Sustainability: The strategies of manufacturers

Now it's time: Europe should become climate-neutral by 2050, and the automotive industry should do its part. A realistic scenario? What is behind the sustainability strategies of manufacturers and suppliers.

Climate neutrality from 2050, now the end of combustion engines from 2035: After the majority of countries have already put the Paris Agreement into force with an international treaty, the EU is going one step further. With the "Fit for 55" program - i.e. 55 percent less carbon dioxide emissions by 2030 compared to 1990 - the EU wants our cars to become climate-neutral more quickly and industry to save more CO2 through sustainable management.

Political regulations are one thing, but implementation is something completely different - and it costs money, a lot of money. The fourth-largest carmaker Stellantis plans to invest more than 30 billion euros in electrification and software alone by 2025. The short-term goal: increase the share of low-emission vehicles in total sales in Europe to 14 percent this year and in the USA to 4 percent. By 2030, low-emission vehicles are expected to account for more than 70 percent of sales in Europe and more than 40 percent in the USA.

Climate-neutral production

Almost all other brands are also planning to phase out combustion engines. But one thing is already clear: e-cars already enable locally emission-free mobility in many places, but alone are not enough to consistently counteract climate change - and certainly not to comply with the strict regulations of the EU.

Sustainable management is therefore a term that encompasses more than zero-emission car traffic. If you look at the entire vehicle cycle of new e-vehicles, it is noticeable that a significant part of the CO2 emissions are generated during production and no longer through actual use, as was the case with combustion engines. The production of a fully electric vehicle is about twice as CO2-intensive as that of a conventional combustion engine, mainly due to the lithium-ion batteries (LIB for short) - and a holistic view of the entire value chain is therefore indispensable.

This is how Nissan wants to be completely climate-neutral by 2050. This includes production, development, procurement, logistics and administration: With the EV36Zero project, the company is pursuing a very specific step in how this should succeed. An e-car competence center is being built at the site in Sunderland, England, which will include vehicle production and development, battery production and the construction of a 100 percent regenerative microgrid for green electricity supply.

Mercedes-Benz also believes that it has set the course for CO2 neutrality: They want a CO2-neutral fleet of new passenger cars by 2039 at the latest - eleven years earlier than required by law."Increasing energy efficiency, purchasing renewable energies and using compensation projects are the first steps that all manufacturers in Germany are now taking," says Christoph Herrmann, Professor at the TU Braunschweig (click here for the interview) , the corporate announcements.

Accordingly, from 2022 the company will purchase electricity in Germany that comes exclusively from renewable sources. In addition, Mercedes-Benz, together with its steel suppliers, is pursuing the goal of a green steel supply chain and is investing in the Swedish start-up H2 Green Steel.

For your understanding: Until now, the manufacturers bought the steel on the world market and created an average CO2 value using databases. In doing so, they resorted to several providers – also known as multisourcing – in order not to become dependent in the event of sudden failures. The times have changed; "green steel" is in demand. The problem: it's rare - for now. The solution: single sourcing.

Steel is a major CO2 emitter

The greenhouse gas emissions that occur during the production and processing of steel are a thorn in the side of car manufacturers and put a strain on their climate balance. A Mercedes sedan, for example, consists of 50 percent steel on average. The material thus accounts for around 30 percent of the CO2 emissions in production – too much.

In the first step, recycled steel scrap and renewable energies can massively reduce CO2 emissions compared to the classic blast furnace route. To put this in context: with the classic blast furnace route, the production of one tonne of steel generates up to two tonnes of carbon dioxide on average. With newer processes, however, suppliers use hydrogen and electricity from 100 percent renewable energies instead of coking coal in steel production.

The problem: Hydrogen is expensive - and we don't have enough of it yet. Christoph Herrmann is nevertheless optimistic: "We are currently where we were 25 years ago with the topic of photovoltaics with green steel in connection with green hydrogen." As soon as renewable energies are ambitiously expanded, green steel could no longer be reserved for the premium segment of Mercedes.

Transparent supply chains

In order to be able to evaluate the origin of other valuable materials in upstream supply chains and the transparency of their ecological footprint, more and more companies are making use of blockchain technology. What you need is a footprint that can no longer be changed.

