All or nothing: Why circular business models require a holistic approach

Responsible for 37% of CO2 emissions, the transport industry, of which the automotive sector is a significant part, is at the center of the global decarbonization agenda. According to the Capgemini Research Institute, 65% of organizations have a comprehensive sustainability strategy that is mainly driven by electrification and net-zero ambition in supply chains. This is even more accelerated in Europe, where regulation prohibits the marketing of ICE vehicles from 2035.

However, a carbon-focused approach does not address the automotive value chain in its entirety. As a result, automakers are increasingly exposed to sourcing risks due to intensified battery production demands. Therefore, OEMs are now exploring the same solution: Circularity.

Invest in long-term strategy for resilience, competitiveness, and user desirability

Due to the imminent switch to BEV, automakers are dependent on critical raw materials, such as lithium, cobalt, copper, or nickel. This has resulted in significant price increases: between the start of 2021 and May 2022, lithium prices rose by more than a factor of seven and cobalt prices more than doubled. In parallel, activities around mining, material processing, and battery production are executed by very few countries (notably China), with production and supply capacities that fall well short of today’s demand. Furthermore, 55% of global emissions come from mineral resource transformation into goods and equipment (energy and process).

In an economy of scarcity of resources, where disrupted global supply chains are the new normal, OEMs are pushed to adopt the circular economy for greater sovereignty, fostering reuse and recycling to keep these rare elements in the production loop. Circularity can absorb a significant proportion of metals sourcing costs (15% for copper and 102% for nickel in 2021, 50% for both lithium and cobalt and 80% for copper by 2030).

In parallel, mobility players pushing to adopt the circular economy are implementing new business models that go far beyond recycling (e.g., Product-as-a-Service, Product Life Extension, Sharing Platforms, Sell- and Buy-back, Repair and Maintenance services, and Second-hand Platforms), representing new playing fields with proven economic value and consumer desirability. 

Finally, attracting and training the right talents will be crucial: not just developers, tech experts, and data scientists, but also software engineers, mechanical engineers, electrochemists, and battery experts. The circular economy requires new skillsets, meaning investment will be needed in additional areas: notably in telecoms, mobility, and energy expertise. 

Developing circular solutions requires a holistic approach across 4 main dimensions

Circularity initiatives on new business models, product design, operations, and partnership ecosystems can no longer be pursued in isolation.

Achieving circularity implies adopting service-driven business models in line with the organization’s long-term strategy. In the automotive industry, some customer solutions have been on the market for a while (e.g., car sharing) but only a few have been driven by the creation of circular solutions. Consequently, automakers are urged to focus on long-term usage at the expense of selling large volumes of goods. Better consumer desirability and the increased lifespan of products result in a more profitable Total Cost of Ownership (TCO) per item. The three main paths for OEMs are:

• Product-as-a-Service through new commercial models (leasing, renting, sharing…)

• Life extension through repair, refurbish, retrofit, and remanufacture

• Waste revalorization through vehicles and parts designed for recycling

Sustainable product design is the cornerstone of a circular economy strategy. The goal is to design vehicles that are fit for purpose through sufficiency, digitalization, durability, modularity, recoverability, and recyclability. Another key piece of the puzzle will be biotechnology – the next frontier for automotive players in material selection and waste management processes, bringing novel enzymes, bio-based materials, and new tunable products.

The recovery mechanisms of the circular economy will imply major changes to the supply chain and operations. Automakers need to transform their ecosystems and massively develop the after-use segments, enabling them to keep fleet, vehicle, and component value higher for longer. The challenge is to develop manufacturing chains that can integrate used parts, products, and waste as in the production process while simultaneously incorporating complementary capabilities that facilitate vehicle collection, dismantling, and recovery. Decentralization is key, with local collection points, repair centers, and recycling facilities to decrease transport and supply costs, accelerate operations, and avoid dependencies.

Partnerships act as enablers that make better use of resources, accelerators for innovation, and optimizers for supply chains. Collaboration reduces the effort of individual players and creates competence pools to develop general standards and new practices that accelerate the cycling of material and energy flows. Looking beyond their own company spectrum and creating a dedicated ecosystem of partners and collaborators are key factors across the industry to widen their vision and to secure a new position.

Technology and data enable an accelerated transformation 

To meet these new expectations and the resulting circularity process requirements, the entire value chain needs to change. From designing products to include new functionalities to their end-of-life management, it is imperative that companies scale up the technological solutions in the circular economy to guarantee an economically viable model.

• Physical (3D printing, Robotics, Nanotechnologies, etc.) and digital (AI/ML, Cloud and Edge, IoT, Blockchain, Digital Twins, etc.) technologies to develop reusability solutions in product design and operations.

• Biological technologies (Synthetic Biology, Bio-Based Materials, Bioenergy, etc.) are the next frontier, helping tackle issues at the two extremes of the lifecycle by creating alternative materials and accelerating the standardization of chemical recycling.

Most importantly, new digital and software applications for supply chains, manufacturing processes, and vehicles have unleashed the incredible potential for data collection and processing at every stage of the lifecycle. Indeed, data has enabled companies to scale up collection processes for closed-loop supply chains, improve performance tracking, enhance customer services, predict maintenance, and even help forecast future consumer demand. Real-time data collected during usage is also invaluable for anticipating maintenance needs (predictive maintenance) and product obsolescence. Connectivity and data will enable “servitization” (the switch from just products to products and services) to achieve its promise to deliver superior value for longer.

Finally, companies that break down product lifecycle siloes, merging insights from PLM and LCA tools, will be the ones that achieve end-to-end traceability despite the large number of stakeholders involved in the automotive value chain.

For more insights, download Capgemini Invent’s latest report, Removing the Finish Line, focusing on how the Circular Economy will energize the automotive industry.

Author: Clément Chenut, Circular Economy Offer Leader, Capgemini Invent