Drive to circularity

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Robot assembly line with electric car battery resized

The automotive sector continues to go through huge transformation. In recent years the focus has very much been on the rise and impact of electric vehicles, alongside the push towards autonomous driving and increased connectivity. But added to these two great drivers is a crucial third element, namely the need to make the industry more sustainable and circular.

This drive towards sustainability is by no means a passing phase. In part, it is being driven by increased regulation around sustainability reporting, and crucially, by investors and financial markets which want to see companies make clear commitments to their Environmental, Social, and Governance (ESG) targets. In short, both regulators and investors are pushing the industry to go much further and faster.

Many automotive players have already taken the issue into their own hands, starting out on the journey of transforming their operations in line with circular principles. Examples include Renault’s plans for a factory near Paris, completely dedicated to improving vehicle material use and reuse, and BMW’s plans to build the world’s greenest car using circularity principles.

Start of the journey

At a system level the utilisation of vehicles is highly inefficient, as European cars are parked for approximately 92% of the day

However, the industry has a long way to go. One report¹ from the World Economic Forum (WEF) says the sector is still not on track to “effectively implement the circular economy levers”. It says that at a system level the utilisation of vehicles is highly inefficient, as European cars are parked for approximately 92% of the day and, on average, carry only 1.6 people. The report highlights that higher value-retention processes for materials and components remain underutilised, while reuse, remanufacturing, and recycling systems lack scale.

The report also adds that the onus on this shift towards circularity doesn’t just fall on manufacturers. For instance, insurance companies could reward the use of sustainable vehicle parts with lower insurance premiums, while financial institutions could support the wider industrialisation of circular business models.

Finance

Given the growing regulatory environment around circularity, all OEMs and large suppliers are rethinking their value chains to ensure that their upstream processes are as green as possible, while ensuring that secondary materials are increasingly used.

Meanwhile, from a financing perspective, it is also becoming more and more difficult for companies to actually access finance if they do not have sufficiently green credentials. Companies are therefore increasingly aligning their work around circularity with the UN’s Sustainable Development Goals (SDGs), a call for all countries to tackle the global challenges faced by humanity. The SDGs cover a wide range of challenges and the goals include tackling poverty, inequality, climate change and environmental degradation, as well as promoting prosperity, peace and justice.

1 Paving the Way: EU policy action for automotive circularity (World Economic Forum)
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