Environmentalists have hailed the Biden administration’s $174 billion commitment to electric cars as a significant step towards a clean future and one that will position the U.S. to be a leader in the EV market.
Electric vehicles (EV) are on every mind as automotive manufacturers race to meet their emissions reduction targets and protect their business from climate-related risks. Furthermore, increasing governmental regulations and environmental laws, like the ban on fossil-fuel vehicles by 2035 in California, force automotive companies to restructure their product portfolio towards more sustainable alternatives. The European Union has announced that 30 million zero-emission vehicles would run on European roads by 2030.
There is little time to be lost, and manufacturers must consider the complete life cycle of their products to achieve the ideal net zero target and to comply with new environmental regulations. But they cannot achieve that without focusing on their supply chains. According to WEF, eight supply chains currently account for more than 50% of global emissions, including automotive. These supply chain emissions are 11.4 times higher than Scope 1 emissions, but if reduced, then they can save $33.7 billion in return.
What Are the Biggest Roadblocks for Automakers?
In a recent blog, Sphera Sustainability experts Dr. Michael Faltenbacher and Christoph Koffler laid out the “11 Trends Toward the Electric Mobility Future.” They talk at length about supply chain challenges that constitute the biggest roadblocks for automakers to achieve their ambitious Sustainability targets. It is a concern for traditional automotive manufacturers that use around 2,500 components during manufacturing and assembly, but it is equally a concern for electric vehicle manufacturers. The manufacturing process involves higher carbon emissions since they use many hot-spot materials, such as aluminum and steel, or battery and electric components.
Electric vehicles (EV) will continue to see a massive upsurge in sales worldwide. The stringent CO2 emissions targets have had carmakers racing to reorganize their processes and supply chain systems. The focus on the latter will significantly help in the reduction of the overall emissions. Meeting those targets will lead to several economic stimulus measures, including a boost from subsidies.
The new regulations and Sustainability goals will affect the pricing of components—the higher the emissions during manufacturing, the higher the various pricing mechanisms for each part. Original equipment manufacturers that are unable to compete in the sustainability of their components will pay the price. Suppliers that show weak Sustainability performance will lose business and be phased out. The pressure is on suppliers of electric vehicles that run on renewables, too, perhaps even more since they have a low emission use phase.
For active material and cell production, switching from gas-powered processes to low-carbon electricity, biogas or hydrogen can significantly reduce emissions. Based on 2030 emissions targets, process electrification could have a cost advantage compared to biogas- or hydrogen-based pathways. Electrifying processes could save money as the price of green electricity declines.
How to Overcome These Roadblocks and Lower Emissions Throughout the Product Life Cycle?
Transparency and changes
Transparency on the most efficient methods of decarbonizing materials and the costs involved is the first step toward lowering material emissions. In the sphere of automobile supply chains, this means structural changes and significant investments of time and resources. Transparency on the emissions embedded in a manufacturer’s upstream activities is of utmost importance.
Innovation and improvement
Continuous improvement and innovation will underlie the future of the automotive industry and integrating suppliers early into the process is imperative to achieve that. It will lead to proper collaboration and prevent unnecessary delays in the provision of components.
Collaborative partnering and developing innovation networks will reduce the cost of development significantly. Partnering is a viable option, especially in areas that require large investments.
Revisit the supply chain management process
There is a need to reinvent the auto value chain radically. EV-producing companies need to examine the supply chain of raw materials necessary for building EVs and work with their suppliers throughout the development process. They need to incorporate carbon targets alongside established industry metrics such as cost and performance.
Other important considerations
- Reduce the dependency on key elements, such as cobalt, copper, lithium, nickel, platinum and rare earth elements. Continue to monitor supply risk analysis, including the examination of political and regulatory risks.
- Prepare for a situation when supply risk may lead to an actual supply shortage. Are there substitutes? What are the costs to build EVs with those substitutes?
- Consider the social and ecological aspects of raw material sourcing into consideration like working conditions in the mines, human rights issues and environmental aspects.
We can continue to list viable and complex options to reach emission targets, but this deep transformation will be impossible without a rapidly evolving policy conversation. Climate policymakers must define mitigation and adaptation better. There needs to be clarity on mining for the key elements and how emerging technology and recycling can reduce the material demand and dependency. Most importantly, they need to focus on environmental practices for their trading partners. Climate adaptation, zero-emission pledges and measurable adaptation targets should be an integral part of Sustainability policies.
But Can You Wait For That to Happen?
Climate change is already in motion. Companies cannot wait for policymakers to set concrete guidelines because that could take years. But they can use technology to address their unique environmental performance needs now.
Sphera’s Sustainability Consulting services, combined with premium software tools and industry-specific databases help companies to reduce risks and optimize environmental footprints along the entire value chain.