meaning that we are consuming the equivalent of 1.75 planets to meet the humanity’s demand...
Accelerate the Transition to the Sustainability Era in the Automotive with the Circular Economy
By Clément Chenut, and co-authored by Benjamin Rebiscoul.
The automotive sector is at the center of the global decarbonization agenda, because it represents one third of greenhouse gas emissions today. That’s why, according to the Capgemini Research Institute, 65% of organizations have a comprehensive sustainability strategy, with electrification as the preferred approach. However, this solution increasingly exposes automakers to sourcing risks due to intensified battery production demands.
What’s at stake for the automotive industry? To meet societal and environmental needs, to anticipate legislation, and to reduce exposure to resource scarcity and sourcing difficulties, manufacturers need to scale up their efforts by introducing circularity into their model. OEMs’ objective should be to embrace the circular economy so as to minimize their raw materials footprint, keeping vehicles and components at their highest value as long as possible (repair, maintain, reuse) and reintroducing them into new product lifecycles when they reach end of use (repurpose, remanufacture, recycle). Implementing these new business models with a holistic approach will help companies to address four main challenges.
1. Build business resiliency with circular products that deliver end-to-end value, relying on a long-term innovation strategy
Automotive players’ obligation to “greenify” their activities through electrification has made their procurement activities much more complex. Mining, material processing, and battery production are covered by very few countries (notably China), with production and supply capacities that fall well short of today’s demand. In addition, automotive is not the only sector that needs raw material such as lithium, cobalt, copper, or nickel – a fact that adds even more stress to sourcing. This situation has resulted in significant price increases: Between the start of 2021 and May 2022, lithium prices rose by a factor of more than seven and cobalt prices more than doubled[1].
Limiting disruption in global supply chains implies deploying circular economy concepts in order to reuse and recycle as high a proportion of these rare elements as possible in the production loop. In fact, circularity can help absorb a significant proportion of metals sourcing costs (by 15% for copper and 102% for nickel in 2021, and by 50% for both lithium and cobalt and 80% for copper by 2030). Automotive companies need to work toward reusing resources and components through repurposing or recycling and can extend EV lifespan through recovery operations (repair, refurbish, retrofit, remanufacture). Only then will circularity be positioned at the heart of the business strategy for long-term resilience, instead of being seen as a tactical move.
Therefore, sustainable product design is the cornerstone for a circular economy strategy that is economically and environmentally viable for OEMs. It depends on vehicles that are fit for purpose through sufficiency, digitalization, durability, modularity, recoverability, or recyclability. As a complement to traditional production techniques, biotechnology is the next frontier for automotive players in material selection and waste management processes, bringing novel enzymes, bio-based materials, and new, tunable products.
Biotechnology can help tackle issues at the two extremes of the lifecycle, overcoming resource scarcity by inventing alternative materials and dealing with pollution (from plastics in particular) through solutions such as biodegradable materials and chemical recycling. This model change will introduce the shift from a volume business to one focused on value, with technology helping to support this transition. For instance, BMW is making a €30bn investment in R&D by 2025 to extend its leadership in resource efficiency from production to the entire vehicle lifecycle, thanks to its I-Vision concept car. I-Vision is designed according to circular economy principles, with the goal of recovering 100% of materials. The Hydrovolt project, Europe’s largest electric vehicle battery recycling plant, is the result of a partnership between Northvolt and Hydro. The plant will have the capacity to process 12,000 tons of batteries a year via a fully automated process recovering up to 95% of battery materials (2030 target: 50% recycled materials used in battery production).
2. Achieve long-term economic value through services that help optimize and preserve value
In order to meet long-term sustainability targets, $50bn of investment over the next five years is required in addition to the current investment in EVs, autonomous vehicles, and digital mobility services. Besides the need to comply with legal and regulatory requirements, expectations about the profitability of sustainable business models are high.
Achieving circularity implies becoming “asset managers” rather than traditional vehicle sellers to make the most of each product put on the market. Consequently, automakers are urged to transform their ecosystems and massively develop the after-use segments, so that they keep fleets/vehicles/components at the highest value for the longest period of time (focusing on long-term usage at the expense of selling large volumes of goods). Better consumer desirability and increased lifespan of products results in more profitable Total Cost of Ownership (TCO) per item. Recent announcements from Renault and Stellantis reveal that both companies have created dedicated subsidiaries or business units to deliver their circular economy ambition. Through a holistic approach that permits implementation of revalorization services (retrofitting, repurposing, remanufacturing, recycling…), each company estimates that it can generate around €2bn revenues by 2030 thanks to circularity.
