading

into 2020, Mitsui Chemicals aims to increase sales volume for European autos.

In addition to PP compounds, we expect growth in demand for technology for combining

metal and plastic during the molding process developed by the company. The technology

could allow weight savings of 70%, and the company is developing it together with

automakers. The trend toward lighter autos is accelerating, and the use of materials made

with this technology could find traction in two or three years. The company acquired mold

manufacturer Kyowa Industrial in September 2014 and is currently involved in efforts to

produce a rear panel for SUVs in a single piece through injection molding.

26 June 2015


Kureha (4023, OUTPERFORM, TP ¥630)

Leading maker of super engineering plastics such as PPS

Kureha is the world's leading manufacturer of polyphenylene sulfide (PPS) resin with

combined production capacity in Japan and the US of 25,000t. PPS is a super engineering

plastic with outstanding heat and chemical resistance, mechanical strength, and flame

resistance. Made into compounds with strengthening fibers such as glass fiber, the

material is used in the manufacture of electrical parts for autos, electrical and electronic

equipment, office automation (OA) equipment, and housing equipment. However, demand

has expanded especially in recent years in order to achieve weight reductions in

automobiles.

Driven by firm demand from automakers, the company's two PPS plants in Japan and the

US have been operating at full capacity. Accordingly, the company plans to expand

capacity at Fortron Industries' (Wilmington, North Carolina, 50-50 JV between Ticona and

Kureha) PPS resin production plant, eliminating bottlenecks, and boosting annual

production by 2,000t from the current level to 17,000t. The increase is due around Apr–

Jun 2016. At its Iwaki plant, the company plans to eliminate bottlenecks and expand

capacity in June 2016, boosting capacity by 700t to 10,700t. The company is also

considering building a new plant on land next to Fortron's existing facility in the US, aiming

for completion in 2019–20. The company is putting effort into R&D of cost-competitive

PPS resin manufacturing technology, and will make a decision referencing progress in

technology development.

DaikyoNishikawa (4246, OUTPERFORM, TP ¥4,600)

Building position as resin products maker, capturing growing demand for

lightweight materials

DaikyoNishikawa is a manufacturer of automotive resin products providing a one-stop

integrated service spanning development of new material blends, product development,

and production. Its main client is Mazda. Leveraging innovative technologies, it has

developed lighter weight resin products with higher degrees of design flexibility. It has also

been able to offer solutions in areas previously considered outside the scope of plastics,

including engine components and outer panels, enabling the company to service growing

needs in vehicle weight reduction. DaikyoNishikawa excels in the development and

production of high value-added finished products like bumpers and rear doors that

maximize the unique strengths of their constituent materials. Its integrated production

process encompassing materials blending to actual manufacture is what allows it to offer

superior products, such as a bumpers made of resins that can withstand impact in low-

temperature and other harsh environments. Taking advantage of the high design freedom

offered by its resin compounds, it is also able to offer products such as interior trim and

single-piece modules with lighter weight integrated spoilers. The resin rear door supplied

to Daihatsu for the Tanto shaves about 10kg off the vehicle’s weight.

The company is carving out a niche position for itself as the global leader in resin rear

doors. It is also actively expanding its customer base beyond Mazda as well as its

geographical footprint, having established production facilities last year in all four regions

designated as the foundation of its future growth: Japan, China/Korea, Southeast Asia,

and North America. This promises to provide further momentum to earnings as these

facilities, in addition to making their own direct contributions, will better position the

company to grasp local needs with respect to vehicle weight reduction in each region.