How is this supposed to work? The idea behind the technology is that every step within a supply chain is stored in an unchangeable manner on a decentralized database. Every material has a natural imprint. Buyers therefore know where the product – such as cobalt – comes from."I can randomly check from which region the material comes, and as a company I have a certain security, which I can then also make transparent and communicate to the customer," says Herrmann, naming the advantages.

So light is brought into the darkness, which means in reverse that companies did not know exactly where they got their materials from. "For manufacturers, the question naturally arises as to what effort and what costs are involved in comprehensive transparency," Herrmann explains.

Example cobalt: From the mine to the processing material there are a number of intermediate stages. Especially in the extraction and processing of raw materials, the supply chain is often long and researching the origin involves a lot of effort. With transparency, new challenges arise. "We're opening a bigger barrel," Herrmann defends the industry. As a manufacturer, you always have to ask yourself how big the impact is on unstable countries from which you are currently purchasing the products.

After all: progress can be seen. In more stable countries such as Australia, manufacturers are able to set up sustainable chains. These process successes could then be gradually transferred to other countries like a template.

Jaguar and Land Rover in particular confirm when asked that they want to use blockchain technology in the future. The brands are investing in British software developer Circulor. The subsidiary of the Indian automobile company Tata Motors also announced that it intends to use sustainable interior materials made from eucalyptus for future models such as the Range Rover or I-Pace.

Is it all just marketing?

In principle, announcements like these should be seen as a marketing move, because globally, such measures have hardly any impact on the world climate. But still: In this way, companies have the opportunity to bring their customers closer to the topic of sustainability - and that works better with interior goodies than with steel.

Why? Many sustainability measures, such as the use of green steel, have so-called trust properties. Green steel is a product whose properties cannot be easily verified by the customer with reasonable efforts. The buyer simply has to trust what the seller says. Equipment elements, on the other hand, have a different effect. "If sustainability is also to be perceived by the customer, then that must also be conveyed through the interior. It's like a piece of furniture you inherited from your grandmother, then you are aware of its value," says Herrmann. Sustainable materials such as eucalyptus not only increase the value of a product, but also make the complex issue of sustainability tangible for the buyer.But Herrmann also makes it clear: "If you don't first reduce the major environmental impact, such interior measures quickly become just greenwashing."

In any case, the sustainability debate currently seems to play a rather subordinate role for customers, at least when buying a vehicle. This is the result of at least one non-representative survey on the auto motor und sport Instagram channel. 82 percent of the 3,854 participants stated that when buying a car they did not yet pay attention to how sustainably a manufacturer operates or produces on the world market.

Certificates help in the short term

Back to industry: Companies can compensate for CO2 emissions from production that cannot be further reduced by purchasing CO2 certificates. This is now a common practice – also at Bosch: The supplier has been working and producing in a climate-neutral manner at its more than 400 locations worldwide since February 2020. This makes Bosch the first global industrial company to leave no carbon footprint behind. In the base year 2018, Bosch emitted around 3.3 million tons of CO2 for its "climate neutrality project". In comparison, the company has now reduced its CO2 emissions by more than 70 percent. But the truth is that the supplier is currently offsetting any remaining emissions with offsetting certificates. A sensible approach if emissions that cannot be avoided from today's perspective are offset. However, purchased certificates are not a permanent solution: "This is qualified indulgences for emissions that cannot be avoided in the short term," Herrmann clarifies.

Here, too, transparency plays a central role - similar to the supply chains: "It is very important that the money goes to the right projects. Whether, for example, a rainforest is really being cultivated or deforestation is being avoided must be checked by third parties become", Herrmann classifies the dispute over the use of certificates. Either way, the EU wants to be climate-neutral by 2050. In addition to increasing energy efficiency and expanding renewable energies, an emissions trading system must also be an instrument for compensation.

Suppliers in a dilemma

A look specifically at the suppliers makes it clear how differently this industry reacts to the mobility change. On request, Mahle stated: "We want to remain strong in the area of ​​the combustion engine as long as it is needed on the international markets and is in demand by our customers."

