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					                                                                                                    Auckland
                                                                                                    Bangkok
                                                                                                    Beijing
Darby Asia Investors                                                                                Boston
Project Lightning Draft Final Report                                                                Chicago
                                                                                                    London
                                                                                                    Los Angeles
28 August 2009                                                                                      Melbourne
                                          DRAFT – subject to revision                               Milan
                                                                                                    Mumbai
                                                                                                    Munich
                                                                                                    New Delhi
The materials contained in this document are intended to supplement a                               New York
discussion between Darby Asia Investors and L.E.K. Consulting on 28
August 2009. These perspectives are confidential and will only be                                   Paris
meaningful to those in attendance.
                                                                                                    San Francisco
                                                                                                    Shanghai
                                                                                                    Singapore
L.E.K. Consulting Limited, Floor 34, CITIC Square, 1168 Nanjing Road West, Shanghai 200041, China   Sydney
t: 86.21.6122 3900 f: 86.21.6122.3988 www.lek.com
                                                                                                    Tokyo
                                                                                                    Wroclaw
                               DRAFT



Context and Disclaimer –Terms of Access and Receipt
     L.E.K. Consulting Pty Ltd (L.E.K. Consulting) wishes to draw the following important provisions to your attention prior to your receipt of or access to the L.E.K. report
      (the L.E.K. Report) including any accompanying presentation and commentary (the L.E.K. Commentary).
     The L.E.K. Report and any L.E.K. Commentary have been prepared for Darby Asia Investor (the Client) in accordance with a specified scope of work described in
      the letter of engagement with the Client (the Engagement Letter). L.E.K. Consulting may provide upon request a copy of the Engagement Letter;
     Any person or entity (including without limitation the Client) which accepts receipt of or access to the L.E.K. Report and any L.E.K. Commentary (the Recipient)
      agrees to be bound by the terms and conditions set out below;
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        -     L.E.K. Consulting has not been asked to independently verify or audit the information or material provided to it by or on behalf of the Client or any of the
              parties involved in the project;
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              other third party sources and publicly available information which may (in part) be inaccurate or incomplete;
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              completeness of the information provided in the L.E.K. Report and any L.E.K. Commentary or that reasonable care has been taken in compiling or preparing
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              are outside the control of L.E.K. Consulting; and
        -     any L.E.K. Commentary accompanying the L.E.K. Report is an integral part of interpreting the L.E.K. Report. Consideration of the L.E.K. Report will be
              incomplete if it is reviewed in the absence of the L.E.K. Commentary and L.E.K. Consulting conclusions may be misinterpreted if the L.E.K. Report is
              reviewed in absence of the L.E.K. Commentary. The Recipient releases L.E.K. Consulting from any claims or liabilities arising from such an incomplete
              review;
     L.E.K. Consulting is not responsible or liable in any way for any loss or damage incurred by any person or entity relying on the information in, and the Recipient
      unconditionally and irrevocably releases L.E.K. Consulting from liability for loss or damage of any kind whatsoever arising from, the L.E.K. Report or L.E.K.
      Commentary including without limitation judgements, opinions, hypotheses, views, forecasts or any other outputs therein and any interpretation, opinion or
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      be relied upon by the Recipient, and any use of, or reliance on that material is entirely at their own risk. L.E.K. Consulting shall have no liability for any loss or
      damage arising out of any such use.
     The L.E.K. Report and L.E.K. Commentary are strictly confidential and for the sole benefit of the Client. No person other than the Client (and the employees,
      directors, and officers of, and professional advisers to, the Client) or a Recipient (who has agreed to be bound the terms herein) may access the L.E.K. Report or
      L.E.K. Commentary or any part thereof. The Recipient undertakes to keep the L.E.K. Report and L.E.K. Commentary confidential and shall not disclose either the
      L.E.K. Report or L.E.K. Commentary or any part thereof to any other person without the prior written permission of a Director of L.E.K. Consulting.

                                                                                                                                                                  CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                            1                               DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                    Introduction



L.E.K. was engaged to help to assess the potential investment in Lightning, a
leading alternator and starter motor supplier
 Darby is currently looking at potential investment in a senior note of up to USD33.5m associated with the
  China business of Lightning, a US-based producer of alternators and starter motors for diesel engines

 The key objective of this project is to provide Darby with an understanding of the current and expected
  future expected future characteristics of medium and heavy truck and bus alternator and starter motor
  market in China, as well as an assessment of Lightning’s competitive position within this market

 The key questions in this project, include:
         -   development of growth driver and growth and size of the medium and heavy truck and bus alternator
             and starter motor market in China in the next 5 years
         -   key market trend over the next 5 years and the impact on Lightning
         -   key customer group and their typical purchasing behavior
         -   Lightning’s positioning in these markets including their market share and future evolution




                                                                                                                           CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   2                 DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                                          Introduction
                                                                                    RHS table may change


Today’s objective is to share our thoughts on the market and Lightning’s
positioning based on the work over the past 3 weeks
                     Timeline of the project                                                                      Status of the project
                                                                                                               Level of
Week                   10             17              24             31
                                                                                 Week commencing               complete-     Topics in this report            Remaining work
commencing             August         August          August         August
                                                                                                               ness

Module-1:                                                                        Module-1: kick-off and        100%           Historical growth               Try to get
kick-off and                                                                     management meetings                          Future projection                latest version
management                                                                                                                                                      of projections
meetings                                                                                                                                                        via Darby

Module-2:                                                                        Module-2: market              80%            Overall market size for         Triangulate
market                                                                           overview and key trends                       new installations                market growth
overview and                                                                                                                  Development of growth            projection with
key trends                                                                                                                     drivers                          more sources
                                                                                                                              Market growth in the            Finalize
Module-3:                                                                                                                      next 5 years                     market sizing
customer                                                                                                                                                        for aftermarket
assessment
                                                                                 Module-3 & 4:   Bus           95%            Sector size and growth          Try to map the
                                                                                 customer        alternator                   Major customer group             supplier and
Module-4:                                                                        assessment                                    and their purchasing             customer
                                                                                                 Truck         90%
competitive                                                                      and                                           behavior                         relationship in
                                                                                                 alternator
landscape                                                                        competitive                                  Competitive landscape            the market
                                                                                 landscape       Bus starter   80%             in each sector                  Polish the
                                                                                                                              Lightning’s positioning          assessment on
                                                                                                 Truck         80%
Module-5:                                                                                                                      and future outlook               Lightning’s
                                                                                                 starter
synthesis and                                                                                                                 High-level assessment            aftermarket
recommendati                                                                                                                   on Lightning’s                   sales
                                                                                                 After         80%
ons                                                                                                                            aftermarket revenue
                                                                                                 market
                                                                                                                               growth
                                                                                 Module-5: synthesis and       90%           Assessment of Lightning’s         Refine the
                                Weekly          Weekly       Draft final    Final recommendations                            competitive strength and           assessment
                                update          update                     report                                            weakness and likely future         with updated
                                                                                                                             performance                        information


                                                                                                                                                                 CONFIDENTIAL
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                               DRAFT                                                                                                          Introduction



This report is based on 69 interviews with industry participants, including
Lightning management, experts, fleet owners, vehicle OEMs …
                                                                     Interviews
 Management - Lightning Management (6):                                      Customer - OEM manufacturer (17):
  General Manager                                                            Engineer, Technology Centre, Yutong Bus
  Marketing Director, Sales and Marketing Manager                            Engineer, Technology Centre, JAC Bus
  OEM Sales Director                                                         Engineer, Engine Division, Huanghai Bus
  Application Director                                                       Engineer, Technology Centre , Shaolin Bus
  Application Engineering Manager                                            Engineer, Electrical Parts Department, Zhongtong Bus
  Service Director                                                           Engineer, Electrical Parts Department, Yangzhou Yaxing Coach
 Experts (3):                                                                 Engineer, Quality Control Department, Yangzhou Yaxing Coach
  Expert, Statistics Department, China Auto Yearbook                         Purchasing Manager, Yangzhou Yaxing Coach
  Secretary General, China Internal Combustion Engine Industry               Engineer, Engine Department, Guilin Daewoo Bus
   Association Electrics Branch                                               Engineer, Development Department, Anhui Ankai Bus
  Analyst, CITIC Securities                                                  Engineer, Electrical Parts Department, Anhui Hualing Automobile
 Customer – Fleet Owners (9):                                                 Purchasing staff, Sinotruk – Jinan
  Manager, Anhui Anqing Transportation                                       Sales manager, Sinotruk Sales Company
  Technical Manager, Yinjian International Travel Service                    Engineer, Corollary Equipment Department, Faw Jiefang - Qingdao
  Technician, East Shanghai Truck Transportation                             Engineer, Technology Department, Faw Jiefeng – Changchun
  Purchasing Manager, LuoYang Bus Corporation                                Purchasing Manager, Dongfeng Motor Corporation
  Technical Manager, Nanchang Public Transportation Group                    Engineer, Technology Department, JAC Heavy Truck
  Technical Engineer, Shandong Transportation Group
  Director, Mechanical Division, North Transportation Corporation
  Technical Manager, Shanghai Baoshan Bus
  Engineer, Technical Department, Shenzhen Shenzhan Bus
                                                                                                                                                 CONFIDENTIAL
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                               DRAFT                                                                                                        Introduction



… as well as engine manufacturers, competitors and aftermarket players


                                                                  Interviews
 Customer - Engine Manufacturer (12):                                      Competitors (10) continued:
  Senior Engineer, Sinotruk / CNHTC                                        National Sales Director , Quanzhou Yida Electric Appliance For
  Engineer, Electrical Parts Department, Sinotruk / CNHTC                   Vehicle

  Sales Manager, Truck Department, Dongfeng Chaoyang Diesel                Director, Technical Department, Shandong Liaocheng Wuyue
                                                                             Electric
  Purchasing staff, Dongfeng Chaoyang Diesel
                                                                            Regional Sales Manager, Shendian – East China
  Engine Sales Manager, Dongfeng Cummins Engine
                                                                            Regional Sales Manager, Shendian – Shiyan
  Sales Manager, Truck Department, FAW Jiefang Wuxi Diesel Engine
   Works                                                                   Aftermarket Players (12):

  Engine Sales Manager, Kunming Yunnei Power                               Technical Director, Yandangshan Zhoushi Automotive Repairing
                                                                             Company
  Electrical Parts Purchasing Manager, Kunming Yunnei Power
                                                                            Technical Engineer, Repairing Department, Jieqin Auto Trading
  Purchasing Manager, Weichai Power
                                                                            General Manager, Wangjia Repairing works
  Engine Sales Manager, Yangzhou Diesel
                                                                            General Manager, Chuge Company
  Electrical Parts Purchasing Manager, Yangzhou Diesel
                                                                            Technical Engineer, Liaocheng Fenghuang Repairing works
  Engine Engineer, Guangxi Yuchai Power
                                                                            Electrical Engineer, Shanghai Gold Dragon Repairing Shop –
 Competitors (10):                                                           Nanjing Station
  Sales Manager, Beijing AOBO Automotive Electronic & Electric             Plant Manager, Yantai Dongbao Repairing Works
   Appliance
                                                                            Electrical Engineer, Repairing Works of Yangzhou Transportation
  Sales Manager, Xiamen Representative Office, Beijing AOBO
                                                                            Plant Manager, #1 Works, Shanghai Nankong
  Sales Manager, Huzhou Dehong Auto Electrical System -Anhui
                                                                            Electrical Engineer, Shandong Zhaoyuan Linglong Repairing Firm
  Sales Manager, Huzhou Dehong Auto Electrical System -Yuchai
                                                                            Electrical Engineer, Xian Kefeng
  Sales Manager, Jiangsu Hengli Electric Motors
                                                                            Electrical Engineer, Shuangyashan Shunda
  Sales Manager, Huzhou Longhao Auto Parts

                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.             5                           DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                      Introduction



We also come across a number of secondary sources


                                                             Secondary Sources
Internal Data:                                                            Broker Reports:
 Lightning Information Memorandum                                         CICC
 Management Data                                                          CITIC Securities
                                                                           United Securities
Government & Associations:
                                                                           Orient Securities
 China Association of Automobile Manufacturers
 China Auto Industry Association
                                                                          External Reports:
 China Automotive Technology & Research Center
                                                                           China Auto-parts Market Analysis 2008, Information Explorer
 China Internal Combustion Engine Industry Association - Electrics
  Branch                                                                   Vehicle Alternator Market Analysis and Forecast, China Auto Motor
                                                                            Business
                                                                           Great Potential of China High Power Alternator Market, Frost &
Statistics
                                                                            Sullivan
 National Bureau of Statistics
                                                                           China Engine Supplier Output & Sales Analysis 2008, CATARC
 China Statistical Yearbook
                                                                           Competition and Market Trend in Engine Industry Given New
 China Economic Yearbook
                                                                            Emission Standards, Advanced International
 China Automotive Industry Yearbook
                                                                           Truck Segment Analysis, Datamonitor
 China Environment Yearbook
                                                                           China Heavy Truck Market 2008: New Opportunities, China Auto
 China Urban Construction Yearbook                                         Industry Association
 China Commercial Intelligence Network
                                                                           China Truck Market Review and Forecast, ASKCI
                                                                           Medium & Large Bus Demand Forecast 2008
                                                                           Auto Export Analysis 2008, China Auto Industry Association
                                                                           Motor World


                                                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.            6                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT



Agenda


 Executive summary

 Company overview

 Lightning business assessment

 Synthesis

 Next steps




                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   7   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                        Section Title



Executive summary




                                                             TBD




                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.     8   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT



Agenda


 Executive summary

 Company overview

 Lightning business assessment

 Synthesis

 Next steps




                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   9   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                              Company overview