26 June 2015


Figure 39: Overview of DaikyoNishikawa's automotive resin products

Source: DaikyoNishikawa official website

Figure 40: Overseas base expansion completed; urgently

needs to move into profit

Figure 41: Expecting substantial increase in profitability

due to growing demand for weight reduction

5.4%

9.4%10.4%

0.9%

-13.5%

3.4%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

0

20,000

40,000

60,000

80,000

100,000

120,000

FY3/13 FY3/14 FY3/15

Japan Revenue (LHS) Overseas Revenue (LHS)Japan OPM (RHS) Overseas OPM (RHS)

Million JPY

5.1%

7.3%

9.2%8.6%

9.2%9.9%

0%

4%

8%

12%

0

30,000

60,000

90,000

120,000

150,000

180,000

FY3/13 FY3/14 FY3/15 FY3/16E FY3/17E FY3/18E

Revenue(LHS) Operating Profit(LHS) OPM(RHS)

Million JPY

Source: DaikyoNishikawa, Credit Suisse Source: DaikyoNishikawa, Credit Suisse estimates

Nifco (7988, OUTPERFORM, TP ¥6,400)

Global leader in plastic fasteners, with promising growth in resin products

Nifco is the leading supplier of plastic fasteners, with a domestic market share of over 70%

and the top global market share as well. As the industry shifts from metal to plastic

fasteners as a means to reduce vehicle weight, the company is seeing explosive growth in

share. The average car in Japan is now estimated to incorporate 720 items made by Nifco.

The company is also expanding its overseas operations, with non-Japanese customers

now accounting for about half of total sales. Expanding overseas sales of plastic products

is a key management focus, as evidenced by its acquisition of two German resin parts

manufacturers, KTW and KTS, in FY3/15. Leveraging its position as the global leader in

plastic fasteners, Nifco can be expected to make a key contribution as the automotive

industry shifts toward resin-based solutions, which in turn promises to drive steady sales

growth.

26 June 2015


In the market for lightweight components, it is difficult to prevail by beating the competition

on weight alone, so all resin makers are focused on offering solutions that in some way

add value beyond simply reducing weight by using a different type of resin. Nifco has

begun bundling items it previously supplied individually, such as fasteners and cup holders,

to offer integrated assemblies and even entire center console solutions as part of a push

to expand sales of high value-added interior plastic products. In a reflection of these efforts,

the company’s per-vehicle sales rose from ¥5,092 to ¥5,419 in the domestic market in

FY3/15 even as its per-vehicle item count remained at 720 pieces. Future plans include

expanding its high value-added integrated assembly approach to fuel system solutions,

which should help it capture even more of the expanding market for lightweight

components.

Figure 42: Average product count per vehicle has

increased to 720 items

Figure 43: Nifco supplies resin products to a wide

range of customers

0

100

200

300

400

500

600

700

800

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Average per Vehicle Sales (LHS) Average Product Count per Vehicle (RHS)

Unit: JPY

Toyota, 21%

Honda, 15%

Nissan, 10%Other Japan

OEM, 15%

Overseas OEM, 42%

Source: Nifco, Credit Suisse Source: Nifco, Credit Suisse

Figure 44: Plastic fasteners made by Nifco Figure 45: Aiming for earnings growth driven by

increasing adoption of resin products

Source: Nifco Source: Nifco

26 June 2015


Nippon Electric Glass (5214, UNDERPERFORM; TP:

¥580)

Global leader in glass fiber for high-performance plastics

NEG is the global leader in the chopped strands used in FRTP, currently with a market

share of over 30%. Chopped strands consist of bundles of several thousand individual

glass fibers cut into lengths of 3mm or so. Lighter than metal and efficiently malleable into

complex shapes, FRTP is used in an increasing variety of autoparts, including intake

manifolds, door modules, ceiling materials, instrument panels, battery trays, and front-end

modules.

Owens Corning was formerly the global market leader. Its 2007 acquisition of the Vetrotex

reinforced and composite materials business from the Saint-Gobain Group lifted Owens

Corning’s market share above 50% (we estimate NEG’s share at the time was less than

20%). End-users took this as an opportunity to diversify their supply sources, NEG

gradually grew its market share, and it is now the leader. We estimate the current market

for glass fiber for automotive applications at about ¥100bn. If this were to grow at the

same rate as our hybrid body market forecast, the market could approach ¥150bn in 2020

and over ¥250bn in 2030 as the volume of plastics used in such applications rises.

