According to the Ellen MacArthur Foundation1, “the automobile industry lends itself to the Circular Economy, as it requires a large quantity of high value components and materials. Vehicles are built to last and designed for easy repair. That is why it is also the perfect product for reuse, remanufacturing and recycling throughout multiple use cycles”. Indeed, the automobile sector is a heavy consumer of natural resources and is responsible for approximately 80% of all rubber consumption, 25% of all aluminum and 15% of all steel consumption2. On average, cars contain 1.4 tonnes of material. Because of this heavy consumption of natural resources and since the potential of circularity is high, the automobile industry and its value chain have been identified by the EU Circular Economy Action Plan in March 2020 as a key sector to put in place Circular Economy strategies. As part of the plan, the European Commission will amend the rules on end-of life vehicle to foster more circular business models and on eco-design to better integrate end-of life treatment. It is also considering rules on mandatory recycled content for materials and components and will require recycling efficiency to improve.
The European Union has long regulated the use of resources by automobile manufacturers. In 2000, the directive on End-of Life Vehicles3 (which is currently being reviewed) aimed at reducing the waste arising from end-of-life vehicles and achieving reuse, recycling and recovery targets. Another piece of European legislation4 - specifically on reusability, recyclability and recoverability - states that new vehicles may only be sold if they can be reused and/or recycled to a minimum of 85% by mass or reused and/or recovered to a minimum of 95% by mass. These two European directives explain to a large extent why the industry has embraced the principles of the Circular Economy - reduce, reuse and recycle - since the 2000’s.
Another important incentive for the automobile industry to adopt the Circular Economy business models is the climate emergency. To limit global warming to 1.5° C, the industry needs to reduce its carbon emissions by around 50% in absolute carbon emissions by 20305. A number of Original Equipment Manufacturers (OEMs) in our panel have set targets to become carbon neutral.
The room for improvement is quite big and requires rethinking the production process. Indeed, currently, 20% of the industry GHG emissions are directly attributable to manufacturing. A McKinsey & Co6 analysis forecasts that 60% of the total automobile lifecycle emissions will be attributable to materials and manufacturing in 2040. This is mainly due to the considerable carbon footprint of electric vehicle batteries that are fast developing. The remaining 40% will result from logistics, disposal and use7. In other words, the industry will have to significantly reduce its impact during the manufacturing phase. Both circularity and electrification will be necessary to the sector’s decarbonisation but electrification will make circularity even more important for the industry - the industry will need to find new market opportunities once batteries are used.
Across the value chain and as shows figure 12, circularity covers for instance the sourcing of recycled and reusable products, the eco-design, the extension of product life (repair and remanufacturing), the setting up of material closed-loops and the end-of-life of vehicles. Circularity also implies the development of car sharing capacities. For electric vehicles, this also means offering a second life for batteries – which contain precious metals – for storing renewable energy for instance.
The Circular Economy model can reduce manufacturing costs (commodity prices can be very volatile), strengthen customer loyalty and increase operational efficiency. For example, collaboration with suppliers for sustainable raw material management, efficient “waste” management and product life extension should help the OEMs stay ahead of ever more stringent regulation and customer expectations.