Lightning is a leading alternator and starter motor supplier for medium and heavy
trucks and buses in China
                      Predecessor of Lightning’s               Lightning entered into China market through the JV with Beijing Jinhui Auto Electric
1971
                       China practice, Beijing                   in 2001
                       Automotive Alternator Factory
                       (BAAF), was established
                                                                     - Lightning now has a manufacturing site in Beijing, and a sales network
                                                                        consisting of 23 offices, 31 regional distributors and over 160 service point
                                                                Currently Lightning is focusing on alternators and starters for diesel engine in China
                                                                     - Lightning is primarily selling into the medium and heavy truck and bus sectors

1996                  BAAF began joint venture                                                                             Lightning’s product
                       discussion with Lightning US                              Key applications
                                                                                                                            range
                                                             Alternator              Key function of alternator is to       Lightning has a broad
1998                  BAAF started to carry Lightning’s                              turn mechanical energy from             product line, ranging in
                       products in China                                              engine into electrical energy,          frame size from
                                                                                      which is turn consumed by the           130mm to 203mm and
                                                                                      auto electric devices, such as          in output from 35 to
2000                  BAAF was transformed from a
                       collectively owned enterprise                                  air conditioner and lights              200+ amps
                       into a limited liability company,                             Lightning’s product is for
                       Beijing Jinhu Auto Electric                                    medium and heavy trucks and
                                                                                      buses

2001                  JV between Lightning US and           Starter Motor           Key function of starter motor is       Lightning has various
                       Jinhu was founded                                              is an electric motor that               products to fit in
                                                                                      rotates an internal combustion          different diesel engine,
                                                                                      engine to cause the engine to           ranging in frame size
                                                                                      begin powering itself                   from 90mm to 130mm
                                                                                     Lightning’s product is for              and in capacity from
                                                                                      medium and heavy trucks and             4.0kw to 9.0kw
                                                                                      buses

     Important note: in this report, buses and trucks refer to heavy and medium buses and trucks except indicated otherwise

Source: Lightning Information Memorandum                                                                                                        CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.             10                           DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                               Company overview



Bus alternator is Lightning’s key product, accounting for 47% of its domestic sales
in 2008. However majority of the growth comes from its truck alternator sales
Lightning domestic sales revenue by product CAGR% Lightning domestic sales growth by product
(2003-08)                                   (2003-08) (2003-08)
Millions of RMB                                                                        Millions of RMB
700                                                          673   Total        26.3   700


600                                                588       130   Starter      85.0                                                  124
                                                                                       600
                                                    75

500                                                                                    500

                                                             226
                                                                   Truck                                               198
                                         391       210             alternator   51.8
400                                                                                    400
                                          35

                               306                                                                                                                  673
300                             19       119                                           300
                    253                                                                                  142
                     12         75
          209
                     47
               6
200       28                                                                           200
                                                                   Bus
                                                   303       317
                                                                   alternator   12.6
                                         237
100        175       194       212                                                     100     209


   0                                                                                     0
         2003        04        05        06        07        08                               2003   Increase Increase Increase                    2008
                                                                                                       in bus in truck in starter
                                                                                                     alternator alternator motor
Source: Management Data                                                                                                                          CONFIDENTIAL
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                               DRAFT                                                                                                   Company overview



Lightning is dealing with a relatively concentrated customer base with top 5
customers accounting for 53% of total revenue in 2008
Lightning’s domestic revenue breakdown                                           CAGR%         As the downstream industries, including vehicle
by customer (2006-08)                                                           (2006-08)       OEMs and engine manufacturers, are very
Millions of RMB                                                                                 concentrated in China, Lightning’s customer base
                                                                                                is also concentrated
700                                                    673    Total               31.2
                                                                                                  -   share of Lightning’s top 5 customers
                                                                                                      increases from 41% in 2006 to 53% in 2008
600                                589
                                                              Other               23.7
                                                                                               There was a significant jump in sales to major
                                                              Shanghai Diesel     10.7          customers in 2007, management claims that it is
500
                                                              Wuxi Diesel         26.2          because they successfully expanded their sales
                                                              Weichai Deutz       (28.9)        of truck alternators in those customers
400            391
                                                              Suzhou Kinglong     4.6**           -   Weichai Power had serious conflicts with its
                                                              Chaoyang Diesel      4.8                parent group and finally spin off from the
300                                                           Kinglong         11.1                   group in 2006. During this process,
                                                              Zhengzhou Yutong 65.5                   Lightning fully supported and stayed closely
                                                              Yulin Diesel     58.7                   with Weichai Power. In return, it gains trust
200                                                                                                   from the senior management team Weichai
                                                              DCEC*               46.4                Power and significantly increase its share
                                                                                                      within Weichai Power
100
                                                              Weichai Power       57.2

   0
              2006                  07                  08
                                                              % of Top 5
               40.5                51.6                52.9
                                                              customers
Note: * Dongfeng Cummins Engine Corp.; ** Growth between 2007 and 2008
Source: Lightning information memorandum                                                                                                             CONFIDENTIAL
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                               DRAFT                                                                                          Company overview



Lightning’s price has been slightly decreasing over the past 3 years and this trend
is expected to continue in the future with a slightly lower rate except for starter
motors
Lightning historical domestic ASP of                            CAGR%            Lightning domestic ASP projection* CAGR%
                                                              (2007-09H1)                                          (2008-12F)
key products                                                                     (2008-12F)
(2003-09H1)
Thousands of RMB per unit                                                         Thousands of RMB per unit                       Bus alternator
2.5                                                                               2.0                                             Truck alternator
                                                                                                                                  Starter
                                                                 (4.0)
2.0
                                                                                  1.5

                              Bus alternator-8SC3110VC
1.5                                                                                                                                           (3.8)
                                                                                           Management expects starter motor
                              Truck alternator-JFZ27/25
                                                                                           update due to new emission standard
                              Starter-M93R/94R/100R                               1.0      will require better products and hence
                                                                                           slightly increase the ASP
1.0                                                                                                                                          (0.6)


                                                                 (3.4)            0.5
0.5                                                                                                                                          (3.5)
                                                                 (4.1)


0.0                                                                               0.0
  2007                         08                      09H1                         2008    09E        10F          11F         12F




Source: Management Data                                                                                                                     CONFIDENTIAL
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                               DRAFT                                                                                                                    Company overview



Lightning’s management projects a revenue growth of 13.5% over the next 5 years,
with majority of the growth coming from starter motor
Lightning’s historical and projected                                                  CAGR%             Lightning domestic sales growth by product
                                                                                 (2003-08) (08-12F)
domestic sales revenue (2003-12F)                                                                       (2008-12F)
Millions of RMB
                                                                                                        Millions of RMB
1,200
                                                                   1,115 Total      26.3        13.5    1,200
1,100
                                                                                                        1,100
1,000                                                        964
                                                                                                        1,000
  900                                                                    Starter                                                                              349
                                                                                    85.0        38.5      900
                                                      787                motor
  800                                                                                                     800
  700                                     673 657                                                                                               103
                                                                                                          700
                                   588                                                                                            (4)
  600                                                                                                     600
                                                                                                                                                                            1,115
  500                                                                    Truck      51.8        9.8       500
                             391                                         alternator
  400                                                                                                     400
                      306                                                                                         673
  300           253                                                                                       300
          209
  200                                                                    Bus                              200
                                                                                    12.6        (0.8)
  100                                                                    alternator                       100

     0                                                                                                      0
         2003 04       05     06    07    08 09E 10F 11F 12F                                                      2008       Increase in Increase in Increase in           2012F
                                                                                                                                 bus        truck      starter
                                                                                                                              alternator alternator     motor

                       The key objective of the project is to assess the likelihood of the growth projection

Source: Management Data                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                                 14                             DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT



Agenda


 Executive summary

 Company overview

 Lightning business assessment

 Synthesis

 Next steps




                                                                                                              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   15   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                        Lightning business assessment



Lightning assessment set-up


                                                               Chinese alternator and
                                                                starter motor market




                       Market overview                                                         Sector analysis




                                                                   Bus              Truck        Bus starter           Truck starter
                                                                                                                                                Aftermarket
                                                                alternator        alternator       motor                  motor




                                                                                  Customer                               Market
   Market size             Customer                 Supplier   Sector size                      Competitive
                                                                                  purchasing                            Feedback
   and growth              overview                 overview   and growth                       landscape
                                                                                   behavior                            on Lightning




                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   16                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                        Lightning business assessment



Market size and growth


                                                               Chinese alternator and
                                                                starter motor market




                       Market overview                                                         Sector analysis




                                                                   Bus              Truck        Bus starter           Truck starter
                                                                                                                                                Aftermarket
                                                                alternator        alternator       motor                  motor




                                                                                  Customer                               Market
   Market size             Customer                 Supplier   Sector size                      Competitive
                                                                                  purchasing                            Feedback
   and growth              overview                 overview   and growth                       landscape
                                                                                   behavior                            on Lightning




                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   17                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                  Market size and growth



The total alternator and starter motor market in China is estimated to be ~1.1bn in
2008
Alternator and starter motor market size –                                                                      Assumptions
new installation market




                                                                               Bus alternator
(2008)                                                                                            Price          As Lightning has 85% share in the
                                                                                                                  market, use Lightning’s average
Percent
                   RMB620m                          RMB489m                                                       sales price (RMB1,500 per unit) as
100                                                                                                               market average sales price
                                                                  Bus
  90                                                                                              Alternator     Each large bus uses 1.85
                                                                                                  usage           alternators on average and each
  80                                                                                                              medium bus uses 1.3 alternators
  70




                                                                               Truck alternator
                                                                                                  Price          Assume market average price of
  60                                                                                                              truck alternator is RMB450 per unit
                                                                                                                  based on interview feedback and
  50                          Dummy                                                                               Lightning’s data
                                                                  Truck
  40                                                                                              Alternator     Each truck only uses one alternator
                                                                                                  usage           and no change in the future
  30


                                                                               Starter
                                                                                                  Price          Assume market average price of
  20                                                                                                              starter is RMB550 per unit based
  10                                                                                                              on interview feedback and
                                                                                                                  Lightning’s data
    0
                                                                                                  Alternator     Each bus and truck only use one
        0    10 20 30 40 50 60 70 80 90 100                                                       usage           starter
                    Alternator                    Starter motor


Source: China Association of Automobile Manufacturers, L.E.K. analysis                                                                                     CONFIDENTIAL
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                               DRAFT                                                                                    Market size and growth



The Chinese alternator and starter motor market has grown at ~14% from 2003 to
2008
Historical new installations of alternators and starter motors                                                                         CAGR%
(2003-08)                                                                                                                              (2003-08)
                                                  2005 drop was largely due to the
                                                   decline in heavy-duty truck sales.
Thousands of units                                 Main reasons for heavy truck sales
                                                   drop include:
2,000
                                                      - FAI decline due to macro-                1,802        Total                        14.1
1,800                                                     economic control               1,733
                                                      - strict control on overload
1,600                                                 - raw material price surged
1,400                                  1,313                                                                 Starter motor                 13.4
                                                                           1,251
1,200
                                                             1,065
1,000             934

  800

  600                                                                                                        Truck alternator              13.8
  400

  200
                                                                                                             Bus alternator                18.8
      0
                 2003                    04                   05             06           07      08



Source: China Association of Automobile Manufacturers, L.E.K. analysis                                                                       CONFIDENTIAL
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                               DRAFT                                                                                                          Market size and growth



Robust growth in underlying markets and increase in bus alternator usage are the
two key drivers for the growth of alternators and starter motors

  Underlying market growth                                                                  Alternator usage change

Historical sales of medium and heavy duty truck                             CAGR%               Alternator
and medium and large buses                                                 (2003-08)                           2003                              2008
                                                                                                usage
(2003-08)
 Thousands of units                                                                             Large bus       ~70% large buses                 ~25% use one
 600
                                                                                                                 use one                           alternators
                                                    Heavy duty truck         16.1
                                                                                                                 alternators                      ~65% use two
 500                                                                                                            ~30% large buses                  alternators
                                                                                                                 use two                          ~10% use three
 400
                                                                                                                 alternators                       alternators
 300

 200                                                Medium-duty truck         8.8               Medium          Almost all medium                ~70% use one
                                                    Medium and large bus     11.3               bus              buses use one                     alternators
 100
                                                                                                                 alternators                      ~30% use two
      0                                                                                                                                            alternators
      2003       04   05       06      07      08

       The sales of medium-heavy duty trucks and medium-large buses                             Several years ago, most large buses and almost all medium buses
        have experienced fast growth since 2003 despite a temporary drop                          are equipped with only one alternator
        of heavy duty trucks in 2004/05                                                              - as more buses are equipped with large air conditioning
             -   the increasing transportation demand and highway                                       systems, single alternator cannot meet the increasing
                 construction are the major drivers of truck sales                                      electricity demand and new buses often equip 2 alternators
             -   increased urbanization has stimulated the passenger                                 - bus OEMs think average usage of alternators used in bus has
                 transportation, driving the demand for medium and large                                become matured and will not change in the next five years
                 buses                                                                           All the trucks use only one alternator and the number will not change

Source: China Association of Automobile Manufacturers, L.E.K. interviews and analysis                                                                              CONFIDENTIAL
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                                 DRAFT                                                                                                     Market size and growth



Medium and heavy trucks and buses are expected to grow at a slower pace given
the growth rate of major drivers have been slowing down
Historical and forecasted FAI                                China cumulative                           CAGR%           Urbanisation rate                        CAGR%
growth                                                       highway length                         (2003-08)(08-13F)   forecast*                            (2003-08)(08-13F)
(2003-10F)                                                   (2003-13F)                                                 (2003-13F)
 Percent                                                     Thousands of kilometers                                    Percent
 28                                   27                     80                                                         50

 26                                                                                                   12.3    6.8                                                  2.2    1.6
       24                                                    70
                                                                                                                        45
 24
                                                             60
 22               21                                                                                                    40
                                                             50
 20                    20
             19                                              40                                                         35
                                           18
 18                              17
                            16                               30
 16                                                                                                                     30

 14                                                          20
                                                                                                                        25
 12                                                          10

 10                                                           0                                                         20
      2003 04 05 06 07 08 09E10F                              2003    05      07     09        11   13                   2003      05    07      09     11      13