NEG raised production capacity at its Malaysian plant starting end-March 2015 and it

targets FY12/15 glass fiber sales of about ¥60bn (23% of its ¥260bn overall full-year sales

guidance). Engineering plastics applications account for about 80% of its glass fiber sales

and most of this goes into autoparts. Profitability is also improving and we expect this

product to drive future earnings. We nevertheless reiterate our UNDERPERFORM rating

because NEG’s LCD glass earnings have peaked in 1Q, inventories and working capital

are rising, and cash flow is declining.

Figure 46: Glass fiber products

(Clockwise from upper-left)Chopped strand for functional resinChopped strand for matRoving for reinforced plastic

Source: Nippon Electric Glass

26 June 2015


Figure 47: Automotive uses of glass fiber

Door module(Chopped strand)

Front-end module(Chopped strand, Roving [LFT])

Exhaust manifold(Chopped strand)

Engine mount(Chopped strand)

Source: Nippon Electric Glass

Figure 48: Stages of production—From glass fiber to plastics to autoparts

CS is mixed with resin, processed into

powder/pellet composite material

Toray, Asahi Kasei, DuPont, BASF, etc.

Auto parts (mold) manufacturers

Delivered to auto manufacturers

Denso, Aisin Seiki, Toyota Boshoku, etc.

Chopped Strands (CS) are produced

Glass manufacturers Resin manufacturers

Competitors

Stages of production

NEG, Owens Corning, etc.

Composite material is molded into various

auto parts

Source: Company data, Credit Suisse

26 June 2015


Toyota Industries (6201, OUTPERFORM, TP ¥7,800)

Focus on resin windows, a new business with large potential

Toyota Industries is working on a variety of new businesses, but perhaps most promising

among them is resin windows. Use of resin windows can reduce vehicle weight 30–40%

compared to conventional glass, generating considerable fuel economy gains in the

process. The company already produces a resin panoramic sunroof for Toyota’s Prius

Alpha, which is being sold as standard equipment in Europe. Its resin windows are also

used for the quarter window and the partition in Toyota’s limited-edition Lexus LFA. The

company produced a quarter window, a rear door window, and a panoramic sunroof for

the JPN Taxi Concept that Toyota unveiled at the 2013 Tokyo Motor Show. A hard coating

it developed allowed the windows to meet regulatory wear-resistance and durability

standards for use in areas within the driver’s field of vision. At the 2015 Automotive

Engineering Expo, it introduced a multi-functional resin roof with an improved design. By

integrating shark fins and high-mounted brake lamps, the multi-function resin roof offers

improved aerodynamic performance and aesthetics, as well as significant weight savings,

making it a promising new product for use in affordably priced vehicles. While there are

cost limitations at present, increased adoption of this product should help both improve

economies of scale and drive growth in this business.

Figure 49: Toyota Industries' multi-functional resin roof

Source: Credit Suisse

26 June 2015


Carbon fiber Demand for use in automotive applications seen

surging between now and 2020

Lighter, but stronger than steel

Carbon fiber is most notable for being light and strong, and also rigid. It is one quarter the

weight of steel but has about 10 times the strength, while the tensile modulus (a stiffness

to weight ratio) is more than seven times that of steel. Thus less weight is needed to

achieve the same strength and rigidity, creating a lighter material. Carbon fiber is not used

in the fiber state; rather, it is mixed with plastics and so forth to produce composite

materials. In the main, these materials are used to manufacture sporting goods (including

fishing rods and golf clubs), as well as aircraft bodies, automotive parts, natural gas

pressure vessels, and PC cases. We expect demand from automakers to increase sharply

in the run-up to 2020.

Amid increasing awareness of environmental issues, much work is going into improving

vehicles’ fuel efficiency. Lightweighting is an important element in enhancing automotive

fuel efficiency. A number of materials are being considered for this purpose, and CFRP is

one. According to calculations on the subject by Japan’s New Energy and Industrial

Technology Development Organization (NEDO), use of CFRP as a substitute for steel

automotive materials would reduce vehicle weight by 30%. In this calculation, if the steel

component is cut by 584kg (968kg to 384kg) and 174kg of CFRP is used instead, the

vehicle’s weight drops from 1,380kg to 970kg. NEDO calculates that this would deliver a

22.5% improvement in fuel efficiency.

