Driving Circular Automotive Transformation: A time to reimagine
The necessary transition towards a low-carbon and circular economy is already underway in the automotive sector, but do we have what it takes to deliver a real and lasting impact? In part one of a two-part feature, Mike Townsend explores how incumbents and market disruptors are developing different models towards a brave, new net-zero and circular world. What shape will the future take, and who will be the winners in this essential quest?
By the end of this decade, the automotive sector will have changed beyond all recognition.
A major transformation, involving a number of fundamental shifts, is already underway: the acceleration towards EVs, connected cars and autonomous driving, new mobility business models, racing towards the net-zero challenge, as well as embracing the circular economy revolution. New platforms and technologies are emerging in support: It’s all kicking off, everywhere!
The combined effect of these market shifts will have a profound impact for all actors in the value chain, generating many new risks, along with exciting new opportunities. For many incumbents, there are some important choices on the horizon: do we drive the future, or does the future drive us? Do we invest and disrupt, or wait to be disrupted?
While EVs are going mainstream – global sales hit the all-important 10% tipping point last year, with the further promise that sales could quadruple by 2030 – EVs don’t present us with a single, silver bullet for climate action. As Hans Pehrson, Head of the ‘Polestar 0’ project explains, “By producing EVs, you eliminate the tailpipe emissions. But emissions exist in the value chain of almost everything we have. Virtually every process we use to create and maintain the society we have today emits CO2.”
So, while EVs can be great for enabling major reductions in lifecycle emissions – depending on the level of renewable electricity in any specific region – we still need to find strategies to deal with the embodied carbon emissions, associated with resource extraction, processing, logistics and manufacturing of new vehicles. Embodied emissions could represent around 80% of total lifecycle emissions for EVs.
This is where the circular economy comes in.
The future is circular!
Going circular, arguably, provides the most powerful, single vehicle for delivering radical reductions in carbon emissions we have: offering a huge potential contribution towards radical climate action.
The circular economy goes way beyond recycling: by keeping assets, products and components at their highest level of use, for multiple useful lives, we could enable up to 50% of our emissions-reduction targets.
The emphasis on reuse over recycling is an important point, because every time a product is downcycled into base resources, the result is a significant loss in the potential for savings in embodied carbon emissions, along with an attendant loss in asset utility and value.
For example, each time a customer buys a used car door, they can enable double the embodied emissions savings, compared with a recycling option. Downcycling the door also leads to a reduction in asset value by 98.6%, in comparison with the selling price of a reused car door.
Of course, this makes practical sense; crushing products into base resources is bound to result in a major loss of utility and value.
So, it’s hard to imagine how any serious player in the automotive industry could hope to deliver net-zero emissions without fully embracing the circular economy.
Mind the circularity gap
Yet, despite the pressing need and the huge opportunity, there is a major gap in uptake and progress in delivering the circular transformation.
According to the Circularity Gap Report 2023, our global economy is still only on average 7.2% circular – and on a downward trend – revealing a massive opportunity gap that has yet to be exploited in our efforts to resolve the climate crisis, de-risk business models and generate long-term value.
The situation is no better in the automotive value chain. The current emphasis appears to be on recycling of end-of-life vehicles – in line with EU regulations which require at least 85% recyclable and 95% recoverable vehicles by weight – and then using around 30-40% recycled content in the manufacture of new vehicles.
The opportunity for reused and refurbished parts and components remains largely untapped. A recent study commissioned by eBay found that only 6.6% of end-of-life vehicle weight is currently harvested as parts for re-use, refurbishment and remanufacturing.
The drive towards full product circularity – in terms of circular design for disassembly and re-use – is only just starting to filter though in the automotive mainstream: with some big moves over the last 18 months, we’re at last starting to see some tangible circular strategies and action plans emerging.
As ever, there are a few leading lights, pushing the boundaries of possibility; companies including Groupe Renault, PSA and others are all making major circular commitments, and following through with genuinely exciting plans, initiatives and new investments.
BMW also appears to be on the right road. As Dr. Thomas Becker — their VP for Sustainability and Mobility — asserts, “We will not get on a Paris-compliant pathway just by replacing energy in primary consumption. The circular economy is absolutely necessary for companies with climate targets that cover the supply chain, as ours do.”
BMW is now aiming to integrate 50% reused and recycled content into new vehicle production by 2030 — a major contribution to its emissions-reduction programme. It will be interesting to see what emphasis BMW places on genuine reuse versus downcycling.