  FAI directly drives the sales of heavy                       The cumulative of highway length is                          The development of urbanization is one
   and medium-duty trucks                                        highly correlated with the sales of                           of the key drivers of heavy-duty trucks
         -    heavy and medium-duty trucks                       heavy-duty trucks and buses                                   and buses
              mostly serve for fixed asset                           -     heavy-duty trucks and large                             - urbanization directly drives the
              constructions                                                buses are mainly serving long-                           demand of real estate
                                                                           distance transportation
                                                                                                                                   - a larger number of urban population
                                                                                                            requires more public transportation
Note: * The data derives from interpolation from UN’s projection for 2000 to 2050
Source: United Nations, China Economic Yearbook, Deutsche Bank, CICC, CITIC Securities, Nomura and First Capital, L.E.K. analysis   CONFIDENTIAL
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                               DRAFT                                                                                                  Market size and growth



As a result, the total sales of medium-and-heavy-duty trucks and medium-and-
large buses are expected to grow at 5-10% over the next 5 years
Projected sales volume* of medium-and-heavy duty                                                          Growth rate
                                                                                                Segment                                      Rationale
trucks and medium-and-large buses in China                                                                (2008-13F)
(2003-13F)                                                                                      Heavy-    8.0-10.5%         Heavy-duty trucks still have growth momentum
                                                                                                duty                            - investment in infrastructure will boost the
Thousands of units                                                              CAGR%           trucks
                                                                                                                                  demand of heavy-duty trucks
                                                                            (2003-08)(08-13F)                                   - the recovery of export market will bring
1,000                                                                                                                             more orders to heavy trucks
                                                                                                                                - the process of replacement of medium-
                                                                                                                                  duty trucks is still on-going
  900                                                              High case          10.5
                                                                                                                            However, the growth of heavy-duty trucks will
                                                                   L.E.K.      16.1   9.6                                    slow down due to increasing base of domestic
  800                    Heavy-duty                                                                                          market and partial substitution from railway
                                                                   Low case           8.0
                           trucks                                                                                            transportations in the future
  700                                                                                           Medium    5.0-5.5%          Medium-duty trucks have room to grow
                                                                                                -duty                           - investment in infrastructure will boost the
  600                                                                                           trucks
                                                                                                                                  demand of medium-duty trucks
                                                                                                                                - the recovery of export market will bring
                                                                                                                                  more orders to medium-duty trucks
  500
                                                                                                                            However, the growth of medium-duty trucks will
                                                                                                                             slow down with increasing base and trend to
  400                   Medium-duty                                High case           5.4                                   move to heavy duty trucks
                          trucks                                                                                            Medium and large buses still have room to grow
  300                                                              L.E.K.       8.8    5.0      Medium    3.4-8.4%
                                                                                                and                             - the demand driven by the urbanization
                                                                   Low case            5.0                                        process is stable and will moderately
  200                                                                                           large                             increase
                                                                   High case           8.4      buses                           - the process of replacing existing old city
  100                    Large and                                 L.E.K.      11.3    4.5                                        buses is still on-going and will persist

                                                                   Low case
                                                                                                                                - the recovery of export market will bring
                        medium bus                                                     3.4                                        more orders to large-medium buses
      0                                                                                                                     However, the growth of heavy-duty trucks will
       2008        09E        10F        11F        12F      13F                                                             slow down with increasing base and potential
                                                                                                                             substitution from emerging high-speed railway



Note: * Include both domestic and export sales
Source: China Auto Industry Association, CICC, CITIC securities, United Securities, Orient Securities, L.E.K. interviews and analysis                      CONFIDENTIAL
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                               DRAFT                                                                              Market size and growth



Therefore, new installations of alternators and starter motors are expected to grow
at c.7% over the next 5 years
Projected new installations of alternator and starter motor                                                                      CAGR%
(2008-13F)                                                                                                                      (2008-13F)

Thousands of units
                                                                                          2,498       Total                           6.7
2,500
                                                                                  2,329
                                                                     2,171
                                                             2,024
2,000                                  1,888
                  1,802                                                                               Starter motor                   6.8


1,500



1,000

                                                                                                      Truck alternator                7.2

   500


                                                                                                      Bus alternator                  4.5
       0
                  2008                   09E                 10F     11F          12F     13F



Source: L.E.K. analysis                                                                                                                CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   23            DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                        Lightning business assessment



Market size and growth


                                                               Chinese alternator and
                                                                starter motor market




                       Market overview                                                         Sector analysis




                                                                   Bus              Truck        Bus starter           Truck starter
                                                                                                                                                Aftermarket
                                                                alternator        alternator       motor                  motor




                                                                                  Customer                               Market
   Market size             Customer                 Supplier   Sector size                      Competitive
                                                                                  purchasing                            Feedback
   and growth              overview                 overview   and growth                       landscape
                                                                                   behavior                            on Lightning




                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   24                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                 Customer overview



The purchasing and usage of alternators and starter motors involve multiple
parties, including fleet owners, vehicle OEMs, engine manufacturers with engine
manufacturer being the major direct purchaser


                                                     China alternators and starter motors value chain



  Alternator & starter                               Engine                            Truck/bus
                                                                                                                                   Fleet owners
  manufacturers                                      manufacturers                     manufacturers

                                   Alternator                                 Diesel
                                                                                                                  Vehicle
                                   & starter                                  Engine




                                                             Bus alternator                                                       Major product route

                                                                                                                                  Minor product route




Source: L.E.K. interviews and analysis                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                      25                     DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                       Customer overview


The diesel engine sector is fairly concentrated, with top 5 suppliers accounting for
~70% of the overall market and ~90% of heavy duty truck engine sector

China diesel engine market share by volume                                                China diesel engine manufacturing is highly concentrated
(2008)                                                                                        - most diesel engine suppliers are within giant SOE*
                                                                                                 auto groups or have good relationship with large
Percent                                                                                          SOE truck and bus OEMs
100                                                              Others                   Diesel engine manufacturers usually have strong influence
                                                                                           on decisions on alternator and starter motor supplier
 90                                                              Shanghai Diesel
                                                                 BAIC Foton
                                                                                              - except for the bus alternator sector, where fleet
 80                                                                                              owners are inclined to specify the brand, engine
                                                                 Yangchai
                                                                                                 suppliers typically are the major decision maker for
                                                                 CNHTC (Sinotruck)
 70                                                                                              the purchase of alternators and starters
                                                                 Jiangling Auto
                                                                                          Some major OEMs and engine suppliers have internal
 60                                                              Dongfeng Motor
                                                                                           alternator and starter motor supplier, such as FAW Engine
                                                                 Chaochai                  and AOBO Alternator, Xiangfan Dongfeng’s alternators
 50                                                              Weichai                   and starters to supply DCD** and DFMC***
                                                                 (Shaanxi Heavy)
 40
                                                                 Yunnei
                                                                                              - in Dongfeng’s engine plants, over 80% alternator and
                                                                                                 starter purchasing is from captive suppliers
 30                                                              FAW
                                                                                              “… Dongfeng’s internal starters and alternators
                                                                 Yuchai
                                                                                                 company enjoys higher price and secured sales
 20
                                                                                                 volume each year due to internal orders …”
 10                                                                                                   Purchasing Manager, Weichai Power

   0
           Overall diesel           Heavy duty truck
             engine                     engine                                            Engine manufacturers are the key customer group for both
                                                             With Captive supply                      alternators and starter motors
Note: * SOE = State owed enterprise ** DCD = Dongfeng Chaoyang Diesel Engine *** DFMC = Dongfeng Motor Corporation
Source: China Association of Automobile Manufacturers, Lightning Information Memorandum, L.E.K. analysis                                                 CONFIDENTIAL
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                               DRAFT                                                                                                      Customer overview



Both medium-and-heavy-duty truck and medium-and-large bus OEM industries are
also very concentrated in China
China medium and heavy truck and medium and large bus                                                China medium-and-heavy-duty truck and
market share by volume                                                                                medium-and-large bus OEM industries are
(2008)                                                                                                both concentrated

Percent                                                                                                 -    top 2 bus manufacturers account for
                                     748k units                           123k units                         ~50% of the market
100
                                                                                                        -    top 5 truck manufacturers represent
  90                                                                                                         over 70% of total sales volume in 2008
                                        Others
  80                                                                       Others
                                                                                                     In most cases, vehicle manufacturers use
  70                                 BAIC Foton                                                       the alternators and starters recommended
                                                                                    Shaolin           by engine suppliers
  60                      Weichai (Shaanxi Heavy)                                   Huanghai
                                                                                    Jianghuai
                                                                                                        -    there are some exceptions when fleet
  50                          Dummy(Sinotruk)
                              CNHTC                                                                          owners specify the brand or vehicle
                                                                                    Zhongtong                manufacturers have big concern on the
  40                                                                       Yutong                            product quality of supplier
                                         FAW                                                                 recommended by engine
  30
                                                                                                             manufacturers
  20
                                                                            King
  10                                 Dongfeng                               Long

   0
                                                                                                  Vehicle OEMs are typically less important for
       0       10      20       30      40       50      60   70     80     90   100              Lightning as they normally do not purchase or
                      Medium and heavy duty truck                  Medium and large bus         make supplier decision, except for some bus OEMs

Source: China Association of Automobile Manufacturers, Lightning Information Memorandum, L.E.K. analysis                                                CONFIDENTIAL
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                               DRAFT                                                                                                          Customer overview



The fleet owner sector, however, is generally very fragmented with the largest bus
fleet accounting for only 5% of the total number of vehicles
Market share of leading public bus fleets                                                       Fleet operation is a very fragmented industry with a
(2007)                                                                                           large number of regional fleet owners
                                                                                                   -   using public transport sector as an example: in
Percent                                                                                                2007 there are 342k buses in China, however the
100                                                                                                    largest fleet owner, Beijing Public Transport
                                                                                                       Holdings, only account for ~5.5% of the total
 90                                                                                                    number

 80                                                                                                -   truck fleets are usually owned by small companies
                                                                                                       or individuals, therefore they are even more
 70                                                                                                    fragmented than the bus fleets

 60                                                 Others
                                                                                                Most large bus fleet owners typically specify alternator
 50                                                                                              brand, as they care about the quality due to higher
                                                                                                 requirements. Truck fleet owners generally do not
 40                                                                                              specify suppliers for both alternators and starter motors

 30                                                 Tianjin Public Transport Group
                                                                                                   -   Lightning has already penetrated into most bus
                                                                                                       fleets and established good reputation
                                                    Chengdu Public Transport Group
 20
                                                    Chongqing Public Transport Holdings
 10                                                 Shanghai Bus Group
                                                    Beijing Public Transport Holdings
   0
                             2007                                                                 The strong influence and low concentration of fleet
                                                                                                 owners ensures Lightning is not likely to substantially
                                                                                                       lose its share in bus alternator segment

Source: China Association of Automobile Manufacturers, China Automotive Industry Yearbook, company websites, L.E.K. analysis                                CONFIDENTIAL
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                               DRAFT                                                                                              Customer overview



To summarize, the customer base for truck and bus alternators and starter motors
is very concentrated with engine manufacturers being the key customer group

Role of value chain participants in purchasing                                        Lightning’s sales revenue to Top 10
decision process                                                                      customers* by customer type (2008)

                                                             Supplier decision        Percent
                        Major purchaser
                                                             maker                    100
  Bus                    Engine                              Fleet owner             90                                        Bus manufacturer
  alternator              manufacturer                        Engine
                         Bus OEM                              manufacturer            80

                                                                                       70
  Bus starter            Engine                              Engine
  motor                   manufacturer                         manufacturer            60
                                                              Fleet owner
                                                                                       50

  Truck                  Engine                              Engine                  40                                        Engine manufacturer
  alternator              manufacturer                         manufacturer
                                                                                       30

                                                                                       20
  Truck                  Engine                              Engine
  starter                 manufacturer                         manufacturer            10
  motor                                                                                 0
                                                                                                        2008

                          Lightning’s own sales data also reflect the importance of engine manufacturers
Note: * Top 10 customers account for 63% of Lightning’s domestic sales in 2008
Source: Management Data, L.E.K. interviews and analysis                                                                                         CONFIDENTIAL
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                               DRAFT                                                                        Lightning business assessment



Market size and growth


                                                               Chinese alternator and
                                                                starter motor market




                       Market overview                                                         Sector analysis




                                                                   Bus              Truck        Bus starter           Truck starter
                                                                                                                                                Aftermarket
                                                                alternator        alternator       motor                  motor




                                                                                  Customer                               Market
   Market size             Customer                 Supplier   Sector size                      Competitive
                                                                                  purchasing                            Feedback
   and growth              overview                 overview   and growth                       landscape
                                                                                   behavior                            on Lightning




                                                                                                                                               CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   30                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                               Supplier overview



Bus and truck alternator and motor starter industries are highly concentrated;
Lightning is a major supplier of bus and truck alternators as well as bus starter
motors
China truck and bus alternator and starter market share by volume
(2008)
 Percent
      184k units                                    748k units            123k units                748k units
 100
                                                      Others                   Others
              Others
   90                                                                                                  Others
                                                                               BOSCH
   80                                               Dongfeng                    Yida

   70                                                   Iskra                  Hengli
                                                                                                      BOSCH
   60                                                                       Shendian
                                                       AOBO
   50
                                                                                                         Yida
             Lightning                               Dehong
   40

   30                                                                                                Shendian
                                                                            Lightning
   20
                                                     Lightning                                       Dongfeng
   10
                                                                                                     Lightning
     0
         0             10               20              30           40   50             60   70           80              90             100
         Bus alternator                           Truck alternator         Bus starter              Truck starter


Source: Company websites and releases, L.E.K. interviews and analysis                                                                          CONFIDENTIAL
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                               DRAFT                                                                                                            Supplier overview