Use of carbon fiber-reinforced plastics (CFRP) is already beginning to take off, led by non-

Japanese luxury car makers. A typical example is the CFRP-based “Life Module” in the

cabin section of BMW’s i3 electric vehicle. Each section of the Life Module is produced

using resin transfer molding (RTM). Daimler for its part set up a joint venture with Toray in

2011 to produce and market CFRP parts, and in 2012 made the full transition to a CFRP

trunk lid in its Mercedes SL-Class AMG. Audi has switched to its new “Multimaterial Audi

Space Frame” (ASF), which through use of CFRP in its B pillar, center console, and rear

bulkhead, has reduced body shell weight by 15%. Alfa Romeo, meanwhile, has adopted a

CFRP monocoque structure for the Alfa 4C that weighs just 65kg. The Big Three

Japanese automakers are also poised to begin expanding their use of CFRP. Toyota is

already using CFRP for 65% of its LFA Super Sport's body. It also makes extensive use of

CFRP in the Mirai fuel cell vehicle it launched at end-2014, including application in the

stack frame and the high-pressure hydrogen tanks. Nissan began using a CFRP trunk lid

with the 2014 model GT-R. Honda already has a track record of using carbon fiber in

vehicles like the NSX, but is also currently developing a CFRP floor monocoque tabbed

the “Super Light Structure” that it hopes to bring to market in the 2020s.

Impediments to expanded use of carbon fiber in automobiles to date have included cost

and cycle time issues. Nonetheless, automakers and material makers alike have worked

to develop new production methods and improved processes, and these efforts can be

expected to produce significant strides in these areas. Most commercial use of CFRP in

cars to date has involved the autoclave method for solidifying the carbon fibers within a

thermosetting resin, which while producing high-performance products with good

appearance quality has also created issues related to staffing and costs. In this regard,

new methods like resin transfer molding (RTM), sheet molding compound (SMC), and

prepreg compression molding (PCM) are attracting attention. RTM is a method by which

carbon fibers in a mold are impregnated with a resin then heat-cured. SMC is a fiber-

reinforced thermoset material in sheet form produced by impregnating chopped carbon

fibers with resin. The sheet is then pressed into molds and heat-cured. PCM also uses a

mold like the RTM and SMC methods, but uses prepreg for resin impregnation, similar to

26 June 2015


the autoclave method. Each of these methods reduces cycle time compared with the

traditional autoclave method, thereby raising productivity and keeping costs down.

Employing new methodologies like these promises to drive further growth in the

application of carbon fiber.

Figure 50: Use of CFRP reduces vehicle weight by 30% and delivers 22.5% increase in

fuel efficiency

968

384

174

0

200

400

600

800

1000

1200

1400

1600

Current model CFRP model

(kg)CFRP

Other

Non-ferrous metal

Steel

Source: Credit Suisse estimates

Figure 51: Using CFRP can reduce CO2 emissions by around 5t per vehicle

Driving： 26t

Driving： 20.2t

Existing autos

CFRP autos

Assembly：0.8t

Materual manufacture：5.1t

Assembly：1.2t

Material manufacture：3.9t

Total：26.5t

Can reduce CO2 emission by 16% (5t) through the 10-year lifecycle

Total：31.5t

Source: Credit Suisse estimates

26 June 2015


Toray Industries (3402, OUTPERFORM, TP ¥1,470)

M ass adoption of carbon fiber in auto sector driving transition to next stage of

growth

Japanese chemical makers own 60% of the global carbon fiber market and lead the world

in related technologies. The Toray group is far and away the individual leader, with a 36%

global share, and we think it could top 40% over the medium term as it adds production

capacity in response to increased automotive demand. We think a combination of

aerospace demand and increased carbon fiber use by automakers as a structural material

from 2016–17 could boost Toray’s carbon fiber OP from ¥26.2bn in FY3/15 to ¥60bn in

FY3/20. This equates to around 29% of our total FY3/20 OP forecast, second only to the

35% we see coming from the core textiles business. We expect OP from automotive

carbon fiber alone to advance from ¥9bn in FY3/17 to ¥15bn in FY3/20, but think this

medium-term profit impact is not yet in the share price.