Mobility services have long been in the spotlight because of their ability to increase revenue per passenger seat and optimize overall vehicle utilization (e.g., Mobility-as-a-Service, Car-as-a-Service). Similar initiatives can be applied at component and battery level to address the electrification challenge. For instance, NIO meets EVs’ need for electricity not by selling batteries but instead by leasing them and replacing them when empty (Battery-as-a-Service). In other words, instead of the customer having to wait for the battery to charge, a full battery is swapped in and NIO charges the empty one.
3. Extend traditional operating models through broader and more local partnership ecosystems
The recovery mechanisms of the circular economy will imply major changes to the supply chain and operations. The challenge is to develop manufacturing chains that can integrate used parts/products and waste in the same way as they need to integrate them into the production process itself, but also complementary capabilities that facilitate vehicle disassembly and recovery. That is the intent of Renault’s Re Factory, the first factory in Europe dedicated to the circular economy and mobility. This project engages a broad ecosystem to offer four main activities (re-trofit, re-energy, re-cycle, re-start); it aims to retrofit more than 45,000 vehicles each year by 2023, reduce turnaround time for secondhand vehicles from entry into stock to resale from 21 to 8 days, and repair 20,000 electrical batteries per year by 2030. Decentralization is key, with local collection points, repair centers, and recycling facilities to decrease transport and supply costs, accelerate operations, and avoid dependencies. It also requires new relationships with partners or competitors, for example to standardize parts, share assets, or merge flows, optimizing operations and reducing costs. The company is part of a new ecosystem, favoring local or regional partners such as Renault for the Mobilize Share program, which relies on more than 400 garages in France to provide maintenance or repair services.
Furthermore, given the complexity of such operations, product design needs to integrate modularity features to facilitate durability, reusability, repairability, and recyclability in order to preserve value over multiple lives (product design can drive up to 80% of a product’s environmental impact over its lifecycle). Standardization is a key driver to facilitate recovery of parts and process automation, and to integrate operations across the industry for each vehicle and component category (with partners or even direct competitors).
Finally, anticipating such profound changes means investing significantly in new capabilities and competences. Attracting and training the right talent will be crucial: not just developers, tech experts, and data scientists, but also software engineers, mechanical engineers, electrochemists, and battery experts. Because the circular economy requires an understanding that goes beyond the traditional borders of our industry, investment will be needed in additional areas: notably in telecoms, mobility, and energy expertise. And, of course, capabilities within sustainability itself will be needed, to better understand the interconnectedness between all the components. For example, General Motors is investing $71m in a new campus to support emerging business opportunities, attract world-class talent, and achieve the company’s sustainability goals.
4. Embrace data management and traceability to empower corporate governance
The introduction of new digital and software applications into manufacturing plants and vehicles has unleashed incredible potential for data collection and processing at every stage of the lifecycle. Companies that break down product lifecycle siloes, merging insights from PLM and LCA tools, will be the ones that achieve end-to-end traceability despite the large number of stakeholders involved in the automotive value chain.
Data can be collected and used at different levels across operations to scale up collection processes for closed-loop supply chains, improve performance tracking, enhance customer services, predict maintenance, or even help forecast future consumer demand. Real-time data collected during usage is also invaluable to anticipate maintenance needs (predictive maintenance) and product obsolescence. Connectivity and data will enable “servitization” – the switch from products to products + services – to achieve its promise to deliver superior value, for longer. Some players, such as Stellantis, are already seizing this opportunity by developing referencing, traceability, and accessibility activities so that returned spare parts can be used to renovate vehicles. As a result, it is possible to save up to 80% on new raw materials, and reduce energy consumption by 50% in the production of refurbished engines. Meanwhile, Volvo is implementing global traceability of cobalt used in its batteries by applying Circulor’s blockchain technology.
The shift to a circular model, including the management of new ecosystems, is complex, and therefore requires strong data governance. With new practices – including transparent access to necessary data by all the members of the value chain – it becomes possible to break down internal siloes across BUs as well as those involving external partners. Monitoring the right KPIs at the right level not only supports reporting to investors and authorities, but also facilitates decision-making. That’s because this type of monitoring makes it possible to measure short-term transformation progress and success with circular initiatives against the long-term vision.
Automotive is entering an exciting time, where embracing the circular economy will accelerate its transition into the sustainability era through greater resilience, economic value, and consumer desirability.
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