International Business EnvironmentInternational Business EnvironmentMay 3, 2010May 3, 2010

Evelyn Furia, Kristen Gunthardt, Ben Evelyn Furia, Kristen Gunthardt, Ben Kelly, Erica Pilarski, and Amy SchatzKelly, Erica Pilarski, and Amy Schatz

Johnson Controls • Milwaukee-based auto parts and

commercial building parts manufacturing company

Position• Cutting edge lithium battery

innovator• Leading producer of electric car

batteries

Research Investments• Stimulus grant for lithium

research facility in U.S.• Increased presence in China

FDI Proposal• Secure affordable lithium supply as

Johnson Control’s dependence on this raw material is expected to increase

• Make a long-term investment to improve vertical integration of operations

• $125 MM investment in China’s Tibet Mineral Company for a 50% stake

22

OverviewRisk & Reward

Lithium Market

Political Issues

Costs & Currency

Political Issues

Costs/Currenc

y

Risks & Reward

The JV

Lithium Subsidiary Investment EstimateLithium Subsidiary Investment Estimateo Based on capital costs of other companies’ lithium projectso Capital costs range from $90MM up to $500MMo Vertical integration of operations into lithium ion manufacturingo Hedging risks of increased demand by securing raw material supply through joint venture.

Investment could cost between $125MM and $477MM USD

Tibet Mineral Development Corp.

Shares 275.7

Price/Share (Y) ￥ 23.62

Market Cap (Y) ￥ 6,512.03

Exchange Rate (Y/USD) ￥ 6.82549

Market Cap (USD) $ 954.08

50% Stake (worst case) $ 477.04

Johnson Controls ($MM) 2009Assets $ 24,088 Liabilities $ 14,749 Equity $ 9,339

Sales $ 28,497 Costs of Goods $ 24,948 Gross Profit $ 3,549 Other Costs $ (3,847)Net Income $ (338)

Investment Cash Flow $ (828)

Current Ratio 1.13 Quick Ratio 0.95 Cash Ratio 0.09 Debt Ratio 0.16 Debt-to-Equity Ratio 0.42 Interest Coverage (1.33)

Johnson Controls Financial Position

•2009 recession led to net loss of $338 MM•Reduced investment expenditures resulted in higher cash position. •Investment expenditures typically exceed $1B

Tibet Mineral Development Corp

• Parent holding company of target lithium subsidiary, Shenzhen ZBY Lithium Trading Company

• Holds exclusive mining rights to brine lithium extraction from Zhabuye Salt Lake in Tibet• $954 MM USD market cap

33

OverviewRisk & Reward

Lithium Market

Political Issues

Costs & Currency

Political Issues

Costs/Currenc

y

Risks & Reward

The JV

44The JVOverview

Risk & Reward

Lithium Market

Political Issues

Costs & Currency

Political Issues

Costs/Currenc

y

Risks & Reward

Timing• First mover advantage to secure

dependable lithium supply• Government incentives for green

technologies

Lithium Reserves in China• 3rd largest supply of brine reserves in

the world• Higher processing costs lead to

reliance on lithium imports

Risks to Investing in Tibet• Political & PR risks• Geographic challenges

Foreign Direct Investment in China

• Johnson Controls has China manufacturing facilities and experience operating in country

• FDI would be in form of a Cooperative Joint Venture, which provides limited liability and profits/risks can be established under contract.

55The JVOverview

Risk & Reward

Costs & Currency

Political Issues

Costs/Currenc

y

Risks & Reward

Lithium Market

Supply and Demand•Demand is predicted to rise

• Hybrid electric vehicles• Alloys, pharmaceutical, etc.

•Supply is also predicted to rise• Excess capacity• Higher cost capacity coming back online

•Relatively stable pricesCurrency Risk•Less risk in changing value of the Yuan – pegged to the dollar•Currency value of major producing country currencies can effect lithium price•Balance of payments weighted by market share

• Argentina – above 0 since 2001• Chile – stable around 0 since 2001• Australia – deficit continues

•Downward pressure on prices due to currency valuationsLithium accounts for only ~3% of total battery costs

66The JVOverview

Risk & Reward

Lithium Market

Political Issues

Costs & Currency

Political Issues

Risks & Reward

Risk or Reward Invest Don’t Invest

Secure supply of raw material X

Create low cost incentives for suppliers X

Unpredictable future demand for Hybrid and Electric Vehicles X X

Limited supply of lithium isn’t a large risk as the lithium-ion battery market expands

X

Emerging industry standards and uncertainty that lithium will be the battery input of choice

X

Proportional cost of raw lithium within overall battery manufacturing process is low (3%)

X

Limited lithium price fluctuation and production of other minerals from brines may pose risk

X

Tibet / Chinese political regulations, corruption and instability X

Lack of infrastructure in Tibet X

At this time, Johnson Controls should not invest in Tibet Mineral Company

77The JVOverview

Risk & Reward

Lithium Market

Political Issues

Costs & Currency

Political Issues

Costs/Currenc

y

Lithium Market