In February 2014, the company acquired US company Zoltek, which makes large tow

(low-price carbon fiber), increasing its cost competitiveness in automotive and industrial

applications. At the end of 2014, the company reached a basic agreement with Italian

textile maker Saati to acquire the latter's carbon fiber and prepreg (resin-impregnated

carbon fiber sheet) business. The company has also consolidated its position in

processing by expanding production capacity for CFRP parts at Toray Carbon Magic

(TCM). In addition to expanding its lineup of materials, we expect increased adoption of

CFRP in automobiles to gain momentum as moldability and productivity are improving.

Teijin (3401, NEUTRAL, TP ¥440)

Awaiting official announcement of contract to supply thermoplastic CFRTP to GM

In spring 2011 the company unveiled mass-production technology that forms carbon fiber-

reinforced plastic (CFRP) in under a minute using thermoplastic resin. The same year, the

company decided to develop parts for mass-produced cars jointly with General Motors

(GM). We think the company's carbon fiber business will expand rapidly if it concludes an

official agreement to supply CFRP for GM's mass-produced vehicles. We expect a sales

contribution of roughly ¥50bn around 2020 if CFRP is used as a structural material in 5%

or so of GM's mass-produced cars.

In October 2014, the company unveiled an efficient production technology for thermoset

CFRP. This new automated preform manufacturing process, called Part via Preform (PvP),

uses carbon fiber that is pre-coated with thermoset resin (called binder yarn) to minimize

carbon fiber waste. Some automakers have already adopted thermoset CFRP leveraging

the new technology, and the company is planning to promote adoption across a wide

range of applications including automobiles.

As PvP enables manufacturing of preforms directly into the 3-D geometry of the final

component without using intermediate substrates such as carbon fiber sheets, carbon fiber

waste can be minimized and the number of man-hours can be reduced via automation of

the manufacturing process, leading to cost reductions. As the technology also makes it

possible to combine randomly oriented fibers with unidirectional fibers , an optimal preform

can be manufactured that meets required component shapes and properties. It has also

become possible to manufacture products at lower cost than previously as the technology

can be combined with techniques such as high-cycle resin transfer molding (RTM) that are

currently under development. Use of thermoset CFRP is limited at present to a few luxury

vehicles, but we expect usage to also spread to mass-produced models due to cost

reductions achieved via the use of PvP.

26 June 2015


Mitsubishi Chemical Holdings (4188, OUTPERFORM,

TP ¥1,000)

Provides unique pitch and PAN carbon fiber solutions, centered on autos

On 1 April, Mitsubishi Chemical Holdings group companies Mitsubishi Rayon and

Mitsubishi Plastics integrated Mitsubishi Rayon's polyacrylonitrile (PAN) based carbon

fiber business and Mitsubishi Plastics' coal pitch-based carbon fiber business. By

supplying unique solutions that combine PAN and pitch carbon fiber, especially in carbon

fiber growth markets such as automobiles, pressure vessels, and wind turbine blades, the

company plans to grow the overall business to ¥100bn by around 2020 (from a total of

¥60bn at present), including shipments to the auto sector of ¥40bn (a roughly four-fold

increase).

Earnings at the company's automotive carbon fiber business are steadily increasing. One

example is the adoption of trunk lids for Nissan's GT-R luxury sports car manufactured

using the company's prepreg compression molding (PCM) mass-production molding

technology for CFRP parts. PCM is a compression molding process that uses presses. It

cuts the molding cycle time to around 10 minutes, enabling mass-production of auto parts.

Precursor (the raw material for carbon fibers) made at Mitsubishi Rayon's Otake plant by

MRC-SGL, a joint venture established by Mitsubishi Rayon and Germany's SGL, is used in

BMW's i3 all-electric car. Given ongoing firm sales of the i3 we expect precursor

production capacity to increase from around 8,000t/year at present to about 20,000t/year

in FY3/17. The company plans to build a new carbon fiber plant in the US in 2018 at a cost

of ¥30–40bn. It also plans to expand its existing plant in the US, boosting combined

production capacity in Japan and the US by around 150%. The company aims to expand

its production structure in North America, countering leaders Toray and Teijin.

