- Accenture research shows that circular economy approaches, next to electrification, are an essential piece of the puzzle in efforts to align automotive mobility with a 1.5-degree scenario by reducing lifecycle carbon emissions per passenger km by up to 75% by 2030.
- Realignment around common circularity language can jointly drive transformative solutions for the automotive industry.
- Circular economy solutions are part of four strategic pathways: decarbonising energy usage, establishing circular material flows, extending and optimising product lifetime and improving capacity utilisation during vehicle usage.
The automotive industry is dramatically overshooting its estimated carbon and resource budgets. At the same time, car-based mobility is set to grow globally by around 70% by 2030 (both in terms of passenger kilometres and predicted vehicle stock in a business-as-usual use scenario). These changes are happening at a time when estimations show that emissions need to decrease by around 50% by 2030 to limit global warming to 1.5°C over pre-industrial levels.
Manufacturers such as Renault, Volvo, PSA, Daimler, BMW and Volkswagen have already set ambitious targets towards carbon neutrality and aligned their business strategies with an ever-accelerating push for electrifying their product portfolios.
As we move towards a tipping point for electric vehicle adoption, it becomes clear that it will take more than phasing out the combustion engine to drastically reduce carbon emissions. It will be critical to leverage circular economy strategies for transforming products, as well as the way those products are used.
Slowly but surely, we are witnessing a shift away from traditional business models focused on production and sales. Original equipment manufacturers are heavily investing in electrification, closing material loops, and developing new service offerings and mobility solutions. As they do, investors and regulators are pushing to go further.
Cars are increasingly bought online and flexibly subscribed to for shorter time periods, revenue streams are shifting towards the use phase and the drive towards circularity is slowly picking up speed. Already most automotive materials are recyclable. More and more, cars are built to last and to be repaired. These are all important aspects of circularity. But more work will be necessary. The value chain needs to be fundamentally reimagined to minimise lifetime carbon emissions and resource consumption.
This is a long-term transformation which all ecosystem players must address together. A meaningful transition will require players along the automotive value chain to establish a common language. As such, Accenture recently conducted a study, together with 40 companies along the automobility value chain, developing a taxonomy with five levels of circularity based on two primary measures – carbon and resource efficiency – to evaluate and improve the circularity of cars.
To move from ambition to reality, as the graphic shows, there are four main transformation pathways to increase circularity and progress through each of the five levels. Our research shows that these strategies have the potential to reduce carbon emissions by up to 75% and non-circular resource consumption by up to 80% per passenger kilometre for a battery electric vehicle by 2030, compared to a combustion engine vehicle of 2020.
The path ahead is not without peril for the industry. Sales might fluctuate as a “new normal” relying on higher use and extended lifetimes for vehicles starts taking hold. However, increased mobility demand, shorter replacement cycles and service-based business models have the potential to fill that gap in revenues.
Such changes won’t come overnight, either. Operationalising circularity solutions will be challenging, because its elements are so closely intertwined. Often it is not worth pursuing individual solutions as they require the implementation of a set of solutions across the value chain to achieve environmental impact or to create business value.
Still, some players are already taking first steps into a new circular direction. For instance, one initiative, launched and supported by Nexus Automotive International, is representing a unique and ambitious challenge to actively prepare a global and sustainable automotive aftermarket transition.
“The current aftersales business is facing challenging times, as the world transitions to electric vehicles and usage-based ownership,” says Thierry Mugnier, Executive Director, Chief Financial & Innovation Officer for Nexus Automotive International. “But this does not have to be the case – in our role as a distribution and innovation platform, we are working closely with our customers to assess and identify new sustainable business models, such as a ‘green workshop’ concept where mobility and circularity would help bring forth a new eco-system.”
Additionally, Renault has announced that it plans to phase out new vehicle production at its oldest manufacturing plant in Flins near Paris. Instead, the factory will be transformed into a “circularity ecosystem” putting into practice circular economy principles at each stage of the vehicle life cycle.
“Renault has long been dedicated to make its business model more circular,” said Jean-Philippe Hermine, Vice-President, Strategic Environmental Planning at Renault. “Extending vehicle lifetime, providing a second life for parts and recycling as well as new innovations will be at the core of these activities. With the re-factory, we are also reaffirming our industrial footprint in France and are working with our unions to maintain the jobs that were originally dedicated to car manufacturing.”
Thanks to telematics, companies such as Sixt can operate one fleet to fulfill a range of uses, from car sharing and rental to subscription services, to better develop concepts for mobility services and contribute to the fight against climate change. Nico Gabriel, President Mobility Operations at Sixt, says such solutions make “usership for our customers flexible and enables us to manage the car better than ever, to offer the right service at the right time and location.”
While such efforts are key, still more must be done. Our key recommendations to the sector are to:
- Align around a common framework for guiding and measuring progress towards circularity. This framework should raise industry ambition from merely “doing less harm” to building a truly sustainable global economy.
- Realign the profit motive for the automobility ecosystem away from selling products towards selling mobility and other services. (With this move, incentives for circularity will more easily fall into place).
- Create data standards, reporting frameworks and transparency measures that foster circularity in vehicle design development, life-cycle management and end-of-life processing.
- Start piloting radical solutions now and target to leapfrog existing product development cycles.
- Secure policy support for systemic transformation.
Such changes will be necessary to sidestep an unfortunate reality. If the industry remains in a business-as-usual scenario, the cost of mobility will remain high and environmental impacts will be further exacerbated with the increased uptake of vehicles globally. The resulting world would be embroiled in a climate crisis suffering from increasingly constrained resources. Merely scaling the current amount of wastage is not an option. Fortunately, circularity makes strong business sense and circularity can be achieved through innovation, competition and better collaboration and coordination.
“The automotive industry has already achieved a lot over the last decades in making cars more resource and energy efficient,” added Hermine, “but there is still more to do to provide to each and every citizen of the world access to effective and truly sustainable, climate- and resource-friendly mobility solutions. The circular economy will have an essential role to play in addressing this challenge.”
Together, we need to raise our ambitions on circularity and build a new automobility ecosystem that seeks not merely to do less harm but rather to enable new sustainable opportunities.
Research cited in this blog was presented in the report Raising Ambitions: A new roadmap for the circular automotive economy by Accenture Strategy and the World Economic Forum, the second of overall three reports on circularity in the automotive industry. This research was developed in collaboration between the World Economic Forum, the World Business Council for Sustainable Development (WBCSD), McKinsey & Co. and Accenture Strategy.
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