Opportunities within the Net Zero 2050 mission for

automotive OEMs

INDUSTRY INSIGHTS – Future Mobility

July 08

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Decarbonisation

Decarbonisation is no longer simply a buzzword. It is here and the voices echoing it will only multiply and get

louder as the global economies inch towards 2050. By this year, most developed nations have pledged to

become carbon emissions neutral economy wide. As a result, this mission, broadly referred to as Net Zero 2050,

has already spurred a flurry of actionable decisions by future-savvy major players across industries, including the

automotive sector.

This paradigm shift towards decarbonisation also brings with it a whole new set of opportunities for investors,

which you can read about in our recent case study. However, nowhere is this change more visible than in the

automotive value chains. The scope of opportunities for automotive original equipment manufacturers (OEMs)

might just be as exciting. Let’s find out more:

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Electric Disruption

Source: Evalueserve Insights; IEA

Electric Car models available globally and average range per charge

482 km (300 miles)

Avg. range for ICE car

338 km (300 miles)

Avg. range for BEV

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The rapid growth of sustainable passenger vehicle technologies and their requisite energy sources

is apparent from the increasing number of battery electric vehicle (BEV), and plug-in hybrid electric

vehicle (PHEV) models being offered by carmakers, as also from the introduction of hydrogen

fuel-cell electric vehicles (FCEVs).

The International Energy Agency (IEA) in its ‘Global EV Outlook 2021’ states that a total of 368 EV

(BEV + PHEV) models were available in 2020, gaining exponentially from the 86 on sale in 2015.

At the same time, the average range per charge for EVs has also improved from 211 km (131 miles)

in 2015 to 338 km (210 miles) in 2020. Within the scope of the 2050 target, these numbers are only

slated to grow more rapidly with increased focus towards more efficient advanced energy storage

solutions to better charging technology and infrastructure. This is helping allay the primary fear for

potential EV consumers so far, which was the “range anxiety”.

Share of ICE and Oil Decline

Further, the share of EVs in global car sales, which has risen from 0.1% in 2011 to 4.6% in 2020, is projected to gather

unparalleled momentum till 2030. Mind you, these humble numbers translate into global EV stock already hitting the 10

million unit-mark in 2020, a steep 43% increase over 2019. According to the IEA Sustainable Development Scenario

(SDS) EV penetration is pegged to reach a massive 36% of total car sales in the next two decades. Increasing sales will

be supported as the delta in price between an internal combustion engine (ICE) and EV model closes.

What is the scope of EV

sales and demand growth

beyond the next two

decades and when will it

peak or plateau?

Unknowns

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Source: IEA; Evalueserve Insights

Global EV cars sales and market share projections

$40,000 (2019) $55,600 (2019)

Avg. EV price in the US Avg. ICE car price in the US

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This increase in EV uptake will also affect the consumption of petroleum products as they get displaced by electric power.

In 2020, EVs (BEV + PHEV) have displaced the gasoline equivalent of 8567.6 million liters (approx. 53.88 million barrels).

Source: IEA; Evalueserve Insights; 1 oil barrel = 159.987 liters

Gasoline displacement by EVs (Figures in million liters of gasoline equivalent displaced.)

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Based on a World Economic Forum report, tailpipe and use-phase emissions currently account for between 65% to 80%

of the total greenhouse gas (GHG) emissions from an ICE automobile over its lifecycle. This is a key driver behind OEMs

focusing on electrifying their vehicles’ powertrains first. However, with reduced tailpipe emissions due to more EV

vehicles, the share of GHG emissions attributed to other constituents of the value chain will go up.

And, overcoming these other sources of GHG emissions will lead to what might be considered truly zero-emission

vehicles (ZEVs). This is where the opportunities to completely decarbonise the automotive value chain come in for OEMs.

Manufacturing Revolutions

The automotive industry has given birth to various industrial and technological revolutions starting from Henry

Ford’s invention of the automobile mass-production assembly line for the legendary Model T a little over a

century ago. That was nothing short of a feat of manufacturing excellence for the time and set a precedent for

the level of innovation expected within the industry. Similarly, cleaner materials and manufacturing processes

are an immediate need of the hour.

In the present and near-future terms, with use-phase emissions of automobiles slated to reduce, there will be

greater onus on OEMs to shift their focus to manufacturing and material processes once again. These

processes which currently account for around 20% of the lifecycle emissions of a vehicle will grow to contribute

more than a third or even higher share of the emissions in the coming two decades.

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In more literal terms, carbon emissions from manufacturing and material processes also account for a higher share in

EV production. A recent data analysis by Reuters states that an EV only begins to cause less environmental harm

than its gasoline equivalent after it has been driven over 21,725 km (13,500 miles). These numbers may vary

depending on vehicles compared and the source of the energy.