Almost all the major suppliers are supplying both alternators and starter motors


Major bus and truck alternator and starter suppliers in China

                                       Presence in sectors                      Background
  Supplier
                                       Bus               Truck        Starter
                                                                                Origin       Comment
                                       alternator        alternator   motor
                                                                                Foreign       Dominant supplier for bus alternator and has increasing penetration
                                                                                (US)           in truck alternators and starter motors
  Lightning                                                                             Recognized for its superior technology and the considerate service
                                                                                              Price of its products is still 20-30% higher than domestic ones

                                                                                Foreign       Recognized high quality in both alternator and starter
  BOSCH                                                                     (Germany)     Price is far higher than Lightning’s and even doubles domestic ones’
                                                                                              Less customization and services are regarded as very poor

                                                                                JV with       Has been the leading player in starter market with advanced
  Shendian                                                                  Delco Remy     technology from its JV with Remy, good customer relationship and
                                                                                and Delphi     apparent price advantage over foreign suppliers

                                                                                Local         Has good relationship with major truck engine manufacturers with
  Dehong                                                                                   relatively reliable quality and low price

                                                                                Local         Mainly relying on captive sales of alternators and starters within
  Dongfeng                                                                                 Dongfeng group with secured volume and higher price

  Iskra                                                                         Foreign       Mainly grow with Sinotruk and become its major supplier for truck
                                                                                           alternators

  AOBO                                                                          JV            Has kept a very close relationship with FAW for components supply
                                                                     

                                                                                                                                                     
                                                                                              Dominant presence             Minor presence         No presence


Source: Company websites and releases, L.E.K. interviews and analysis                                                                                        CONFIDENTIAL
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                               DRAFT                                                                                       Supplier overview



Multiple suppliers and open bidding are the most common purchasing practice in
the market

  Multiple suppliers                                                    Open bidding

        Engine manufacturer and bus and truck OEMs usually                Open bidding is often used in alternator and starter
         have multiple suppliers with relatively stable                     purchase
         relationship                                                         -   most engine manufacturers are required to use
             -   customers can avoid supplying shortage by using                  open bidding in the process of component
                 multiple suppliers                                               purchasing
             -   the competition among suppliers can also lower               “… As I know, most SOE companies registered in
                 the price and maintain the high quality of                     National Ministry of Industry and Information
                 products                                                       Technology are required to include open bidding
                                                                                in the purchasing process …”
             “… Customers usually introduce multiple suppliers
                                                                                     Engine Sales Manager, Dongfeng Cummins
               to drive the competition and lower the purchase
                                                                                     Engine
               price …”
                    Sales Manager , Huzhou Dehong Auto
                    Electrical System                                      However, customers generally stick to their supplier
                                                                            pool and normally only suppliers on their qualified
                                                                            suppliers list could attend the bidding
        Historically, customers gradually reduced the number
         of suppliers. Currently, most of them keep one or two                -   the purchase price and sales volume spit
         major suppliers and another 3-4 minor suppliers                          between suppliers is usually determined through
                                                                                  open bidding
             -   interview feedback suggests that most
                 customers would like to keep the number of
                 suppliers unchanged

Source: L.E.K. interviews and analysis                                                                                                 CONFIDENTIAL
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                               DRAFT                                                                                                   Supplier overview



However, long-term relationship, high switching cost and under-the-table
transaction make new suppliers difficult to penetrate into existing customers

  Long-term relationship                                     High switching cost                           Under-the-table transaction

      Existing customers value                                 Switching costs is high as                     Under-the-table transaction is
       suppliers with long-term                                  customer need new design,                       popular in the market
       relationship and would like to                            testing and checking feedback                       -   suppliers would try their
       stay with the best ones                                   from their customers                                    best to build relationships
                                                                   -   engine and OEM customer                           with key personnel and
      Current suppliers generally have                                concern own reputation if                         sometimes give kick-back
       good track record in both the                                   any problem occur due to                          directly
       engine manufacturers and its                                    switching to new supplier
       customers                                                                                                     -   it is generally regarded as a
                                                                Existing customers would not                            common practice in this
           -   they understand customer                          easily switch suppliers due to                          industry and new suppliers
               needs well and satisfy                            high costs                                              need time to build
               customers’ requirement for                          -   new suppliers have to go                          relationships
               quality and price                                       through very long and strict
                                                                       process. It usually take at
                                                                       least 2-3 years for suppliers
                                                                       to achieve large volume in
                                                                       a new customer




      Even having penetrated into customers, new supplier need some time to achieve large volume orders

Source: L.E.K. interviews and analysis                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                     34                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                  Lightning business assessment



Market size and growth


                                                                   Chinese alternator and
                                                                    starter motor market




                       Market overview                                                                 Sector analysis




                                                               1                      2                3                      4                       5
                                                                       Bus                  Truck          Bus starter            Truck starter
                                                                                                                                                          Aftermarket
                                                                    alternator            alternator         motor                   motor




                                                               A                      B                C                      D
                                                                                          Customer                                  Market
   Market size             Customer                 Supplier       Sector size                             Competitive
                                                                                          purchasing                               Feedback
   and growth              overview                 overview       and growth                              landscape
                                                                                           behavior                               on Lightning




                                                                                                                                                          CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                       35                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                1-A                     Bus alternator- market size and growth



Bus alternator market is expected to recover to 2008 level in 2013


Bus alternator market volume                                                 CAGR%         Bus alternator market value                                    CAGR%
(2003-13F)                                                               (2003-08)(08-13F) (2008-13F)                                                    (2008-13F)
Thousands of units                                                         18.8    4.5    Millions of RMB                                                      0.5
250                                                                                       350
                                                                         230
                                                                   214
                                                                                          300                                                 284
                                                             199                                277                                 275
200                                                                                                             261       265
                                         184         185
                                                                                                       251
                                  166          172                                        250

150
                            132                                                           200

                105 112
                                                                                          150
100
          78
                                                                                          100
  50
                                                                                           50


    0                                                                                       0
         2003 04       05    06    07     08 09E 10F 11F 12F 13F                                2008 09E        10F       11F      12F       13F



Source: China Association of Automobile Manufacturers, L.E.K. interviews and analysis                                                                   CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                          36                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                 1-B                         Bus alternator- purchasing behavior



Although majority of the bus alternators are purchased by engine manufacturers,
fleet owners are typically involved in the supplier selection and willing to specify
brands based on own experience
Purchasing decision process in                                                                     Bus alternators are purchased by either bus OEMs or
                                                                                                    engine manufacturers with the latter accounting for majority
bus alternator segment                                                                              of the volume
                                                                                                   Although not purchasing directly, fleet owners are typically
                                              Fleet owners
                                                                                                    the key decision makers in bus alternator segment
                                                                                                       -   fleet owners, especially large ones, usually specify
                                                                                                           the alternator brand as they care the reliability of
                     ~Half                                                ~Half                            alternators. They prefer to brand that they have good
                                                                                                           experience with
                     Large fleet owners                        Small fleet owners
                                                                                                       “… City bus fleets like us usually choose the alternator
                                                                                                         supplier ourselves. We usually designate the brand
                                                                                                         that we have used and appreciate …”
    Majority                          Minority                Majority               Minority                  Technical Manager, Shanghai Baoshan Bus
     Large fleet owners                                                                            Lightning has established a very good reputation among
                                             Leave to bus                   Make purchasing
      make purchasing                                                                               fleet owners, which in return makes it top of their choices
                                             manufacturers                     decision
          decision
                                                                                                       -   compared with products from other suppliers,
                                                                                                           Lightning’s products are considered to have longer
                   Minority                                               Majority                         life span and higher reliability
                   Bus manufacturers
                    make purchasing
                                                               Leave to engine                         -   in addition, Lightning also have very good after-sales
                                                                manufacturers                              service and can quickly response to the problems of
                       decision
                                                                                                           fleet owners

                                                             Engine manufacturers                  Fleet owners are increasingly willing to specify alternator
                Major route
                                                               make purchase                        brands, which will benefit Lightning given its current high
                Minor route                                        decision                         penetration and outstanding track record within fleet
                                                                                                    owners

     Strong influence from fleet owners on supplier decision is favorable for Lightning to maintain its current
        dominant position in the bus alternator segment given its very good track record with fleet owners

Source: L.E.K. interview and analysis                                                                                                                     CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                           37                       DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                          1-B                         Bus alternator- purchasing behavior



Quality is cited as the key selection criteria by bus alternator customers, followed
by service and customer relationship
Key Purchasing Criteria for Bus                                                                        Both fleet owners, the major decision makers, and engine
                                                                                                        manufacturers, the major purchaser, regard quality as key
Alternator Average Ranking                                                                              selection criteria. They care about the life span and reliability
                                                                  n=14                                  most
                                                                                                           “… Quality is the most important criteria in selecting bus
                            Quality                                                       6.9
  1                                                                                                          alternators. We would prefer products with longer life
                                                                                                             span …”
                           Service                                                  6.0                            Engine Sales Manager, Dongfeng Cummins Engine
  2
                                                                                                           “… Among all the selection criteria, we value quality the
                                                                                                             most. Bus operation really needs alternators to have
         Customer relationship                                                  5.6                          stable performance and low failure rate …”
  3
                                                                                                                  Technical Manager, Nanchang Public
                                                                                                                  Transportation Group
                              Price                                           5.4
  4
                                                                                                       Service and customer relationship are also very important
                   Track record                                                                         when determining the alternator suppliers
                                                                              5.4
  5               and reputation
                                                                                                       Price is less important and customers are willing to pay the
                                                                                                        premium for bus alternators with higher quality
                  Customization                                           4.9
  6                                                                                                        “… We know that Lightning’s alternators are more
                                                                                                             expensive than other brands. But compared with the total
        Delivery and lead-time                                      3.7                                      price of a bus, this is less important and we would like to
  7                                                                                                          pay more for its better quality …”
                                                                                                                  Technical Manager, Yinjian International Travel
                 Payment terms                                2.6                                                 Service Fleet
  8
                                                                                                       Moving forward, customers are expecting better customization
                                      0       1      2        3      4    5     6         7             from alternator suppliers to deal with complex electrical
                                                                                                        applications in buses. Meanwhile more large alternators will be
                                                              Degree of
                                                                                                        used to satisfy the increasing power demand
                                         Least               importance                 Most
                                       Important                                      Important

Source: L.E.K. interview and analysis                                                                                                                              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                                    38                       DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                         1-C                            Bus alternator- competitive landscape



Lightning occupies c.90% of the bus alternator market, followed by several minor
suppliers including Feipeng and AOBO
Estimated bus alternator market share                                       Market participants agree that Lightning is the leading supplier in bus
                                                                             alternator sector with a share of c. 90%
(2008)
                                                                                  -   most leading bus OEMs and their engine supplier are using primarily
                                                                                      Lightning’s alternators. They feel that Lightning’s quality is much better
Percent                                                                               than domestic suppliers
                                                                                  -   as alternators used in bus are large in size and more complicated, it is
100                                                                                   regarded as high in technology requirements. Minor suppliers, such as
                                                             Others *                 Feipeng and AOBO, are not able to compete with Lightning. They
                                                                                      recognize Lightning’s dominant position in the bus alternator sector
                                                                                  “… Lightning clearly has technical advantage in the bus alternator
 80                                                                                 market …”
                                                                                          Sales Manager, Sales Manager, Beijing AOBO Automotive
                                                                                          Electronic & Electric Appliance
                                                                            The only supplier with comparable quality is BOSCH, however BOSCH is
 60                                                                          regarded as less interested in this market and very poor in service. With its
                                                                             higher price, BOSCH has a much smaller market share
                                                                                  “… BOSCH is a famous alternator supplier for its good quality. However, it
                                                             Lightning              provides very poor services in China market. I think BOSCH haven’t
 40                                                                                 put much efforts and investment in this area, probably because the
                                                                                    company does not really care this market at all …”
                                                                                         Engineer, Engine Division, Huanghai Bus
                                                                            Because Lightning’s alternators have outstanding quality, customers usually
 20                                                                          stick to Lightning’s product. Therefore Lightning is very likely to maintain its
                                                                             strong position in bus alternators moving forward
                                                                                  “… Lightning’s product does have better quality than other brands. Once
                                                                                    people try it, they will keep using it …”
   0                                                                                      Engineer, Development Department, Anhui Ankai Bus
                                  2008
Note: * Including Feipeng, AOBO, Dehong, Qianghua, Dongfeng, Daewoo and other minor alternator suppliers
Source: L.E.K. interview and analysis                                                                                                                   CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   39                             DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                              1-C                           Bus alternator- competitive landscape



Customers generally regard Lightning’s product quality and service as unmatched
in the bus alternator sector

  Key selection                                        Lightning’s
                             Best-in-class                                  Comments
  criteria                                             position

  Quality                    Lightning,                Similar to BOSCH,    “… Lightning’s bus alternators have very low failure rate. With proper maintenance,
                             BOSCH                     much better than       its alternators can last for 8 years, almost double the life of domestic
                                                       domestic products      products …”
                                                                                   Technical Manager, Shanghai Baoshan Bus


  Service                    Lightning                 Best, much better    “… Lightning’s pre-sales and after-sales services are both very impressive. Before
                                                       than others            selling the alternators, Lightning will first discuss with the engine supplier to
                                                                              decide how to fit the alternator to the engine ...When customer has a problem
                                                                              in daily operation, Lightning is very quick in response. It only takes them 3-4
                                                                              hours to solve the problem after receiving failure report …”
                                                                                   Engineer, Engine Department, Guilin Daewoo

  Customer                   Lightning                 Best, much better    “… In order to do well in this market, suppliers need to input much human
  relationship                                         than others            resource to provide the support and the service. Lightning does make it and it
                                                                              really understands customer needs…”
                                                                                    Engineer, Engine Division, Huanghai Bus

  Price                      Domestic brands           30-40% higher than   “… Compared with product reliability, price is not a major issue for bus customers
                                                       domestic, 15-20%       because some 1,000 price difference is very small compared with the total cost
                                                       lower than BOSCH       of a bus …”
                                                                                    Engineer, Technology Center, JAC Bus
                                                                            “… Though the initial cost (of Lightning) is higher, but with its much longer life
                                                                              span and high reliability, we can save a lot in maintenance cost by using
                                                                              Lightning’s product …”
                                                                                    Engineer, Electrical Appliance Department, Yutong Bus


