Driving sustainability through a circular economy

Energy
| The European | 14 July 2021

Electric vehicles may not omit CO2, but they still have a significant environmental impact. Sebastian Peck of InMotion Ventures looks at how the industry is seeking to mitigate this

With the EU pledging to cut CO2 emissions by 55% by 2030, many industries have taken action to contribute to the achievement of this important goal. The automotive industry is no exception and is going through an important transformation to reduce its impact on the environment. The EU emission targets introduced in 2020 have accelerated the industry’s transition to electric vehicles, and consumer adoption in the region is also encouraging, with sales of electric vehicles as a proportion of all car purchases increasing from 3.3% in 2019 to 10.2% in 2020.

Electric vehicles (EVs) are the pinnacle of an entirely new value chain that starts with the extraction of raw materials to produce batteries and generate the energy to power the charging infrastructure, and ends with second-life applications, such as recycling spent batteries, closing the loop. To meet sustainability targets, raw materials need to be sourced responsibly, the energy used needs to come from renewable sources, and recycling should result in the elimination of waste. 

The goal is to achieve full “circularity”. This requires continuous innovation and adaptation of existing products to recover precious resources and eliminate waste, extend product life, make vehicle sharing frictionless, and keep the environmental impact of the automotive industry as low as possible.

Committing to the circular economy doesn’t just help the environment or win “green points” for an automotive brand; it also makes fundamental business sense. By increasing the share of recycled materials used in manufacturing their vehicles, companies can save on cost. Technological advances mean that recycled material often performs just as well as virgin material, but at a significantly reduced outlay. Companies such as Battery Resourcers, a startup that produces cathode materials from recycled batteries that perform just as well as new material but are 35% cheaper, are leading the way. Considering that the cathode accounts for about 45% of the cost of a lithium-ion battery, the commercial potential of such technological advances is clearly apparent.

Consumer preferences are changing, and the environmental impact of a product is becoming an increasingly important driver of purchasing decisions. Manufacturers are therefore well advised to invest in more sustainable production methods and business models to meet this demand. Regulatory compliance is also important, and leading carmakers understand that ™ a strong sustainability track record translates into a real competitive advantage in the marketplace.

As a result of this landscape, five distinct business models have emerged that constitute critical building blocks for a truly circular economy: circular supplies, resource recovery, product life extension, sharing platforms, and “Product-as-a-Service”.

Towards the infinite loop

Circular supplies provide renewable, bio-based, or fully recyclable input material to replace single-lifecycle items in the manufacturing process. Renault was a pioneer in this area, investing early on into “short recycling loops” that bring recycled materials into conformity with the stringent specifications of the automotive industry. Remanufactured parts must pass the same quality control tests as new parts, while being 30-50% less expensive. Renault ultimately aims to implement a “looping the loop” approach to recycling, meaning the process can be repeated almost infinitely for all parts of a vehicle. Supporting this process are supply chain tracing solutions, such as Circulor, that ensure companies can keep track of the recycled components in their products and work systematically towards increasing the amount they recycle.

Two phrases have become in the search for sustainability in the automotive industry: “resource recovery” refers to methods that allow for useful resources or energy to be recovered either from disposed products or as by-products of the manufacturing process; and “waste as a resource”, which is a business model whereby original equipment manufacturers (OEMs) manage complex supply chain systems and adopt advanced technological systems to collect inputs for processing. Today, most major OEMs are committed to remanufacturing, a process that conserves resources and is highly efficient. Daimler, for example, can remanufacture more than 20,000 parts, primarily related to the powertrain but also electronic components such as engine control units.

Data analytics: The key to extending product life

Manufacturers are also developing ways to extend the life of their products by repairing, upgrading, reselling, and using advanced data analytics or predictive maintenance. This has opened up a market for innovative startups such as Acerta, which is using data analytics to detect the distinctive signatures of different types of component failure. By leveraging the possibilities of the connected vehicle, OEMs will be able to provide remote diagnostics to identify faults with auxiliary batteries, key fobs, and select components, as well as trigger a service call to fix the problem. Most OEMs are making significant investments in this area. By detecting potential problems early and fixing them, the typical product lifespan of vehicles (which is already considerable) can be further extended.

An increase in shared mobility 

In large, densely populated cities, private vehicle ownership is decreasing and use of on-demand shared mobility services, selected depending on the specific use, is on the rise. Premium mobility services are the perfect way for young, affluent city dwellers to escape the city, and enjoy considerable popularity in large cities such as London. For short journeys, micromobility services such as Tier and Lime grant access to e-scooters and e-bikes, while public transit agencies and ride-hailing providers cater to medium-distance trips. 

If more people share, fewer vehicles will be needed to travel the same amount of miles. While Covid-19 has severely impacted shared mobility and public transit, providing a short-term boost to private vehicle ownership, the longer-term trend is clearly pointing towards an increase in shared mobility.

One of the most interesting new business models that will have an impact on the environmental performance of EVs is the “Product-as-a-Service” approach. While the basic idea of a product as a service is not at all new, the ability to control an asset such as a vehicle battery through its entire lifecycle creates interesting opportunities for OEMs to monetise a variety of use cases outside their core business – such as the use of second-life batteries in energy storage solutions for renewable energy – and to pursue an end-of-life strategy that maximises value through recycling and reuse of the different battery components.

Until recently, OEMs have held significant provisions on their balance sheet for the disposal of batteries. The Product-as-a-Service model turns batteries from a liability into an asset, allowing OEMs to extract value not only from a battery’s first life inside an EV, but also from its second- and third-life use cases in energy storage before they come to be recycled. 

As this market develops, the ability to finance a battery through its entire lifecycle will grow so that OEMs do not have to tie up precious capital when maximising the value that can be obtained from a battery. Once the financial services industry has caught on to this, consumers should benefit in the form of lower EV sticker prices. The efforts of the automotive industry to contribute towards a reduction of emissions and a more sustainable use of resources has resulted in several new – and at times surprising – business models. These are changing the economic equation for electric vehicles, and reducing the environmental impact of OEMs. 

While electric vehicles do not generate tailpipe emissions, they undoubtedly have a significant environmental impact that the industry is trying to mitigate through the development of the circular economy and the promotion of renewable energy. Technological innovation, operational efficiencies, and viable economics are combining to improve the industry’s sustainability record and compliance with ambitious climate policy targets.

Further information  

www.inmotionventures.com

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