Fri, 02/17/2023
- Several automakers, including Renault (France), Stellantis (Netherlands) and Volkswagen (Germany), are trying to develop circular economy in vehicle production, allowing them to reuse materials and resources to reduce waste.
- Despite these steps, circularity in the automotive industry is currently still low as most automakers lack a defined process for recycling materials. The European Commission is currently reviewing its targets for End of Life Vehicles (ELVs) and aims to present its proposal in 2023.
- However, a successful transition to circularity will not only depend on regulations, but also on automakers’ ability to make recycling profitable.
The circular economy was one of the agenda items at the recent United Nations Climate Change Conference (COP27), which took place in November. However, apart from some small funding for projects related to the circular economy in Spain, nothing constructive was found at the climate conference. A missed opportunity for an automotive industry burdened with high costs. While reducing waste is the key goal of a circular economy, it would also allow companies to reduce costs, reduce the uncertainty associated with securing raw materials and comply with emissions regulations. After all, recycling should be profitable.
Transition to a circular value chain
This is not the case yet, as most recycling efforts are largely driven by regulations. European car manufacturers are already required to comply with the European Commission’s end-of-life vehicle directive, which sets targets for the recyclability, reusability and recoverability of motor vehicles and their components. The current directive requires at least 85% reuse and recycling and at least 95% reuse and recoverability for light vehicles. The Commission is reviewing the directive and is expected to come up with a proposal in 2023.
Japan and South Korea have had similar vehicle recycling laws for more than 15 years. Meanwhile, India also introduced a similar framework for scrapping end-of-life vehicles in August 2021. There is no federal law on end-of-life vehicles in the United States, but several state governments have laws and requirements for vehicle recycling.
Stakeholders want this legislation to go further and move the automotive industry away from an “open loop” recycling policy (allowing materials to be turned into other products) towards a “closed loop” policy (where materials are turned into a new version of the original product). They argue that closed loop recycling processes and life cycle optimization are required to achieve a fully circular economy in automotive production. It would also reduce uncertainties around sourcing raw materials and help control costs.
Renault spins off its circular economy business
Automakers are taking voluntary steps in this direction. In November, Renault announced it would split its business into five entities, which will focus on electric vehicles (EVs) and software, low-emission fossil fuel vehicles, motorsport, financial services and the circular economy. The last of these, entitled “The Future is NEUTRAL”, aims to achieve a closed loop over the entire vehicle lifecycle, starting with the procurement of raw materials, through production and use, to scrapping. By 2030, automobile production is to become CO2-negative.
Currently, only about 30% of vehicle materials are recycled for new vehicles – mainly through metal scrapping and battery repairs for ELV, but Renault claims about 85% could be recycled. Renault has three subsidiaries – Gaia, Indra and Boone Comenor – that are part of its Refactory circular economy factory in Flins, France. The new addition to this factory will be a closed circuit battery recycling plant. In November 2021, the company opened another circular economy factory in Spain with a planned rollout between 2022 and 2024. It also plans to launch similar projects in Turkey, South America and Portugal.
Automakers set material recycling targets
Stellantis (Netherlands) has also announced plans to launch its circular economy business unit, aiming to become carbon neutral by 2038. The company aims to generate sales of around 2 billion with the unit by 2023. In September, the company unveiled its Citroën oli concept electric vehicle, which is made from recycled material and is recyclable at the end of its life. Meanwhile, according to its 2021 Sustainability Report, Volkswagen aims to set clear targets and indicators as part of its circular economy strategy.
Ford has set an interim target of using 20% recycled and renewable plastics in new vehicle designs at its plants in North America and Europe by 2025, and a target of 10% for its plants in China and Turkey. Ford also uses a closed-loop system to manufacture its F-Series trucks and is the world’s largest closed-loop automaker for aluminum recycling, according to its 2022 Sustainability Report.
The government’s push will play a key role
Despite these initiatives, companies are far from achieving a closed-loop recycling system for their vehicle production. Most of their initiatives are limited to Europe, where both national and regional governments have strict goals. However, to achieve a full shift to circular economy, automakers need to be driven not only by regulations, but also by the potential to develop more efficient – potentially even profitable – recycling business models.
The analyzes and forecasts presented in this article can be found in the IM’s Country Analysis Service. This integrated solution provides unmatched global insight into the political and economic outlook of nearly 200 countries, helping companies identify potential opportunities and potential threats.
Fri, 02/17/2023Article keywords automotiveclimate changesustainabilityglobalcountry analysis
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