Esteemed shareholders:

In the second year of our experience of living with a global pandemic, some of our new habits have become elements of our everyday lives while the world as a whole has had to contend with numerous health-related and economic hardships. Distressingly, according to official figures more than five million people have perished already even as this process continues to unfold. Although vaccines have been able to prevent even greater loss of life, overcoming the pandemic unquestionably depends on global solidarity and on increasing vaccination rates, especially in the world’s less affluent countries, as a way of controlling new viral mutations.

THE IMPACT OF THE PANDEMIC ON THE GLOBAL ECONOMY HAS BEEN FAR-REACHING

As the process of renormalization proceeded in 2021, demand that had been suppressed by lockdowns in most national economies quickly recovered. The result was record-breaking rises in global raw material and commodity prices as supply was unable to keep pace with demand and energy prices soared as well. Problems in the supply of microchips caused particularly serious disruptions in the production of high-tech electronic goods. Although in the early stages of the pandemic there were serious concerns that a second Great Depression might be in the offing, high inflation has now moved to the top of the global economic agenda. While many countries’ monetary authorities–the US Federal Reserve Bank in particular–initially regarded the rise in inflation as “temporary”, by the end of 2021 that view was abandoned and plans to revert to tight-money policies were put into effect.

According to the IMF, the world economy shrank by 3.1% in 2020 and is projected to have grown by 5.9% in 2021. While such a performance would be indicative of a rapid recovery, it would also be the result of low-base effects. Going beyond the numbers however, the observation that the pandemic has deepened existing social and economic inequalities should be a matter of concern to us all. For the first time in some two decades, overall global poverty is on the rise again while the widening income gap among countries is triggering social and political tensions. These inequalities–and the problems they lead to–are the most important risk factors with which we will have to contend in the period ahead.

Once the initial shock of the pandemic had passed, the Turkish economy recovered rapidly and managed to register an overall 1.8% rate of growth in 2020. It sustained this performance into 2021 and achieved a 7.4% growth rate in the third quarter. Exports and–in the first half-year–strong domestic demand contributed much to this positive result and it appears that year-on-year growth overall was on the order of 9%. However a rapidly depreciating Turkish lira and high inflation were the chief issues whose effects we felt deeply during the second half-year.

Although increases in both export and international services earnings had a favorable impact on the country’s balance of payments, surging global commodity and energy prices are at risk of widening the current account deficit.

2021 WAS A CHALLENGING YEAR FOR THE AUTOMOTIVES INDUSTRY

In 2021 the world’s automotives industry suffered seriously from supply-side bottlenecks. Problems with raw materials and logistics, which became even more evident in the second half of the year, were added to in our own country by exchange rate pressures.

The Turkish automotives industry’s total output was down by 2% year-on in 2021 and amounted to around 1,276 thousand units.

The industry’s exports in 2021 were worth around USD 25 billion in value and corresponded to 11% of Turkey’s total export trade. This performance means that the sector once again held onto the leading position in exports that it has commanded for 16 years in a row.

At 737,350 units, total sales of automobile and light commercial vehicles were down by 4.6% year-on in Turkey but this is mainly attributable to problems with product availability. In fact, a closer look reveals that while automobile sales (561,853 units) were down by 7.9%, light commercial vehicle sales (175,497 units) were actually up by 7.9%.

TOFAŞ MAINTAINS ITS STRONG MARKET POSITION

Despite all of these and other problems, Tofaş produced 228,544 vehicles in 2021 while the 112,477 that it shipped abroad accounted for a 12% share of the Turkish automotives industry’s total exports last year.

Tofaş’s 16.9% share of the Turkish market for passenger and light commercial vehicles sustained the market leadership of the Fiat brand for the third year in a row.

The Fiat Egea, whose renewed family and body option offerings went on sale at the beginning of the year, achieved a major success as “Turkey’s most popular automobile” for the sixth year in a row while the Fiat Doblò became “Turkey’s most popular light commercial vehicle”.

Tofaş has been managing the risks arising from pandemic-exacerbated global uncertainties (along with the business opportunities they give rise to) with great success. Our favorable financial results are such as to confirm this as well. Constantly developing its competitive production and advanced R&D competencies, our company will continue to further strengthen its strong position as a member of the Stellantis Group, whose 2021 formation has made it the world’s third biggest automotive manufacturer.

IT IS WITHIN OUR POWER TO BUILD A BETTER FUTURE…

We are advancing confidently into a future whose dynamic processes of digitalization and green transformation will be shaping the course of our business activities. Digitalization has already become the most important factor driving global economic growth and it is now expanding the playing field of competition well beyond the national borders. What’s more, the green transformation process itself, which is becoming increasingly more grounded in specific international commitments, is unfolding along with digitalization. To a significant degree, the innovations that make the green transformation possible are dependent on digital technologies. We need to see these processes as two main streams whose interactions will trigger and accelerate one another. Indeed the EU is erecting its new growth strategy on these dynamics, which it calls the “twin transformation”.

The Koç Group is keeping a close watch on these developments as they continue to play out on international platforms and it acts in recognition of its responsibility to shape the course of change. Having distinguished itself by virtue of its own trailblazing activities and continuing to focus on creating added value as new areas of opportunity open up, Tofaş will continue its efforts to meet the needs of the future through Koç Group’s complementary programs on digital transformation, innovation, agile management, and carbon transformation.

At the same time, we will also remain committed to the conduct of the social responsibility projects that we are undertaking both in light of the needs, expectations, and priorities of our own country and in keeping with UN Sustainable Development Goals. Our century-old values inform our determination to continue working with an awareness that it is always possible to do something better for our country no matter what the circumstances may be.

I extend my sincerest appreciation to all of our stakeholders for the good results our company has achieved thanks to the great dedication of its employees and to the support of its business partners.

Ömer M. Koç
Chairman of the Board of Directors