Carbon Neutrality in the Automotive Sector and its Effects for the Supply Chain
Automotive OEMs Declare Carbon Neutrality as a Corporate Goal
Against the backdrop of diesel scandals, the challenges of electromobility and upcoming penalties for failures to meet European Union CO2 requirements, more and more automobile manufacturers are setting ambitious climate targets. Daimler, for example, has committed itself to become CO2 neutral by 2039 (1), and Volvo aims to be fully climate neutral by 2040 (2). Volkswagen will decarbonize its entire vehicle fleet until 2050 (3). Other car manufacturers have similar plans.
The Need for CO2 Data Throughout the Automotive Supply Chain
Achieving their declared goals of climate neutrality means car manufacturers have to assess their carbon footprints and improve their processes and the materials they use. They need to consider the whole lifecycle of vehicles, including all direct and indirect emissions.
Most automotive OEMs are already on their way and have established carbon assessments processes in the last years or decades. However, there might still be some holes in the carbon map for certain parts integrated into vehicles. In this context, carmakers have to approach their suppliers to collect primary CO2 data for the affected parts.
According to an article in the Handelsblatt, roughly 70 percent of the added value in a Mercedes car is from suppliers. Daimler development chief Ola Källenius now wants to include suppliers in their eco-friendly landscape. In addition to factors such as price, in the future, Daimler wants to include suppliers' carbon footprint in its purchasing decisions. (4)
In order to appease their customers, OEM suppliers in the automotive sector must prepare to promptly answer related questions by providing the corresponding data. This first requires an actual assessment of their "carbon status quo."
Holistic Assessment of Carbon Emissions
To assess a product’s complete carbon footprint holistically, one must take into consideration the entire lifecycle of the product (i.e., from resource extraction, vehicle production and use through to disposal or recycling). While for fossil fuel-based vehicles the majority of the CO2 emissions are due to tailpipe emissions, for electric vehicles the delivered parts and materials in the supply chain contribute the most to the car's carbon footprint. As electromobility becomes more common and the public comes to expect environmental comparisons with fossil fuel-based vehicles, the demand for a comprehensive evaluation becomes even stronger.
Life Cycle Assessment (LCA) provides a holistic approach to determine carbon emissions (expressed as CO2 equivalency) and other environmental impacts of materials and processes involved in production. Based on such things as bills of materials, OEM suppliers can easily assess their products’ CO2 emissions. Of course, all suppliers are also sourcing components or materials that require carbon assessment. So they too will need to request valid CO2 data throughout their supply chains.
Evaluating CO2 emissions from both sourced components and one’s own materials and processes is crucial for the automotive industry to meet their carbon neutrality targets. Only then will companies be able to start truly optimizing their processes and benchmarking their efforts. Automotive OEMs with gaps in their data will need to reach out to their suppliers. Their value to the OEMs will greatly depend on their ability to provide robust and accurate data about their carbon emissions and on their capacity to implement strategies to reduce or neutralize their CO2 footprints. These capabilities will affect purchasing decisions and generate competitive advantages for suppliers that adapt early on to the requirements.
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