Source: L.E.K. interview and analysis                                                                                                                       CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                        40                            DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                             1                                            Bus alternator-summary



In general, Lightning has a very solid positioning in the bus alternator market.
While it is expected to maintain its position, the overall market growth is slower


                                                                The total market size reaches RMB277mn in 2008
          Market size
                                                                   -   large bus accounting for 35.8% of the market



                                                                Same as the underlying bus market, the future market growth of bus
        Market growth                                            alternators is expected to be 0.5% over the next 5 years. It is slower than
                                                                 historical level due to the larger base and economy slowing down



    Lightning’s Current                                         Currently, Lightning is the market leader in bus alternator sector with significant
        Positioning                                              competitive advantage over other competitors against key purchasing criteria
                                                                 (quality, service and customer relationship)
                                                                Lightning has a very good relationship with all major customers (engine
                                                                 manufacturer and bus OEMs) and end-users (bus fleets)


     Lightning’s Future                                         Lightning already has very high penetration in the market, and there is limited
          Outlook                                                room for Lightning to further increase its market share
                                                                However customers are generally very sticky to Lightning for its outstanding
                                                                 quality and services, therefore Lightning is likely to maintain its dominant
                                                                 position in the market


Source: L.E.K. analysis                                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                      41                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                                DRAFT                                                2-A                 Truck alternator- market size and growth



 Truck alternator market is expected to grow at ~5% p.a. and reach RMB440m in
 2013
 Truck alternator market volume                                               CAGR%         Truck alternator market value                                  CAGR%
 (2003-13F)                                                               (2003-08)(08-13F) (2008-13F)                                                    (2008-13F)
Thousands of units                                                           13.8   7.2    Millions of RMB                                                      5.0
1,200                                                                                      450                                                 439
                                                                                                                                     418
                                                                          1,057                                            397
                                                                                           400                   378
                                                                    986                                 360
1,000
                                                              920                          350   343
                                                      858
                                                800
 800                                                                                       300
                                   724 748
                                                                                           250
 600            558
                             509                                                           200
                       431
          392
 400                                                                                       150

                                                                                           100
 200
                                                                                            50

     0                                                                                       0
          2003 04       05    06    07     08 09E 10F 11F 12F 13F                                2008 09E        10F       11F      12F       13F



 Source: China Association of Automobile Manufacturers, L.E.K. interviews and analysis                                                                   CONFIDENTIAL
 Darby Asia Investor. Project Lightning Draft Final Report.                          42                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                         2-B                          Truck alternator- purchasing behavior



In most cases, alternator supplier is specified by engine manufacturer in the
medium and heavy truck sector
Purchasing decision process in                                                       Truck OEMs typically get alternator supply from engine
                                                                                      manufacturers rather than purchasing by themselves
truck alternator segment
                                                                                         “… We do not purchase alternator ourselves and all the truck
                           Fleet owners                                                    alternators come along with engines from the engine
                                                                                           suppliers …”
                                                                                                 Engineer, Anhui Huangling Auto
                    Minority                        Majority
                                                                                     It is generally the engine manufacturer that makes the decision to
                                                                                      select alternator suppliers
  Fleet owners decide                                  Leave to truck                    “… Our purchasing and technology department will choose
         brand                                            OEMs                             alternator supplier and provide to customers …”
                                                                                                 Senior Engineer, Sinotruk
                                  Majority                        Minority
                                                                                         “… Some new OEM customers may specify brands that previously
                                                                                           used in their trucks with reliability but in most cases customers
            Leave to engine                                                                would trust in our professional selection and accept our
                                                   Truck OEMs decide brand                 recommendations …”
             manufacturers
                                                                                               Purchasing Staff, Dongfeng Chaoyang Diesel
                                                                                     Truck OEMs are increasingly relying on engine manufacturers in
                                                                                      choosing alternator suppliers
                                         Engine manufacturers
                                                                                         “… With more experience in working with suppliers and OEM
                                             decide brand                                  customers, we know what customers want and would equip
                                                                                           engines with the most suitable and reliable alternators for
                   Major route
                                                                                           them …”
                   Minor route                                                                  Purchasing Manager, Weichai Power



                      Engine manufacturers are the most important decision maker along the value chain

Source: L.E.K. interviews and analysis                                                                                                                CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                   43                           DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                              2-B                         Truck alternator- purchasing behavior



Price and quality are the most important criteria to truck alternator customers


Key Purchasing Criteria for Truck                                                                         Being the key decision maker, engine manufacturers
Alternator Average Ranking                                                                                 value both price and quality the most
                                                                  n=8                                        -   price is a major consideration for engine
                                                                                                                 manufacturers
                               Price                                                          6.4
  1                                                                                                          -   quality, referring to high reliability and long life span,
                                                                                                                 is also important to choose truck alternator supplier
                             Quality                                                          6.4
  2
                                                                                                             “… We want to use products with less problems
                                                                                                               otherwise it would ruin our reputation and increase
                            Service                                                         6.0
  3                                                                                                            our warranty costs …”
                                                                                                                   Sales Manager, Dongfeng Chaoyang Diesel
          Customer relationship                                                         5.8
  4                                                                                                          -   for medium truck engines, quality of alternators
                                                                                                                 would not be as important as that of heavy truck
  Track record and reputation                                                       5.4                          engines due to less complexity in products
  5
                                                                                                          Truck alternator customers are more and more caring
                   Customization                                                  5.0                      about services from their suppliers
  6

         Delivery and lead-time                                              4.7
                                                                                                             -   services include pre-sales services to engine
  7                                                                                                              suppliers and after-sales services to OEMs and fleet
                                                                                                                 owners
                  Payment terms                                             4.3
  8                                                                                                          “… We would prefer using alternator suppliers who can
                                                                                                               offer appropriate products to meet our specification
                                       0       1      2       3         4     5         6         7            requirement and response quickly when problems
                                                              Degree of                                        occur on customers’ side …”
                                          Least              importance                        Most                 Purchasing Manager, Weichai Power
                                        Important                                            Important

Source: L.E.K. interviews and analysis                                                                                                                                    CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                                        44                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                2-C                       Truck alternator- competitive landscape



Lightning is already the largest supplier in the truck alternator sector with 30-40%
of the market, however it is most strong in the larger capacity alternators for
heavy trucks and relatively less competitive in the smaller capacity units
                                                                            Lightning entered truck alternator market in 2003 and has become the largest
Estimated truck alternator market share                                      supplier. Lightning is stronger in large capacity truck alternator used primarily in
(2008)                                                                       larger heavy duty trucks due to their apparently better quality over other suppliers

Percent                                                                         -    its share of wallet in Weichai Power and FAW Wuxi Diesel Engine, the
                                                                                     largest two engine supplier for heavy duty trucks, has reached 95% and
100                                                                                  40% respectively due to good quality, service and close relationship

                                                             Others             “… Lightning has a dominant position in our truck alternator supply since
 90                                                                               2006/2007 as it offered us great support and also our OEM customers all
                                                                                  appreciate its quick response and service support …”
 80                                                          Dongfeng                   Purchasing Manager, Weichai Power

 70                                                          Iskra              -    in smaller truck alternators, market feedback is that the Lightning’s quality
                                                                                     advantage is less significant. Lightning is behind other local suppliers, such
                                                                                     as Dehong, for higher price
 60
                                                             AOBO               “… Lightning’s alternator is superior for higher power products for heavy trucks,
 50                                                                               but its medium truck alternator does not have obvious advantage in terms of
                                                                                  quality and local suppliers such as us are also doing well …”
 40                                                          Dehong                     Sales Manager, Huzhou Dehong

                                                                                -    China truck market are moving towards more heavy duty trucks, which will
 30                                                                                  benefit Lightning given its strength in the larger capacity truck alternators

 20                                                                         Among the major suppliers, Dongfeng Alternator is captive to its parent automotive
                                                             Lightning       group, Dongfeng Motor Corporation (DMC). 30% of the engines used by DMC is
                                                                             from internal supply, which is almost only using own alternators
 10
                                                                            AOBO has kept a very tight relationship with FAW for components supply
   0
                                  2008

Source: L.E.K. interviews and analysis                                                                                                                      CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                          45                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                2-C                       Truck alternator- competitive landscape



All the current customers of Lightning are very satisfied with its products and
services

  Key selection              Best-in-             Lightning’s
                                                                         Comments on Lightning
  criteria (3-5)             class                position

  Price                      Dehong               ~30% higher than       “… In terms of price, Lightning would price 30% higher than Dehong and Dongfeng but
                                                  domestic ones            may give us discount due to good partnership …”
                                                                                 Purchasing Manager, Weichai Power
                                                                         “… Lightning’s products are at least 30% higher than Dehong and a little higher than
                                                                           AOBO’s …”
                                                                                Sales Manager of Truck Department, FAW Wuxi Diesel Engine

  Quality                    Lightning,           Apparent               “… Currently, feedback from all customers indicates that Lightning’s heavy truck
                             BOSCH                advantage for            alternators have low failure rate as well as longer life span …”
                                                  larger capacity              Purchasing Manager, Dongfeng Motor Corporation
                                                  alternator; less for   “… For medium truck engine manufacturer, quality requirement is not high and
                                                  smaller units            domestic products have comparable quality to Lightning’s products …”
                                                                               Sales Manager, Huzhou Dehong

  Service                    Lightning            Outstanding, very      “… Lightning’s service are highly appreciated by both our OEM customers and
                                                  proactively in           ourselves. They can offer the most suitable products for our new engines and react
                                                  serving the whole        quickly to solve problems for our customers… Besides, it even takes all warranty
                                                  value chain rather       expenses for us to serve our customers. We are quite satisfied with it …”
                                                  than just direct              Purchasing Manager, Weichai Power
                                                  customer

  Customer                   Lightning;           Strong relationship    “… Lightning’s truck alternator is gaining share in recent years due to strengthened
  relationship               Dongfeng             with large customer,     relationship with major engine manufacturers …”
                                                  especially Weichai                Sales Manager of Truck Department, FAW Wuxi Diesel Engine
                                                  Power                  “… Lightning has an excellent sales team and through years of collaboration, it has
                                                                           established solid partnership with us. We would like to keep it as our dominant
                                                                           supplier in the future …”
                                                                                Purchasing Manager, Weichai Power

Source: L.E.K. interviews and analysis                                                                                                                       CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                          46                           DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                2                                         Truck alternator-summary



Overall Lightning is likely to further increase its share in this sector. However the
share gain may not be very significant as it is relatively difficult for Lightning to
increase penetration dramatically in the smaller alternator segment
                                                                Total market size for medium and heavy truck alternators reached ~RMB340mn
          Market size                                            in 2008
                                                                    - heavy truck alternators, where Lightning is stronger, account for 50-60% of
                                                                      the market

                                                                In line with medium and heavy truck market, the truck alternator market is likely to
        Market growth
                                                                 see steady growth at ~5% p.a.
                                                                    - heavy trucks would expect to have higher growth than medium trucks, due
                                                                       to central government’s investment plan in infrastructure and increasing
                                                                       demand in transportation

                                                                Lightning is already the largest supplier for truck alternators. It has apparent
    Lightning’s Current
                                                                 quality advantage for larger capacity truck alternators primarily used in heavy
        Positioning
                                                                 trucks. In the smaller truck alternator, its quality advantage is regarded as less
                                                                 significant
                                                                With good quality and unmatched service, Lightning has very good relationship
                                                                 with major customers
     Lightning’s Future                                         Lightning would benefit from higher growth rate in heavy truck where it is stronger.
          Outlook                                                As a result it could increase its share in the overall truck alternator market
                                                                Lightning is likely to keep or increase current share in major customers for its high
                                                                 quality and better services. However as the smaller alternator customers typically
                                                                 see no difference in quality among major suppliers and have existing suppliers
                                                                 with long-term relationship, it would be difficult for Lightning to significantly
                                                                 increase its penetration in those customers

Source: L.E.K. interview and analysis                                                                                                                  CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                         47                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                               3-A              Bus starter motor- market size and growth



Bus starter motor market is expected to grow at ~2% p.a. and reach ~RMB80m in
2013
Bus starter motor market volume                                          CAGR%         Bus starter motor market value                                      CAGR%
(2003-08)                                                            (2003-08)(08-13F) (2008-13F)                                                         (2008-13F)

Thousands of units                                                        11.3   4.5     Millions of RMB                                                        2.4
160                                                                      154             90
                                                                   143
                                                                                         80                                                   78
                                                             133                                                                    74
                                         123         124                                       69                         70
                                  119                                                    70                     67
120                                            115                                                   63
                            101                                                          60
                92 91
                                                                                         50
 80       72
                                                                                         40

                                                                                         30
 40
                                                                                         20

                                                                                         10

   0                                                                                      0
        2003 04       05     06    07     08 09E 10F 11F 12F 13F                              2008 09E         10F       11F       12F       13F


Source: China Association of Automobile Manufacturers, L.E.K. interviews and analysis                                                                  CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                         48                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                3-B                     Bus starter motor- purchasing behavior



Bus starter motor suppliers are generally specified by engine manufacturers


Purchasing decision process in                                                              Unlike bus alternators, bus starter motors suppliers are
                                                                                             mainly specified by engine manufacturers
bus starter motor segment
                                                                                               -   starter motor is viewed as part of the engine and
                                                                                                   hence it is usually engine manufacturers that
                                                                                                   decide starter motor brand
                           Fleet owners
                                                                                               “… Since the matching of starter motor and engine is
                                                                                                 very important, I believe those engine
  Minority                                                   Majority                            manufacturers want to choose the starter motors
                                                                                                 themselves …”
   Make purchasing                            Leave to bus                                           Engineer, Technology Centre, JAC Bus
      decision                                manufacturers
                                                                                               -   another reason is that customers do not care the
                                                                                                   quality of bus starter motors as much as they do in
                        Majority                                         Minority
                                                                                                   alternators
                         Leave to engine                         Make purchasing            However, as the end users, fleet owners are capable of
                          manufacturers                             decision                 imposing influence on starter motor purchasing.
                                                                                             Lightning is leveraging its strong relationship with major
                                                                                             fleet owners and good reputation to persuade them to
                        Make purchasing                                                      ask for Lightning’s starter motors at the very beginning
                           decision                                                             “… Lightning is actively persuading bus fleet owners
                                                                                                   and let them appoint its starter motor products …”
                                                                                                       National Sales Director, Quanzhou Yida
                                                                                                   Electric Appliance
    Good relationship with fleet owners and established reputation as a quality supplier are expected to help
                                Lightning to gain share in the bus starter segment
Source: L.E.K. interview and analysis                                                                                                                     CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                          49                        DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                                DRAFT                                                          3-B                    Bus starter motor- purchasing behavior