Direct competitors like ZF are taking a different approach here. A spokesman makes it clear: "In development, we are clearly concentrating on future technologies, in relation to the drive train, i.e. on electrified drives." This focus is necessary.ZF has therefore stopped the further development of conventional products - but they are still in demand in the market, especially outside of Europe. An enormous challenge for suppliers to be able to meet various demands and at the same time save emissions.

Recycling the keys?

This is one of the reasons why recycling is becoming a central component of companies like ZF and Co. in their own sustainability strategy. A key to CO2 reduction lies in the circular economy. "By increasing the proportion of recycling in our products, we can make a major contribution to conserving resources," says a ZF spokesman. For example, the majority of the aluminum housings used by ZF are already made from recycled secondary aluminum, which has a CO2 footprint that is up to four times smaller than that of primary aluminum.

For car manufacturers, too, the drive change means that their own recycling processes are coming to the fore. In electric vehicles, lithium-ion batteries are generally only used until their usable capacity falls below 70 percent. According to the manufacturer, this should be the case after about eight to ten years. The first batteries are likely to find their way back to the car manufacturers by the end of 2030: "On a global level, we expect 30 to 50 GWh for 2030, and then 400 to 900 GWh for 2040 of decommissioned traction batteries," explains Christoph Neef, project manager at the Fraunhofer -Institute for Systems and Innovation Research ISI. That would correspond to a mass of up to four million tons of battery packs.

At EU level, Directive 2006/66/EC - also known as the Battery Directive - regulates the disposal of old batteries. The Battery Act, which came into force in 2009, then transposed this European directive into German law. Manufacturers are therefore obliged to participate in a take-back system and to provide free take-back options. However, the directive has been criticized and is considered outdated, as it only stipulates a recovery rate of 50 percent by weight.

Politicians are therefore working on a revision. This provides quantitative targets for the collection of batteries, the raw material yield in battery recycling and the use of recycled raw materials in batteries. A step that is long overdue, says Andreas Radics, Managing Partner at Berylls Strategy Advisors: "Depending on the company, the recycling rate of the battery material is around 60 to 70 percent. However, it is highly unlikely that it will rise to more than 90 percent, if there are no stricter mandatory recovery rates."

It is part of the bitter reality that material recovery is not worthwhile despite rising raw material prices.The mining of lithium or cobalt is currently simply cheaper: "We need an EU-wide minimum recycling quota as soon as possible, which prevents valuable materials from being disposed of improperly in third world countries," Andreas Radics clearly refers to the debate Position.

In January 2021, Volkswagen therefore opened the Group's first plant for the recycling of high-voltage vehicle batteries at the Salzgitter site. The plant is initially designed to recycle up to 3,600 battery systems per year in pilot operation - this corresponds to around 1,500 tons: "Only batteries that can no longer be used elsewhere are recycled. Beforehand, it is analyzed whether the battery is still powerful enough , for example to get a second life in mobile energy storage," says the group.

Second chance for the battery

From a technical point of view, second applications for used traction batteries are conceivable if they are still in a certain "state of health", i.e. have a usable residual capacity, sufficiently low internal resistance and no obvious safety defects. Axel Thielmann, Head of the Competence Center New Technologies at the ISI, explains what "usable" means: "The cost of battery testing, overhauling and integration into a new application must be lower than the usefulness or residual value of the used battery."

This is where stationary storage would also come into play, which could be used, for example, to stabilize the power grid or to buffer peak loads in industrial companies: "It is likely that such storage will consist of many of the same battery modules or battery packs, i.e. of used traction batteries from one certain car model or manufacturer," explains Thielmann. The "mixture" of different traction batteries is unlikely due to the increasing integration effort.

One of the reasons why most of the existing caches are marketed by the car brands themselves - Renault, for example. In practice, this means: In North Rhine-Westphalia, the French are working with a sustainable, stationary battery storage system with 72 Renault Zoe batteries and a capacity of three MWh. The storage is part of a Europe-wide project called Advanced Battery Storage. Renault buys the batteries from its dealers.