26 June 2015


Companies Mentioned (Price as of 25-Jun-2015)

APM Industries (APMI.BO, Rs49.55) Ahresty (5852.T, ¥1,043) Aichi Steel (5482.T, ¥565) Aisin Seiki (7259.T, ¥5,310) Alcoa Inc. (AA.N, $11.74) Alfa Romeo Automobiles (Unlisted) ArcelorMittal (MT.N, $10.56) Asahi Glass (5201.T, ¥770) Asahi Kasei (3407.T, ¥1,018) BASF (BASFn.DE, €83.85) BMW (BMWG.F, €102.67) Baosteel (600019.SS, Rmb8.98) Bayer Material Science (Unlisted) Calsonic Kansei (7248.T, ¥906) Central Glass (4044.T, ¥540) ChangChun Plastics. Co. Ltd. (Unlisted) Constellium (CSTM.N, $12.38) DICEP (Unlisted) Daihatsu Motor (7262.T, ¥1,796) DaikyoNishikawa (4246.T, ¥3,990) Daimler (DDAIY.PK, $97.75) Denso (6902.T, ¥6,310) Dupont Tech (DFT.N, $30.68) Faurecia (EPED.PA, €38.26) Fiat (FIATY.PK, $8.975) Ford Motor Company (F.N, $15.5) Fortron Industries (Unlisted) Futaba Inds (7241.T, ¥604) Fuyao Glass Industry Group Co., Ltd. (600660.SS, Rmb15.04) G-Tekt (5970.T, ¥1,259) General Motors Corp. (GM.N, $35.16) Gestamp (Unlisted) Guardian (GCGa.TO, C$18.96) H-One (5989.T, ¥762) Hiroshima Alminum (Unlisted) Hitachi Chemical (4217.T, ¥2,241) Honda Motor (7267.T, ¥4,060) Hyundai Motor (005385.KS, W101,000) I Metal Technology (Unlisted) Idemitsu Kosan (IDKOY.PK, $8.58) Intevac (IVAC.OQ, $5.7) JFE Holdings (5411.T, ¥2,952) JX Nippon Oil & Energy Corporation (Unlisted) Jaguar Financial (JFC.V, C$0.015) Kobe Steel (5406.T, ¥215) Kureha (4023.T, ¥493) MRC SGL Precursor (Unlisted) Magna International (MGA.N, $57.68) Magnetti Marelli (Unlisted) Mazda Motor (7261.T, ¥2,508) Mercedes-Benz (Unlisted) Mitsubishi Chemical Holdings (4188.T, ¥789) Mitsubishi Engineering-Plastics Corporation (Unlisted) Mitsubishi Gas Chemical (4182.T, ¥703) Mitsubishi Rayon (Unlisted) Mitsui Chemicals (4183.T, ¥466) NSG Group (5202.T, ¥135) Nifco (7988.T, ¥5,360) Nippon Electric Glass (5214.T, ¥628) Nippon Steel & Sumitomo Metal (5401.T, ¥330) Nissan Motor (7201.T, ¥1,258) Novelis (Unlisted) Owens Corning (Unlisted) PACIFIC INDS (7250.T, ¥1,234) POSCO (005490.KS, W227,500) PPG Industries, Inc (PPG.N, $117.97) Plastic Omnium (PLOF.PA, €23.97) Polyplastics Co., Ltd. (Unlisted) Renault SA (RENA.F, €96.665) Rhodia (RHAYY.PK^J11, $38.14) Rhodia (RHAYY.PK^J11, $38.14) SAATI (Unlisted) SGL Automotive Carbon Fibers (Unlisted) Saint-Gobain (Unlisted) Saudi Basic Industries Corp (Unlisted) Shigeru Industry (Unlisted) Sumika Styron Polycarbonate Limited (SSPC) (Unlisted) Sumitomo Chemical (4005.T, ¥752) Sumitomo Electric Industries (5802.T, ¥2,012) Suzuki Motor (7269.T, ¥4,122) Taiho Kogyo (6470.T, ¥1,692) Teijin (3401.T, ¥492)