 Bus starter motor customers typically regard quality, price and customer
 relationship as the three most important criteria
Key purchasing criteria for bus starter motors                                                            Engine manufactures are the major customers of bus
                                                                                                           starter motors. Most of them regard quality as the top
                                                                                                           selection criteria
                                                               n=6
                                                                                                             “… We care the life span of the bus starter motors the
1                             Quality                                                         6.7              most. We have a strict purchasing process and
                                                                                                               would involve our technical department to test the
                                Price                                                      6.3                 product quality of suppliers …”
2
                                                                                                                   Purchasing Manger, Yangzhou Yaxing Coach

3          Customer relationship                                                           6.3
                                                                                                          However, as there is no significant difference in product
                                                                                                           quality among starter manufacturers, price and
4 Track record and reputation                                                    5.0                       customer relationship usually have significant impact on
                                                                                                           customer decisions
5                            Service                                             5.0                         “… We do not appoint bus starter motors because we
                                                                                                               think there is no big quality difference among
6                    Customization                                          4.7                                suppliers …”
                                                                                                                    Engineer, Technology Centre , Shaolin Bus
7          Delivery and lead-time                                          4.3                               “… We prefer those starter motor suppliers with close
                                                                                                               relationship with us, as we can trust their quality
                    Payment terms                                          4.3                                 and benefit from their reasonable price…”
8
                                                                                                                    Engine Sales Manager, Yangzhou Diesel
                                                                                                                    Engine
                                        0       1      2       3     4       5         6      7
                                                               Degree of
                                           Least              importance                     Most
                                         Important                                         Important

 Source: L.E.K. interview and analysis                                                                                                                              CONFIDENTIAL
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                               DRAFT                                         3-C                    Bus starter motor- competitive landscape



Lightning currently accounts for ~50% of the bus starter motor sector, with several
domestic players competing in the market
Estimated bus starter motor market share                                     Market feedback indicate that Lightning has a c.40-50% market
                                                                              share in bus starter motor market
(2008)
                                                                                   -   leveraging its reputation and good relationship with bus
                                                                                       fleet owners is regarded as one of the key successful
Percent                                                                                factors of Lightning in the bus starter motor sector
100                                                                                -   compared with bus alternator market, Lightning is facing
                                                             Others                    more competitors in this market and its advantage in
                                                             Bosch                     quality is not obvious
 80                                                          Yida                  “… I cannot see significant differences between different bus
                                                                                     starter motor brands. Though Lightning is the leader in
                                                             Hengli                  bus alternator market, its advantage in starter motor is not
                                                                                     obvious …”
 60                                                          Shendian                     Engineer, Technology Center, Shaolin Bus
                                                                             Shendian, Hengli and Yida are regarded as major suppliers in
                                                                              bus starter motor market
 40                                                                                -   engine suppliers usually have long term relationship with
                                                                                       particular suppliers. E.g. Yangzhou Diesel Engine mainly
                                                                                       use Hengli for bus starter motor supply
                                                             Lightning
 20                                                                          BOSCH is regarded as a quality leader, however its higher
                                                                              price limits its penetration in this market
                                                                                   “… BOSCH is the best in quality, but their price is way too
   0                                                                                 high, which could even double that of domestic products.
                                  2008                                               Therefore its volume is not significant in this market …”
                                                                                         Sales Manager, Huzhou Longhao Auto Parts

Source: L.E.K. interview and analysis                                                                                                               CONFIDENTIAL
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                               DRAFT                                            3-C                 Bus starter motor- competitive landscape



Customers confirmed Lightning’s good quality and reputation in the starter motor
market, but its advantage in this sector is less strong than that in bus alternators
  Key selection              Best-in-               Lightning’s
                                                                            Comments
  criteria                   class                  position
  Quality                    Bosch                  Very good, but still    “… Bus owners still consider quality as one of the key purchasing
                                                    not significantly         criteria. As Lightning’s products have good quality, it is gaining
                                                    better than domestic      share in bus starter motor sector …”
                                                    products                            Sales Manager, Dongfeng Chaoyang Diesel
                                                                            “… We think there is no big quality difference between starter
                                                                              motor suppliers …”
                                                                                           Engineer, Technology Centre , Shaolin Bus
  Price                      Shendian               20-30% higher than      “… Lightning’s starter motor price is on average 20-30% higher
                                                    other domestic            than that of other domestic brands …”
                                                    brands and ~40%                   Sales Director, Quanzhou Yida Electric Appliance
                                                    lower than Bosch
  Customer                   Lightning              Leading position;       “…Right now, Lightning already has a very good relationship with
  relationship                                      outstanding               bus fleet owners. Its strategy is to work closely with the OEM
                                                    relationship with bus     manufacturers and the engine manufacturers to further develop
                                                    fleet owners              the relationship and sell more products …”
                                                                                     Engineer, Technology Center, JAC Bus
  Track record               Lightning,             Very good among         “…Lightning’s product track record is very good, therefore many
  and                        Shendian               bus fleet owners;         fleet owners not only pick up its alternators, but also choose its
  reputation                                        Some domestic             starters …”
                                                    suppliers have long-             Technical Manager, Yinjian International Travel Service
                                                    term relationship
                                                    with their customers

Source: L.E.K. interview and analysis                                                                                                               CONFIDENTIAL
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                               DRAFT                                             3                                       Bus starter motor-summary



Lightning is one of the leading players in bus starter motor market. Established
relationship with fleet owners will help Lightning to gain more share in this sector,
but may not to a dominator level
                                                                The total market size reaches ~RMB70mn in 2008
          Market size




                                                                The future market growth of medium and large buses are expected to slow
        Market growth                                            down to 2.4% largely due to slow underlying market growth and average
                                                                 selling price decline




    Lightning’s Current                                         Market feedback suggests that Lightning has become one of the leading bus
        Positioning                                              starter motor supplier in the market
                                                                   -   it is leveraging its dominant in bus alternators to influence bus fleet
                                                                       owners to specify Lightning’s starter motor
                                                                   -   its good service and better quality also help it to strengthen its position

     Lightning’s Future                                         Lightning is likely to gain more share in the bus starter motor market by
          Outlook                                                continuing leveraging its strong relationship with existing bus alternator
                                                                 customers. However, it might be difficult for Lightning to reach a dominant
                                                                 position in bus starter motor market due to less solid competitive advantage




Source: L.E.K. analysis                                                                                                                              CONFIDENTIAL
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                                DRAFT                                             4-A               Truck starter motor- market size and growth



 Truck starter motor market is expected to grow at 5% p.a. and reach ~RMB540m in
 2013
 Truck starter motor market volume                                        CAGR%         Truck starter motor market value                                  CAGR%
 (2003-08)                                                            (2003-08)(08-13F) (2008-13F)                                                       (2008-13F)

Thousands of units                                                       13.8   7.2     Millions of RMB                                                        5.0
1,200                                                                                   600
                                                                       1,057                                                                536
                                                                                                                                  510
                                                                    986                                                 486
1,000                                                                                   500
                                                              920                                             462
                                                       858                                            440
                                                                                              420
                                                800
 800                                                                                    400
                                   724 748


 600            558                                                                     300
                             509
                      431
          392
 400                                                                                    200


 200                                                                                    100


    0                                                                                     0
         2003 04       05     06    07     08 09E 10F 11F 12F 13F                             2008 09E        10F       11F      12F       13F


 Source: CAAM, L.E.K. interviews and analysis                                                                                                         CONFIDENTIAL
 Darby Asia Investor. Project Lightning Draft Final Report.                       54                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                              4-B                Truck starter motor- purchasing behavior



Truck fleet owner and OEMs typically do not care about starter motor brand and
leave the supplier decision to engine manufacturers
Purchasing decision process in                                             Typically as starter motor is regarded as part of the engine, truck
truck starter segment                                                       OEMs and fleet owners do not care about starter motor brand and
                                                                            mainly get the starter motor from engine manufacturers
                                                                              -   normally truck OEMs and fleet owners would take start motor
                                                                                  brand recommended by engine manufacturer
                            Fleet owners                                      “… We pay more attention to engine brands but do not know and
                                                                                care about starter motor brands and would leave OEMs and
                                         Vast Majority                          engine manufacturers to decide …”
                                                                                    Technical Engineer, Shandong Transportation Group
                           Leave to truck                                     “… We usually trust the choice of starter motor by engine
                           manufacturers                                        manufacturers as they have more knowledge in those
                                                                                brands …”
    Majority                                                 Minority               Purchasing Manager, Dongfeng Motor Corporation
                                                                           In the future, engine manufacturers would continue to be the key
     Leave to engine                            Make supplier               decision maker for starter motor purchasing
      manufacturers                               decision
                                                                              “… Starter motors are kind of a standard product with less
                                                                                customizations. We’re quite familiar with the suppliers and
                                                                                hence give recommendations to our customers. We also
       Make supplier                                                            collect feedback from customers each year to review our
         decision                                                               suppliers. I do not think such practice would change in the
                                                                                future …”
                                                                                     Senior Engineer, Sinotruk Jinan Engine

                     Engine manufacturers are the key decision maker for truck starter motor purchasing

Source: L.E.K. interviews and analysis                                                                                                              CONFIDENTIAL
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                                   DRAFT                                                            4-B                Truck starter motor- purchasing behavior



    Price and quality are the key criteria to engine suppliers when selecting truck
    starter motor supplier
    Key Purchasing Criteria for Truck Starter                                                                As starters are relatively standardized products,
    Average Ranking                                                                                           engine suppliers expect limited difference in quality
                                                                                                              among suppliers and hence care more about price
                                                                  n=6
                                   Price                                                         6.7            “… We only use one or two types of truck starters
1                                                                                                                 and would expect suppliers to offer lower
                                                                                                                  price …”
                                 Quality                                                      6.3
2                                                                                                                      Purchasing Manager, Weichai Power

              Customer relationship                                                       5.8
                                                                                                             Quality is also considered as major criteria to ensure
3                                                                                                             reputation of engine manufacturer. However,
                                                                                                              customers feel limited quality variance among major
4 Track record and reputation                                                       5.2                       starter motor suppliers
                                                                                                                “… Quality of starter motors are quite important
                                Service                                           5.0
5                                                                                                                 for heavy trucks as starters are easy to break
                                                                                                                  down under bad environmental conditions such
6                      Customization                                          4.7                                 as snow, raining and dusty …”
                                                                                                                       Sales Manager of Truck Department, FAW
                      Payment terms                                     3.8                                            Wuxi Diesel Engine
7
                                                                                                                “… I think for truck starters, BOSCH would have
8
             Delivery and lead-time                                     3.8                                       more advanced quality but others suppliers
                                                                                                                  such as Lightning, Shendian and Dongfeng do
                                           0       1      2       3     4     5           6      7                not have much difference in quality …”
                                                                                                                       National Sales Director, Quanzhou Yida
                                                                  Degree of
                                                                 importance                                            Electric Appliance for Vehicle
                                              Least                                             Most
                                            Important                                         Important

    Source: L.E.K. interviews and analysis                                                                                                                            CONFIDENTIAL
    Darby Asia Investor. Project Lightning Draft Final Report.                                      56                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                           4-C                      Truck starter motor- competitive landscape



Lightning currently only accounts for c.10% of the truck starter motor sector, and
it has room to further increase share but may not reach a significant level
Estimated truck starter motor market share                                  Lightning is catching up by entering Weichai Power and FAW’s suppliers’ list but
                                                                             actual sales volume to them are not very significant
(2008)
                                                                                “… Lightning only has starter motor sales in our Deutz engine. We are mainly
                                                                                  using BOSCH to supply starter motors for our truck engines as we have
                                                                                  strategic partnership with them …”
Percent                                                                                 Purchasing Manager, Weichai Power
100                                                                         BOSCH and Shendian are leading suppliers with over 50% share

 90                                                          Others
                                                                                -    vast majority of BOSCH’s starter motor sales come from Weichai Power.
                                                                                     BOSCH leverage its strong positioning in common rail, a key engine
                                                                                     component, to reach strategic partnership with Weichai Power to cross-sell its
 80                                                                                  starter motors
                                                             Yida
 70                                                          Lightning          -    Shendian has been a major supplier for years due to their good relationship
                                                                                     with major engine manufacturers and lower price
 60                                                          Dongfeng       Dongfeng Starter Motor has captive relationship with its auto corporation. However it
                                                                             is losing share due to less advanced technology for gear-reduced motor products
 50
                                                                            Going forward, Lightning is likely to have chances in share gain, however it is less
                                                             Shendian        likely to become a dominant player in this sector
 40
                                                                                -    it has good relationship with existing major customers and track record
 30                                                                                  developed through high quality alternators and outstanding services, which
                                                                                     potentially be leveraged to increase penetration
 20                                                                             -    however as starter motor is regarded as more like a commoditized product, it
                                                             BOSCH                   is hard for Lightning to justify its higher price with slightly better quality over
 10                                                                                  existing suppliers of the major engine manufacturers
                                                                                -    meanwhile the partnership between BOSCH and Weichai Power blocks
   0                                                                                 Lightning’s future penetration increase for truck starter motor. And due to
                                  2008                                               historical reason, it is difficult for Lightning to sell to Sinotruk