Meanwhile, Tesla doesn't think much of the "second-life principle". Elon Musk's philosophy: A LIB designed for the charging cycles of an electric car is not optimized for any other need. Tesla therefore prefers to recycle its batteries directly at the future Gigafactory site in Grünheide near Berlin.

Status quo "sustainable management" - this is how the German automotive industry rates itself

For years, the automotive industry has been the focus of sustainability discussions and is trying to set the course for the future with very different strategies - with success? A study makes it clear why the industry is currently stepping on the gas when it comes to sustainability – and how manufacturers and suppliers perceive the change themselves.

Almost all respondents from car manufacturers see sustainability as an essential part of their company, while managers from supplier companies still see some catching up to do. This is the result of a study by the consulting firm Deloitte, which asked 192 experts from German automobile manufacturers and suppliers about the current status of their sustainable management.

93 percent of the participants believe that the topic of sustainability has gained in importance in their company. 89 percent of the executives of German automobile manufacturers and suppliers already see it as an essential part of their business activities - and thus as a central aspect of the company strategy. However, the execution still seems to be in need of improvement in many areas: According to this, every second respondent believes that there is a gap between the communication about the company's sustainable management and the actual actions. "In the end, the actual implementation is more complex than companies initially assumed. In the past, it was primarily about avoiding sustainability risks. Now companies have to actively manage sustainability," says Harald Proff, partner and head of the automotive industry at Deloitte Germany and Global .

More sustainability, more investments

When asked about the factors that are slowing down sustainability initiatives in their own company, 39 percent of the automotive managers surveyed stated that they found higher prices resulting from more sustainable production unfeasible for customers keep. In addition, the necessary resources or, due to the corona pandemic, the financial means would be missing. The pandemic represents a financial burden, especially for some suppliers, and is slowing down their own transformation process.

Nevertheless: 77 percent are convinced that they can already see positive effects from their projects. The majority of the latter are pursuing an approach – namely an ecological one. Only nine percent of those interviewed stated that their company's sustainability initiatives take equal account of ecological, social and economic aspects. "Previously, from a political point of view, the focus was on environmental aspects, because road traffic is responsible for ten percent of global emissions. Now social and economic aspects are taking over," says Proff.

The focus is on the entire cycle

Considering the entire value chain is becoming increasingly important for manufacturers too. Looking beyond the company's own boundaries is becoming increasingly important in order to be able to make supply chains sustainable. Because the envisaged CO2 targets can only be achieved along the entire supply chain - keyword: transparent supply chains. From 2023, the Supply Chain Act will also oblige German companies with more than 3,000 employees to punish human rights violations by their suppliers and service providers. But downstream processes such as recycling are also playing an increasingly important role. Why? Efficient use of resources leads to lower costs. By recycling, companies can reduce supply bottlenecks and the associated dependencies - a major problem especially during the pandemic - and ultimately also reduce greenhouse gas emissions. This is probably one of the reasons why managers from supplier companies (66 percent) weight the efficient use of resources as the most important element for a sustainable industry much more than OEMs (56 percent). The circular economy follows in second place, followed by the offer of alternative drive types for customers.

The German automotive industry seems to be on the right track when it comes to sustainability. This is the result of a recent study by Deloitte. But not everything is running smoothly.

It's good that...

  • car manufacturers and suppliers consider sustainability to be a core aspect in their company.
  • Sustainability initiatives along the entire value chain are taken into account.
  • positive effects of these sustainability initiatives are already visible today
  • However...

  • 55 percent perceive a gap between communicated and lived sustainability.
  • most of them do not take a holistic approach (ecological, social and economic).
  • Due to the pandemic, there is a lack of financial resources for sustainability measures.
  • Conclusion

    For a long time, companies have perceived environmental requirements as a threat that costs money. However, ecological sustainability should be understood as an opportunity, as a questioning of processes and business models, as a competition for solutions. If you want to remain successful, you have to be at the forefront of this movement. German companies should know that. The approaches suggest that the industry is making efforts, at least to the outside world, to look at the topic holistically. In addition to transparent supply chains, the battery cycle also seems to be gaining in importance. High time, because only if the industry recycles LIB, e-cars are suitable as a driver towards a CO2-neutral world.


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