26 June 2015


Ticona (Unlisted) Topre (5975.T, ¥2,267) Toray Industries (3402.T, ¥1,004) Tosoh (4042.T, ¥790) Toyoda Gosei (7282.T, ¥3,075) Toyota Boshoku (3116.T, ¥2,102) Toyota Industries (6201.T, ¥7,260) Toyota Iron Works (Unlisted) Toyota Motor (7203.T, ¥8,338) UACJ Corp (5741.T, ¥323) Ube Industries (4208.T, ¥236) Unipres (5949.T, ¥2,636) Vetrotex (Unlisted) Visteon (VSTOW.PK, $48.75) Volkswagen (VOWG_p.F, €217.685) YYTH (600096.SS, Rmb17.76) Yachiyo Industry (7298.T, ¥1,130) Yazaki Corporation (Unlisted) Yizheng Chem (YZCFF.PK, $0.293) Yorozu (7294.T, ¥2,748) Zoltek (ZOLT.OQ, $16.73) psa peugeot citroen (Unlisted)

Disclosure Appendix

Important Global Disclosures

Masahiro Akita, Shinya Yamada, Masami Sawato, Jun Yamaguchi and Koji Takahashi each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be a ssigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

26 June 2015


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (52% banking clients)

Neutral/Hold* 39% (49% banking clients)

Underperform/Sell* 16% (44% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Unde rperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names

The subject company (BASFn.DE, 600019.SS, EPED.PA, F.N, GM.N, MGA.N, 005490.KS, PPG.N, 7988.T, 7267.T) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (600019.SS, F.N, GM.N, 005490.KS, PPG.N, 7988.T, 7267.T) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (F.N, GM.N, MGA.N) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (600019.SS, F.N, GM.N, 005490.KS, PPG.N, 7267.T) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (600019.SS, F.N, GM.N, 005490.KS, PPG.N, 7988.T, 7267.T) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BASFn.DE, 600019.SS, EPED.PA, F.N, GM.N, MGA.N, 005490.KS, PPG.N, 7259.T, 7269.T, 6902.T, 7203.T, 7262.T, 4208.T, 4042.T, 4183.T, 7988.T, 7261.T, 7201.T, 3401.T, 3407.T, 3402.T, 4005.T, 4217.T, 5201.T, 5202.T, 5214.T, 5401.T, 5406.T, 5802.T, 6201.T, 7267.T) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (F.N, GM.N, MGA.N) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (MT.N, F.N, GM.N, PPG.N, 7203.T, 7201.T, 7267.T).

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (APMI.BO)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (BASFn.DE, PPG.N, 3401.T, 4188.T).

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (MT.N, BASFn.DE, 600019.SS, CSTM.N, EPED.PA, F.N, 600660.SS, GM.N, MGA.N, 005490.KS, PPG.N, PLOF.PA, 7259.T, 7248.T, 7269.T, 3116.T, 6902.T, 4023.T, 5411.T, 4246.T, 7203.T, 7262.T, 4208.T, 4042.T, 4183.T, 7282.T, 7988.T, 4182.T, 5482.T, 5975.T, 5949.T, 7261.T, 7201.T, 3401.T, 3407.T, 3402.T, 4005.T, 4188.T, 4217.T, 5201.T, 5202.T, 5214.T, 5401.T, 5406.T, 5802.T, 6201.T, 7267.T) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

26 June 2015


For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

The following disclosed European company/ies have estimates that comply with IFRS: (MT.N, BASFn.DE, F.N, 7201.T, 3407.T).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (BASFn.DE, 600019.SS, CSTM.N, F.N, GM.N, 005490.KS, PPG.N, 7203.T, 7262.T, 7267.T) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (Japan) Limited ...........................Masahiro Akita ; Shinya Yamada ; Masami Sawato ; Jun Yamaguchi ; Koji Takahashi

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

26 June 2015


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