Source: L.E.K. interviews and analysis                                                                                                                     CONFIDENTIAL
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                               DRAFT                                                 4-C                    Truck starter motor- competitive landscape



Lightning has a relatively weak position for starter motor currently

  Key selection             Best-in-             Lightning’s
                                                                         Comments
  criteria                  class                position

  Price                     Shendian             20% higher than         “… Price of Lightning’s products is decreasing in recent years but still 20% higher than
                                                 domestic, 30-40%          Shendian, which would be a concern for engine manufacturers …”
                                                 lower than BOSCH            Regional Sales Manager, Shendian
  Quality                   BOSCH                Behind BOSCH,           “… Quality of BOSCH’s products is target for us as it represents the most advanced
                                                 better than               technology in the world. But I think Lightning’s quality does not differentiate much
                                                 domestic brands           from ours …”
                                                 but only to a limited         National Sales Director, Quanzhou Yida Electric Appliance for Vehicle
                                                 extent                  “… Bosch’s auto parts products are highly reliable and its technology of starter even
                                                                           improve performance of our engines and currently Lightning’s product quality is close
                                                                           to domestic ones and could not reach BOSCH level in the short term …”
                                                                               Purchasing Manager, Weichai Power
  Customer                  BOSCH,               Has some presence       “… Bosch has established a strategic alliance with us through providing overall technical
  relationship              Shendian             in major engine           solution and sales support for key auto parts such as common rail, which enables it
                                                 manufacturers but         to bundle the sales of expensive starters. Other suppliers like Lightning and
                                                 still need to             Shendian could not offer the same thing to us …”
                                                 strengthen the truck          Purchasing Manager, Weichai Power
                                                 starter motor           “… As far as I know, Lightning has successfully sold truck starters into engine
                                                 presence                  manufacturers such as Weichai, FAW, Cummins and Yuchai using its existing strong
                                                                           relationship with them …”
                                                                                Sales Manager, FAW Wuxi Diesel Engine
  Track record and          BOSCH,               Behind Shendian         “… BOSCH’s starter motors have good track record among my customers such as
  reputation                Shendian             and BOSCH for             Foton, Shaanxi Heavy and Hualing but Lightning’s is still not as strong …”
                                                 truck starter motors          Purchasing Manager, Weichai Power
                                                                         “… Currently, Lightning has a few track record in the truck business but still limited
                                                                           compared to its bus sector compared to BOSCH and Shendian…”
                                                                               Sales Manager, FAW Wuxi Diesel Engine


Source: L.E.K. interviews and analysis                                                                                                                         CONFIDENTIAL
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                               DRAFT                                                 4                                    Truck starter motor-summary



In general, truck starter motor sector is a relatively large and quickly growing
market. Potentially Lightning could increase its share, but less likely to become a
dominant player
                                                                Total market size for truck alternators reached ~RMB540m in 2008
          Market size
                                                                   -   market size almost doubled in the past 5 years due to strong growth in
                                                                       trucks

                                                                Truck starter market would follow growth of the underlying market at about 5%
        Market growth
                                                                 annually


    Lightning’s Current                                         Currently, Lightning’s truck starter has 10% of the market
        Positioning                                                -   it has penetrated into several large customers such as Yuchai and Weichai
                                                                       Power
                                                                   -   market feedback suggests that Lightning is outstanding in service, but its
                                                                       quality does not have significant advantage over existing suppliers while
                                                                       price is higher
                                                              Going forward, there is room for Lightning to increase its share
     Lightning’s Future
          Outlook                                                  -   it could leverage its good relationship with engine manufacturers and
                                                                       outstanding services to increase its penetration
                                                                However the share gain may not be very significant
                                                                   -   Lightning has not demonstrated greater value of money to customers and
                                                                       therefore would be difficult to persuade the customers to switch from their
                                                                       existing long-term suppliers with comparable quality and lower price
                                                                   -   it is hard to increase its share in Weichai Power and meanwhile it cannot sell
                                                                       to Sinotruk, which limits their potential increase in penetration

Source: L.E.K. interviews and analysis                                                                                                                  CONFIDENTIAL
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                               DRAFT                                            5                                                                     Aftermarket



Unlike the US and Europe, China’s replacement and re-manufacturing market size
is relative smaller due to more repairs tradition in the market

  More repairs in China
     Different from the frequent replacement behavior in the US and Europe market, most Chinese customers would prefer to repairing rather than
      replacement if possible for cost concern
          “… In most cases, replacing an alternator/starter is much more expensive than repairing, therefore repair is a better solution to most
            customers …”
                  Technical director, Yandangshan Zhou Auto Repairing Company
          “… Usually replacement cost of an alternator/starter is several times as expensive as repairing cost if it not severely damaged. We only consider
            replacement when the repairing cost is more than 2/3 of initial cost …”
                 Technical Engineer, Shanxi Daquan Repairing Company
          -    it is not uncommon that customers repair components even the components have exceeded its life span
          “… A lot of vehicle owners tender to repair alternators even it has been repaired many times. By doing so they try to extend the life of alternators
            so that it could last as long as the vehicle life to avoid replacement cost …”
                  Electronic Engineer, Shandong Linglong Repairing Company




  Fewer replacement                                                                 Limited re-manufacturing

      Repeating repairs of alternators/starters limit the demand for                  Re-manufacturing is very limited in China due to poor conditions of
       replacement                                                                      alternators/starters after frequent repairing
              “… There is ~10-20% of replacement in all repairing. Customer                “… Used alternators and starters are repaired too much in China,
                would not consider replacement as long as it could be                        which makes their quality too bad to be re-manufactured…”
                repaired with lower cost …”                                                       Electronic Engineer, Shandong Linglong Repairing
                     Electronic Engineer, Dongbao Repairing Company                               Company




Source: L.E.K. interviews and analysis                                                                                                                  CONFIDENTIAL
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                               DRAFT                               5                                                               Aftermarket



Lightning’s products only will be used to replace its original alternators and
starters in the aftermarket
     Normally Lightning's price is at least 20-50% higher than that of domestic products. In most cases, only Lightning’s
      customers will consider to replace their broken alternator or starter with a brand new Lightning product
          “… In price and quality trade-off, many customers, especially individual owners will usually choose low price
            components with inferior quality. For example, Lightning’s product is not preferred by replacement customers due to
            its high price …”
                 Electronic Engineer, Dongbao Auto Repairing Company
          “… Usually only customers using Lightning’s product will chose Lightning for replacement. I have never heard customers
            with domestic brands will convert to Lightening as clearly Lightning is more expensive …”
                Electronic Engineer, Shandong Linglong Repairing Company

     Typically most Lightning’s customers would stick to Lightning for replacement
          “… Most customers with Lightning’s products will ask for Lightning for replacement. Lightning’s products have higher life
            span and customers do not want other brands as they think the quality is inferior. In addition, most customers
            equipped with Lightning’s products are less price sensitive, such as large scale logistics companies, and they would
            stick to better products …”
                 Technical Engineer, Shanxi Daquan Repairing Company
          -   however, there are some customers, typically some individual fleet owners, would be cost driven and switch to other
              cheaper product for replacement




    The size of Lightning’s aftermarket depends on its historical sales and customer stickiness rather than the
                                            overall size of aftermarket

Source: L.E.K. interviews and analysis                                                                                               CONFIDENTIAL
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                               DRAFT                                                         5                                                                Aftermarket


Typically majority of Lightning’s bus fleet customers would stick to Lightning for
replacement. Only some individual bus owners may switch to other domestic
suppliers for cost concern
                                                                                                    Large and small bus fleet owners normally have their
                                  Lightning’s bus fleet                                              own bus service companies or dedicated repairing
                                       customers
                                                                                                     shops and are more likely to stick to Lightning’s
               Majority                                               Minority                       products for replacement
                                                                                                       “… Our service company understands the products
                                                                                                         very well and from its experience, quality can not
                                                                    Individual bus
   Large bus fleets                 Small bus fleets
                                                                       owners
                                                                                                         be assured if switching to other suppliers.
                                                                                                         Therefore we generally stick to original component
                                                                                                         supplier …”
                                                                                                              Technical Manager, Shanghai Baoshan Bus
                                                                                                       “… Large bus fleet owners generally stick to their
       Repairing                       Dedicated                      Roadside                           original component supplier to assure the quality.
      subsidiaries                  repairing shops                repairing shops                       They typically have their own repair plants who
                                                                                                         directly purchase parts and components from
                                                                                                         original supplier …”
                                                                                                               Purchase Manger, LuoYang Bus
                Majority           Majority             Minority                 Minority
                                                                                                    Individual bus owners are more price sensitive and likely
                                                                                                     to use cheaper domestic products for replacement

                                                                                                    Lightning has an established distributor network to sell
                                                                      Domestic
                                                                                                     to the aftermarket and maintain high product availability
                               Lightning                                                             in those repairing subsidiaries of large bus companies
                                                                     substitutes
                                                                                                     and dedicated repairing shops


Source: L.E.K. interviews and analysis                                                                                                                          CONFIDENTIAL
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                               DRAFT                                                     5                                                                    Aftermarket



Majority of trucks are owned by individuals, and they are more likely to use cheap
domestic products for replacements from roadside repairing shops
                                 Lightning’s truck fleet                                        Given the highly fragmented nature of truck fleet industry, most of
                                      customers                                                  Lightning’s truck fleet customers are individual truck owners and
                                                                                                 would generally replace the products with domestic substitutes
               Minority                                           Majority
                                                                                                    -   the key consideration of using domestic products is for cost
                                                                                                        concern
                                                                                                    -   even if customers are willing to use Lightning’s products for
                                                               Individual truck                         replacement, product availability would be a constraint.
   Large truck fleets              Small truck fleets
                                                                   owners                               Trucks have a higher geography coverage and it is relatively
                                                                                                        difficult to get the original products in rural areas
                                                                                                    “… As there’s limited choice in roadside repair shops, iindividual
                                                                                                      owners generally pick up any domestic substitutes
                                                                                                      available …”
       Repairing                       Dedicated                  Roadside                                  Technical Manager. Nanchang Bus Repairing Shop
      subsidiaries                  repairing shops            repairing shops                  For large and small truck fleet customers, they tend to use original
                                                                                                 products due to assured high quality
                                                                                                    “… Many truck fleet customers find out that using inferior
                                                                                                      domestic products would shorten life span of alternators or
                                                                                                      starters, which actually costs more …”
   Minority                        Minority                  Minority        Majority                       GM Technical Director, Yandangshan Zhou Auto
                                                                                                            Repairing Company
                                                                                                    -   they either have own repairing subsidiaries or dedicated
                                                                                                        repairing shops to offer the original components, which is
                                                                                                        very similar to bus fleet owners
                                                                                                    -   however majority of the truck fleets are still owned by
                                                                  Domestic                              individuals
                               Lightning
                                                                 substitutes




Source: Lightning Management, L.E.K. interviews and analysis                                                                                                    CONFIDENTIAL
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                               DRAFT                                  5                                                           Aftermarket



Customers are increasingly to use original supplier for alternators and starter
motors in the aftermarket, which will benefit Lightning in the aftermarket

 Original alternators and starter motors are perceived to have longer life span and higher quality than
  alternative products, therefore customers believe sticking to original supplier can save the overall
  maintenance cost in the later usage
          “… In the past, most of customer are using available cheap products for replacement, but they found
             that the price savings from low quality components are compromised by the shorter life of the
             components. They are more inclined to use original supplier …”
                Technical Engineer, FengHuang Bus Repairing Service
          “… Most customers to our plants used to ask for some cheap products. But I noticed that now majority
             of them ask for the exact same product equipped in their vehicles. They have realized that lower
             upfront price may generate large amount of repair cost in the future …”
                GM Technical Director, Yandangshan Zhou Auto Repairing Company
          “… Truck customers now are asking for original brand for replacement. They have concerns on the
             quality of cheap products. If it breaks down, they would be in serious trouble as they are often in the
             remote areas and would have to pay a lot to get towed away to a place for repair …”
               Technical Engineer, Shanxi Daquan Repairing Company




                                      The aftermarket trend is positive to Lightning’s sales in future

Source: L.E.K. interviews and analysis                                                                                              CONFIDENTIAL
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                               DRAFT                                                                       Section Title



Agenda


 Executive summary

 Company overview

 Lightning business assessment

 Synthesis

 Next steps




                                                                                                              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   65   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                              Synthesis



Lightning has successfully penetrated into almost all major engine suppliers and
bus OEMs
China engine and medium and large                              Lightning’s presence in major diesel engine
bus manufacturer market share by                               manufacturers
volume (2008)
Percent                                                                                             Alternator                      Starter
                                                               Segment    Producer
100                                                                                                 Bus             Truck           Bus             Truck
                                              Others                      King Long
 90                                         Shanghai                                                                                
                                            Dongfeng Cummins
                                           Yuchai                         Yutong
 80                                                            Bus                                                                  
                  Others
 70                                           Sinotruck                   Zhongtong
                                                                                                                                     
 60
                                                                          Yuchai
                                                                                                                                                   
 50             Zhongtong
                                              FAW Wuxi
                                                                          FAW Wuxi
 40                                                                                                                                                   
                  Yutong                                       Heavy-
                                                               duty       Sinotruck
 30                                                            truck
                                                                                                                                                        
                                                               engine
 20                                                                       Weichai
                   King                        Weichai                                                                                               
 10                Long
                                                                          Dongfeng Cummins
                                                                                                                                                       
   0
         Medium and large Heavy truck engine
            bus OEM         manufacturers                                                                                           
                                                                                Dominant supplier           Minor supplier        No presence


Source: China Association of Automobile Manufacturers, L.E.K. interviews and analysis                                                            CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.               66                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                                 Synthesis



Quality products, outstanding service and good customer relationship are the key
strengths of Lightning in the market

