Circular economy in automotive – the sustainable key to a profitable future

For the last 125 years, the Automotive Industry has operated within a ‘Linear Economy’ however, such ways of working are unsustainable by default, with the materials extracted, used, and generally disposed of at end of life. Transitioning from these models presents significant challenges, including large upfront investments and costs of change.

The future of the industry is built around a ‘Circular Economy’ where materials are re-used, products are shared and components reclaimed at end of life. Our recent paper Removing the Finish Line, articulates how this will reinvigorate the Automotive Industry across three core phases of a vehicle’s lifecycle: ‘Pre Use’, ‘Use’ and ‘Post Use’.

Below, we explore real life examples to demonstrate how by embracing circularity at each phase of the lifecycle, organisations can uncover new profit opportunities and gain a competitive edge in the market.

Pre-Use Phase – Design for Circularity

Circularity is born in the Pre-Use phase. To set the foundations to unlock circular opportunities throughout the value chain, products and services must be designed with circularity in mind.

Be modular in design

Designing for circularity acts as a core enabler for the subsequent phases of a vehicle’s life. Practices such as modular vehicle design and standardising components across products, achieves lower production costs and increased maintenance efficiency. It is estimated that through modular vehicle design, businesses can increase workshop profit by 1.5-4 times^[1] and by 2–5 times in end-of-life recycling^[1].

Speculative Production to ‘Built-to-Order’

Most business models involve speculative production, essentially estimating what the demand may be for a product (and – when they get it wrong – generating huge amounts of waste). Using digital technologies and AI to predict demand and customisation preferences more effectively can help, however, ultimately the most optimal way to reduce waste and production costs is by moving to a build-to-order system.

Circular economy principles during the Pre-Use phase do more than save money and reduce waste – they set the ball in motion for the entirety of a vehicle’s lifecycle.

The Use Phase – Maximise and Extend

Within the Use phase there are two key areas that present huge opportunity to OEMs and Mobility providers: maximise vehicle use and extend vehicle lifespan.

Maximise vehicle use

Currently, the UK has 33.2 million vehicles on its roads, yet the estimated use of these vehicles is only 1.5% of the time^[2]. There is significant opportunity to generate more revenue from the vehicles we already have, as opposed to making more.

‘As-a-service’ models can increase vehicle profitability by 15 times, over its lifetime^[1]. Short-term access to vehicles when needed makes mobility more affordable and generates greater revenues. Many OEMs including Volkswagen and Toyota have already made progress in this space, aiming to tap into the estimated £600bn opportunity in the Mobility-as-a-Service industry^[3].

There is also opportunity much closer to the customer. Circularity embodies the principle of the sharing economy and Customer-to-Customer car sharing can unlock huge financial potential. Innovative organisations, such as Turo, enable customers to earn over £400 per month by sharing idle cars. It’s estimated that for every one car shared, eight are taken off the road^[4], highlighting not only the economical but environmental benefit of such services.

Extension of vehicle lifespan

Maximising vehicle utilisation is only part of the solution; extending vehicle life is crucial. Digital solutions play a key role in achieving these goals. Services such as predictive maintenance proactively identify and predict faults, enabling companies to accurately forecast demand for parts and significantly enhance customer experience.

Life extension can also be achieved later in a vehicle’s lifetime and Renault’s Re-Factory is a leading example of this. Here Renault uses practices such as converting vehicles to emit less carbon emissions, as well as employing 3D printing services to generate rare parts onsite. Such initiatives make huge supply chain savings, whilst also reducing Renault’s impact on the environment.

The Post-Use Phase – Retaining value

The Post-Use phase plays a vital role to ensure economic benefit, materials and resources are retained back into the value chain. Here, organisations can benefit across three key areas:

Redefining waste to be the new primary resource

Traditional mining and material extraction activities can take a toll on the environment as well as impacting local communities. Raw materials are finite and being depleted rapidly. To combat this, we must shift our perspective on waste and embrace it as a new primary resource.

Reusing materials already in circulation offers significant benefits, such as accounting for these materials in future production cycles, minimising net losses. Moreover, supply chain security can be enhanced, reducing dependence on vulnerable raw material sources which can be affected by geopolitical issues.

Companies like Redwood Materials are doing just that for batteries by creating a closed-loop supply chain. They claim to be able to recover, on average, 95% of key battery elements^[5]. These recovered elements can then be supplied back into battery manufacturing.

Simplification for customers and recycling firms

To encourage a circular economy, we must make it easy for customers to responsibly dispose of their end-of-life products. An excellent example of this is Tee Mill in the clothing industry. Their sustainable supply chain includes easy-to-recycle designs and QR codes on clothing labels for hassle-free returns.

Within the automotive sector, fostering collaboration between designers, engineers, and recycling experts can lead to better product designs, which facilitates efficient, high-yield material separation and recovery processes during the end-of-life stage.

Building on the success of existing re-use processes

While achieving full circularity may seem daunting, we can draw inspiration from existing re-use processes that have been successfully implemented for decades. Re-manufacturing of vehicle components, for instance, has proven to reduce costs by 30 to 50%^[2]. Additionally, the re-manufacturing of vehicle engines also results in a remarkable 73% to 87% reduction in CO2 emissions^[2] compared to conventional manufacturing processes.

Summary – it’s time to close the loop

Responsibility to achieve circularity spans across the whole organisation and does not sit with any single department, function, or job role. Embracing the circular economy aligns a business with its environmental responsibility and paves the way for increased profitability across all phases of a vehicle’s lifecycle. To unlock its full potential, we believe there are six key focus areas:

Capgemini helps organisations unlock the potential of the circular economy. The first step for many is a Circularity Lifecycle Assessment, uncovering the opportunity within your business to make a sustainable and profitable transition. To find out more please reach out via the contact details below.

References:

[1] https://www3.weforum.org/docs/WEF_Driving_Ambitions-2022.pdf
[2] https://www.capgemini.com/insights/research-library/removing-the-finish-line/
[3] https://www.mordorintelligence.com/industry-reports/mobility-as-a-service-market
[4] https://www.capgemini.com/se-en/insights/research-library/the-sustainability-impact-of-car-sharing-2020/
[5] https://www.redwoodmaterials.com/solutions/