Toyota is also doing some interesting work with its new ‘Kinto’ proposition – an interesting new model for extending the life of existing vehicles — through upgrading (new technology) and remodelling (refurbishing) vehicles, while also maintaining longer-term customer relationships.
In theory, if this works, Toyota might wind-up selling less new cars – presenting a real business model transition challenge – yet, they should also save a whole load of embodied emissions and resources associated with new vehicle manufacturing. All players will encounter this fundamental challenge, sooner or later – requiring much new thinking and commercial innovation. More of this, another time.
Innovations in supply
Circular economy aspirations from the big vehicle manufacturers are all well and good, but we also have to consider the supply side of an emerging circular automotive industry. There’s an obvious focus on designing new parts for circularity, but we should also be mindful about keeping existing parts in-the-loop.
Many salvage companies have been driving the agenda for re-used and refurbished parts for decades, and have established solid reputations for harvesting a good range of quality parts for reuse and remanufacture. But, they will now need to step-up and reach new levels of circular innovation.
eBay UK has also played an important role as an ‘aggregator’ in closing the circular resource gap – scaling up the sale of reused and refurbished automotive parts through its Recommerce model.
eBay UK sells just under one million used and refurbished vehicle parts, each year through its B2B platform – helping to improve the sustainability impacts for millions of customers, by avoiding thousands of tonnes of embedded carbon emissions associated with the production and consumption of new vehicle parts. In 2020, eBay UK enabled 4,510 tonnes of parts to be kept in use, delivering a net saving of 29,000 tonnes of CO2e.
This level of performance is great, as far as it goes, but it’s not the final destination: delivering the full potential for a circular automotive industry will take many more steps, not least in working through what happens next, after reused parts are sold into the market: Do we have a cunning plan to bring them back into our closed-loop, again, or will they disappear from view? If parts are ‘out of sight, out of mind’, we leave the potential for further circular reuse and remanufacturing, completely to chance. And that, quite frankly, is not going to be enough in the era of climate crisis.
The necessary drive for greater circularity will itself push the development of value chain infrastructure to enable the capture and total management of all parts and resources for re-use and recycling – ensuring all resources are returned back into the automotive value chain, rather than becoming lost into global commodity markets.
We are at an important crossroads, with an important opportunity to go much further in developing a single, integrated circular automotive value chain. But the industry needs more vision, strategy and concerted action to bring about a new circular and low carbon reality.
A time to reimagine?
While going circular is a seemingly straight forward and attractive idea, everything changes. Taking this road, we set off a chain reaction through the value chain.
We take on a very different role in business; we become asset custodians, seeking to preserve utility and value; we establish a completely new relationship with the customer, no longer just short-term and transactional; we drive new innovations in product design, materials and sourcing; we develop new business processes and infrastructure; and a profoundly different business model. Everything changes.
Of course, change is never easy, and so progress is way too slow.
At present, we can observe two different worlds, not really coming together. On one side, the shiny world of vehicle manufacturers pumping out new cars, with some recycled content; on the other side, the earnest endeavour of vehicle recyclers, harvesting used parts, as best they can within current demand patterns and available technologies and demand, but mainly relying on downcycling to sell base resources into commodity markets, or for further processing by others.
A more strategic approach to net-zero would involve bending the entire value chain into a genuinely more circular shape – bringing these two different worlds together – engaging all actors, including progressive vehicle recyclers, manufacturers and remanufacturers, co-creating more circular, closed loops; delivering net-zero emissions, along with massive resource savings. As industry actors start embracing this level of change, we can start to wonder, just how circular can we get?
Of course, building the circular automotive value chain will necessarily involve new partnerships and collaborations.
Back to Hans Pehrson at Polestar, who considers that “collaboration is needed way beyond normal business-to-business relationships.” He’s right: We’ll need strategic collaboration right through the value chain; built around new sourcing strategies, new closed-loop infrastructure, as well as long-term planning and investment.
Effectively, we need a new industry ecosystem, possibly engaging – as Pehrson elaborates – “A mix of start-ups, universities and big multinationals are really needed and they are needed together.” Pehrson describes value chains as less like straight lines and more like a “huge spider web” of interactions. Perhaps, we should be thinking in terms of a networked economy, rather than a purely circular model?
This level of change will require a two-way dialogue of radical innovation, both up and down the value chain, to redesign a new, integrated net-zero circular value chain and infrastructure. The question is, who will lead the circular automotive transformation? We’ll explore the emerging leaders, along with two very different future-oriented models for circular automotive transformation in Part 2: The next generation.