                                                                                                                 Good customer
  Quality leader                                             Outstanding service
                                                                                                                 relationship
        Lightning is strong in the                             Lightning is clearly providing the                   Lightning has successfully
         technical side, which results in its                    best services in all the sectors. It                  penetrated into all major
         leadership in product quality                           offers good services along the                        customers. As penetrating into
             -   its bus alternator quality is                   value chain rather than just                          new customers is very time
                 regarded as unmatched                           focusing on the purchaser                             consuming, Lightning clearly has
                                                                    “… For example, when there’s                       advantage over other suppliers
             -   apparent quality advantage
                                                                      product failure on the OEM
                 in the large capacity truck                                                                          Customer feedback is very
                                                                      side, Lightning gave very
                 alternator sector                                                                                     consistent that they are very
                                                                      timely response to the
             -   it still has better quality in                       OEMs rather than being                           satisfied with Lightning’s
                 starter motor although the                           asked by Weichai. This                           performance as a supplier
                 advantage is not very                                has impressed both OEMs                              -   except for complaints on
                 significant                                          and Weichai and therefore                                price, all the feedback from
                                                                      we all prefer Lightning as                               the customer side is very
                                                                      our major supplier …”                                    positive
                                                                            Purchasing Manager,
                                                                            Weichai Power




       Lightning is mainly leveraging these three key differentiators to maintain and gain share in the market

Source: L.E.K. interviews and analysis                                                                                                              CONFIDENTIAL
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                               DRAFT                                                                                                                                Synthesis



Lightning’s is adopting a “three-wave” growth strategy to fuel its future growth;
currently it is entering the starter motor segment, which is less complex and price
sensitive
Lightning revenue growth roadmap                                                              Lightning product characteristics

Revenue                                                                                                         High

                                                        Third wave: starter motor                                                                                Bus
                                                                                                                                                                alter
                                                                                                                                                                nator




                                                                                          Price sensitiveness
                                                                                                                                                Truck
                                                                                                                                                altern
                                                                                                                                                 ator
                                    Second wave: truck alternator
                                                                                                                          Bus &
                                                                                                                           truck
                                                                                                                          starter

                   First wave: bus alternator


                                                                                                                Low                                                     High
      2000                      2007                   2010        Future…         Time                                      Technical complexity

                                                                                                                        Bubble size = market size*

Note: * Size of the bubbles are relative, not in proportion to the actual market sizes
Source: L.E.K. analysis                                                                                                                                            CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                    68                                       DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                                DRAFT                                                                                                Synthesis



 According to the management projection, the majority of Lightning’s future growth
 is expected to come from starter motor sector. This also implies a substantial
 share gain in the starter motor sector
 Lightning domestic sales growth by product                                  Implied Lightning’s domestic market share
 (2008-12F)                                                                  by product (2008 vs. 12F)
Millions of RMB                                                               Percent
1,200                                                                         90                          Part of Lightning’s projection of
                                                                                                          truck alternators and starter
                                                                                                          motors includes sales to other
                                                                              80                          sectors like light trucks and
1,000                                                                                                     engineering vehicles. Those
                                                          349                 70                          sales is excluded in the market
                                                                                                          share analysis
 800                                                                          60
                                           103
                             10                                               50                          2008
 600                                                                                                      2012F
                                                                1,115
                                                                              40

 400                                                                          30
              673
                                                                              20
 200
                                                                              10

    0                                                                          0
             2008       Increase in Increase in Increase in     2012F                 Bus             Truck    Starter motor
                            bus        truck      starter
                         alternator alternator     motor                           alternator       alternator

 Source: Management Data, L.E.K. Interviews and analysis                                                                            CONFIDENTIAL
 Darby Asia Investor. Project Lightning Draft Final Report.             69              DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                           Synthesis



L.E.K. has studied three perspectives to assess the future growth prospects of
Lightning




                                                               Lightning future
                                                             growth assessment




                    Underlying market                                                         Market share
                                                                Price change
                        growth                                                                  change




                                                                                                                              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.           70           DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                                Synthesis



The underlying market of alternators and starter motors is expected to continue
moderate growth over the next five years
Projected sales volume of medium-and-heavy duty trucks and                                                                                   CAGR%
medium-and-large buses in China                                                                                                             (2008-13F)
(2008-13F)
Thousands of units
1,400                                                                                                  Total                                      7.7

1,200                                                                                                  Medium and large bus                       3.4*

1,000                                                                                                  Medium-duty truck                          5.0

  800


  600

  400                                                                                                  Heavy-duty truck                           9.6


  200

      0
                 2008                09E                 10F   11F           12F             13F


Note: * The slow growth of medium and large bus is largely due to sales volume decline in 2009 due to economic downturn
Source: China Auto Industry Association, CICC, CITIC securities, United Securities, Orient Securities, L.E.K. interviews and analysis              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                 71                          DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                                      Synthesis



Going forward, management expects Lightning’s ASP to decline steadily, which is
confirmed by market participants as an industry general trend
Lightning domestic ASP projection*                                      CAGR%           Lightning management expects a ~3% p.a. price drop.
                                                                       (2008-12F)        Competition and customer pressure are the key reasons for
(2008-12F)
                                                                                         price drop
Thousands of RMB per unit                                                                  “… A 3-5% p.a. price decline is very common in auto
                                                                                             component industry. OEMs have target to reduce sourcing
1.6
                                                                                             cost each year. In order to keep our current market share,
                                                                                             we have to lower our price …”
1.4                                                                                              Marketing Director, Lightning
                                                             Bus
                                                                          (3.8)
1.2
                                                             alternator                    “… Due to the fierce competition and pricing pressure from
                                                                                             customers, we have to lower our price every year. …”
                                                                                                 Sales Manager, Huzhou Dehong Auto Electrical
1.0                                                                                              System

0.8                                                          Starter      (3.5)
                                                                                        For starters, management expects a slight increase moving
                                                                                         forward from 2009. As they believe the upgrade of emission
0.6                                                                                      standard from Euro II to Euro III requires starters to use better
                                                             Truck                       parts to maintain same quality, which increase the cost and
                                                                          (0.6)
0.4                                                          alternator                  hence price. This is in line with market feedback
                                                                                           “… The price of alternators will keep decreasing steadily by
0.2                                                                                          less than 5% each year. However the new Euro III
                                                                                             emission standard is likely to drive up the starter motor
0.0                                                                                          price as more expensive component need to be used …”
  2008          09E         10F          11F         12F                                          National Sales Director, Quanzhou Yida Electric
                                                                                                  Appliance For Vehicle

Note: * Average price for all the products in each category
Source: Management data, L.E.K. interview and analysis                                                                                                   CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                          72                       DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                  Synthesis



Lightning has a very solid position in its current major business, bus alternators,
and it is very likely to maintain its strong positioning

Implied Lightning’s domestic share in bus                                                                Comments
alternator segment (2008 vs. 12F)                                  Current      Lightning currently is the dominant player in the bus
  Percent                                                          market        alternator sector with ~90% market share
                                                                   position          -   Lightning’s product is regarded as the best in
  90
                                                                                         quality
                                                             -4%
  80                                                                                 -   Lightning’s service is also outstanding for both
                                                                                         pre-sales and after-sales
  70
                                                                                As quality and service are critical to fleet owners, the
  60                                                                             major decision maker, they are very satisfied with
                                                                                 Lightning and would stick to it
  50
                                                                   Future       As all the parties along the bus alternator value chain
  40                                                               prospects     have very positive feedback on Lightning, it would be
                                                                                 difficult for competitors to gain share from Lightning in
  30                                                                             this segment


  20                                                                            In addition, there is an increasing trend that large fleet
                                                                                 owners, with whom Lightning has already established
                                                                                 very solid relationship, are more inclined to specify
  10                                                                             brand for their purchase. This is also very favourable
                                                                                 to Lightning given its dominate share and good track
    0                                                                            record within bus fleet owners
                    2008                           12F


                           Lightning is expected to keep its dominant position in the bus alternator sector

Source: Management Data, L.E.K. analysis                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.         73                    DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                       Synthesis



Although management’s projection indicates it may lose share in the truck
alternator segment due to focus shift, it is expected Lightning will continue to
have a strong presence in the market
Implied Lightning’s domestic share in truck                                                                 Comments

alternator (2008 vs. 12F)                                            Current      Overall, Lightning is a strong player in truck starter
  Percent                                                            market        segment, with 30-40% market share
                                                                     position     Lightning currently is stronger in the alternators with
  35                                                                               larger capacity, which are typically used for heavy trucks
                                                                                       - large capacity truck alternator usually has higher
  30                                                         -6.8%                        requirement in quality and there are few suppliers
                                                                                          with comparable quality in the market
                                                                                  However, Lightning’s position in smaller units, which are
  25                                                                               mainly used for medium-duty truck is relatively weaker
                                                                                     - as the quality requirement for smaller alternators is
  20                                                                                     not that high and the difference among major
                                                                                         suppliers are insignificant, market competition is
                                                                                         more fierce
  15                                                                 Future       The growth trend of underlying market is in favour of
                                                                     prospects     Lightning as heavy-duty truck is gaining more share in the
                                                                                   overall truck market and Lightning is strong here
  10
                                                                                  Meanwhile Lightning’s superior service could help it to
                                                                                   maintain its strong position or even slightly increase in the
    5                                                                              truck alternator sectors
                                                                                  However, Lightning is paying more attention to light truck
    0                                                                              alternator segment, which might be the main reason for
                                                                                   its share decrease in management’s projection
                    2008                           12F


               Lightning should be able to maintain its current market position in the truck alternator sector

Source: Management Data, L.E.K. analysis                                                                                                  CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.            74                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                                                  Synthesis



Currently Lightning is a decent player in the starter motor segment; Lightning
management has an ambitious growth target over the next 4 years in this segment
Implied Lightning’s market share in                                                                                 Comments
starter motor segment
                                                                      Current          As the annual sales volume of truck is ~7 times of that of bus,
(2008 vs. 12F)                                                        market            Lightning’s market position in the starter segment largely
  Percent                                                             position          depends on its performance in the truck starter sector
                                                                                       Currently Lightning has a decent share in the starter motor
  40                                             39                                     segment due to its weaker position in truck starter motor
                                                                                           - Lightning has a relatively strong presence in the bus
                                                                                              starter sector, as it could leverage its good relationship
                                                                                              with bus fleet owner to help to increase penetration
  30                                                                                       - however, Lightning’s position in truck alternator segment
                                                                                              is relatively weak as truck starter is more “commoditized”
                                                             +25.5%
                                                                      Future           Going forward, Lightning management expects to gain
                                                                      prospects         substantial share in this segment by penetrating into major
  20                                                                                    customers in the market
                                                                                       Lightning is likely to gain some share in the market by
                                                                                        leveraging its existing relationship developed from its alternator
                     13                                                                 business and excellent services
                                                                                       However, it would be difficult for Lightning to substantially
  10                                                                                    increase its share in both truck and bus starter segment over
                                                                                        the next 3-5 years
                                                                                           - vehicle manufacturers and fleet owners care less about
                                                                                              quality in the starter segment
   0                                                                                       - customers are more price sensitive, but the quality
                                                                                              difference among major suppliers is regarded as minor
                   2008                         12F
                                                                                           - existing starter motor suppliers already have very stable
                                                                                              relationship with customers and it would be hard to take
                                                                                              significant share given there is no very obvious
                                                                                              advantage from Lightning’s offering

Source: Management Data, L.E.K. analysis                                                                                                             CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                       75                      DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                                                         DRAFT                                                                                                                      Synthesis



As truck accounts for the majority of the market, to reach management’s
projection, Lightning seems have to reach over 30% market share in the truck
starter segment, which seems a little difficult
Implied Lightning’s market share in the truck
starter motor segment
                              Lightning’s overall market share in starter segment

                                                                              15%        25%           35%              38%            40%              45%              50%
     Lightning’s share in bus starter




                                                             30%               12.8%      24.3%         35.7%            39.2%          41.4%            47.2%            52.9%
                                                             35%               12.1%      23.6%         35.0%            38.4%          40.7%            46.4%            52.2%
                                                             40%               11.4%      22.8%         34.3%            37.7%          40.0%            45.7%            51.4%
                                                             45%               10.7%      22.1%         33.6%            37.0%          39.3%            45.0%            50.7%
                                                             50%                9.9%      21.4%         32.8%            36.3%          38.6%            44.3%            50.0%
                                           Lightning’s       55%                9.2%      20.7%         32.1%            35.5%          37.8%            43.6%            49.3%
                                        current share        60%                8.5%      19.9%         31.4%            34.8%          37.1%            42.8%            48.6%
                                        in bus starter
                                                             65%                7.8%      19.2%         30.7%            34.1%          36.4%            42.1%            47.8%
                                                             70%                7.0%      18.5%         29.9%            33.4%          35.7%            41.4%            47.1%
                                                             75%                6.3%      17.8%         29.2%            32.6%          34.9%            40.7%            46.4%
                                                             80%                5.6%      17.0%         28.5%            31.9%          34.2%            39.9%            45.7%
                                                                                  Lightning’s share in truck
                                        Lightning’s overall market share in        starter segment in 2008              Lightning’s target overall market
                                          starter segment in 2008 (13.4%)                   (~15%)                      share in starter segment in 2012

                                                                    Range Lightning should                   Range Lightning is likely but a                    Range Lightning is
                                                                    be able to achieve                       little difficult to achieve                        difficult to achieve



Source: Management Data, L.E.K. analysis                                                                                                                                           CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.                                              76                             DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                       Section Title



Agenda


 Executive summary

 Company overview

 Lightning business assessment

 Synthesis

 Next steps




                                                                                                              CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.   77   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT
                               DRAFT                                                                                               Next steps



Next steps

    To finish the remaining researches and update the final report accordingly, include
         -   market sizing for aftermarket
         -   assessment on Lightnings’ aftermarket sales projection

    To polish the analysis in the draft report

    To update the report based on today’s discussion

    To schedule the date for final discussion in the next week




                                                                                                                                   CONFIDENTIAL
Darby Asia Investor. Project Lightning Draft Final Report.        78                   DAB2\PRESENTATIONS\FINAL PRES\DAB2_DRAFT FINAL REPORT_V14.PPT

				
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