One example of emissions from EV manufacturing is the current processes of extraction and processingof minerals

used in EV batteries as well as the production of power cells which raise environmental and

ethical concerns. There are various alternative technologies and processes currently being

studied and developed to neutralise these battery-related emissions surrounding materials

including lithium, cobalt and nickel. Achieving circularity or a closed-loop value chain with more

optimised recycling of lithium-ion batteries using pyrometallurgy, leaching and hydrometallurgy

is one such example, which can recover 95% of all raw materials in lithium-ion batteries.

To make future vehicles more efficient, the kerb weight is also another major consideration.

Making vehicles more lightweight can automatically return higher miles per unit of energy and

hence impact the overall emissions reduced per distance travelled in a vehicle. This can be

achieved by moving from primarily steel-based construction to lighter materials including

aluminum, magnesium, and composites.

Then there is also the matter of their energy supply. EVs make greater green impact in economies wherein renewable

sources of electricity outnumber conventional coal-fired power generation plants. To mitigate this, EV manufacturers

have, for example, begun installing large-scale photovoltaic power generation sheds at their facilities which can also

double up as bays where the EVs can sit to be charged until they enter the supply chain. The excess electricity from

the sheds also powers processes within the plant. While Tesla has been building GigaFactories, Nissan has just

announced its first such plant at Sunderland, UK.

How will the shift to

different materials and

processes affect the

overall safety of future

automobiles? In addition

of crash safety, will future

materials address

hygiene safety in light of

the recent pandemic?

Unknowns

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The Circular Way Forward

It’s no wave of the magic wand to achieve complete decarbonisation of the automotive value chain; however, piece by piece, the automotive industry might be required to not just pivot but reinvent a completely new value chain. Before that, industry players require guidance to better anticipate the change in customer behavior as well as evolving preferences. More localised products could be a good start. This would, of course, mean re-engineering and re-orienting its process for each subset of its clientele. And this tweaking might also lead to scope for more customised, economised, utilization of resources and ultimately enable them to serve their decarbonisation targets.

One way that OEMs as well as their suppliers can pace towards decarbonisation while still ensuring their business targets are met, is collaborative efforts. OEMs are increasingly factoring the costs involved in reorienting their suppliers towards sustainable goals within their decarbonisation outlays and new facilities. In turn, the suppliers of specific parts and components such as tyres, electricals, interior plastics as well as mechanical parts specific to ICE cars can leverage OEMs’ support to pivot in line with the manufacturers’ goals. This can help lighten the burden on OEMs for research and development while incentivising the same across the value chain.

There is a need for greater involvement from OEMs in upstream activities that ultimately affect the carbon impact on their overall value chain. For this, a good start can be to measure the total carbon emissions of each contributor in the value chain and, based on their share of the total carbon impact, prioritise and allocate resources to neutralise them. Here, OEMs can take the initiative of forming partnerships with stakeholders in the respective upstream parts of the value chain to arrive at a unified solution.

What new sourcing

chains might appear if

OEMs shift to different

materials and processes?

Unknowns

Carbon

impact study

A renewed

chain

Increase

collaboration

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With nearly 3/4th of the

value creation in

automotive supply chains

coming from suppliers,

what are the possible

avenues to sustain their

growth, especially for the

ones involved in

components specific to

ICE vehicles?

Unknowns

Finding new ways to generating lesser wastage across the value chain will also make it a leaner process on the whole. This is where newer, less wasteful materials as seen in some of the flagship vehicles of top-tier OEMs need to be democratised to be useable across their product portfolios. For example, currently, the most used materials in cars are aluminum and steel. Using more lightweight materials such as composites and advanced polymers will help reduce weight and result in more efficient vehicles. This could include research and development of materials and components which are easier to repurpose, recycle and reuse.

The current process for end-of-lifecycle management of vehicles as well as their materials is a matter of each individual OEM’s prerogative. If better policy, whether voluntarily from OEMs and their partners or from government regulation, comes into effect, it could tackle a large source of waste of resources that could come in handy. Better scrappage and materials reclaim, reuse, recycle policies which are standardised and adopted across the industry as well as geographies would go a fair distance in helping OEMs reduce their carbon emissions. With a focus on achieving efficiency on this front, OEMs could be rewarded by the results offsetting their requirements for increased material costs.

OEMs have begun their journeys in offering optimum use services such as subscription models as well as shared mobility and vehicle-swap options to customers. These need to be advanced much further as there remains a large scope for minimising the number of unused vehicles on the planet at any time. For reference, research has found that a car, on average, gets driven for only 5% of the time during its entire lifecycle. What can be done to make it useful during the other 95% time?

Lesser

waste

Standardise

end of

lifecycle

Optimise use

cases

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Conclusion

In the end, automotive OEMs are looking at a flashpoint in the history of the automobile. Not since the last industrial revolution has the world so closely watched the rapid escalation of their vision for the future, and never again might the automobile be so closely linked with the history of the planet as it is now.

To a quick rotation of the wheel, then.

Author

Abhishek Samuel

Manager, Decarbonization Practice

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