MEDIUM – Riding the wave of change in the automotive industry with circular economy
It’s an exciting time for the automotive industry. Technology is challenging it as well as a significant change in consumers attitude and the pressing problem of climate change, the waste crisis and the skyrocketing of the prices of raw materials. All these problems are calling for a profound shift in the mindset of the industry at all levels of the value chain. This article wraps up the situation looking at how things are rapidly changing and how car manufacturers are adapting.
In the words of Peter Diamandis, a pioneer in the fields of innovation, “a tsunami of change is coming” and is going to sweep over the automotive industry.
There appears to be two key drivers of change that pull for an industry evolution. The oldest one is policy-driven innovation, which has been always more focused on safety and reducing emissions, but new legislation of the European Commission could also encourage recycling and reuse. The second, and a growing one in terms of importance is consumers demands. We want our cars to be something between offices or smartphones on wheels. Technology features are more and more important for consumers when buying a new car. Also, innovation in design, use and end-of-use strategies are becoming a must, especially for younger generations.
The focus on end-of-use strategies in the sector is linked to the fact that the industry depends on many different raw materials to produce cars — they can contain tens of thousands of assembled parts — and the car industry is the top consumer of lead in the world. For example, lead’s reserves are estimated to run out in 2030. So, the saving and reuse of these precious resources are becoming more and more a must. Recycling is growing, but there is still a lot of space to improve. We can find an enlightening example of the situation in this case mentioned in the eBook by Circle Economy “On the road to the circular car.”
“In the Netherlands, it seems to be a good sign that over two hundred thousand cars are 95% recycled on an annual basis. However, this figure is based almost entirely on the weight of recycled steel. The remaining fraction, consisting of plastics and composites used for e.g. dashboards and floor mats, is mostly downcycled and often “thermally” recycled — in other words, burned.”
Another issue affecting the industry is the use, or better, the limited use of cars. According to Peter Lacy and Jakob Rutqvist “$7 trillion worth of passenger cars are unused around the world at any given point in time”. Others use the figure of 90 per cent of the time that cars spend sitting in driveways or parking lots. The trend is already set: private ownership of cars will eventually disappear, and cars will be more and more owned by manufacturers in the next ten years. This could take us in the future to the situation of having less cars sold but a greater involvement of the manufacturers in the service and in cooperation within the value chain.
From the topics we quickly touch — raw materials scarcity, use, end-of-life — it is clear that many of the current problems taking place in the automotive industry can be solved and are connected to the circular economy.
According to a 2016 study by Accenture, the circular economy could redefine competitiveness in the automotive sector in terms of price, quality, and convenience and could double revenue by 2030 and lower the cost base by up to fourteen percent. Car manufacturers have well understood this number and the need to ride atop the tsunami and embrace the new circular model at different levels and with a wide range of solutions. There is also space both for startups and for Tech giants who are more and more interested in entering the arena.
Alternative ownership models
A good fit with the circular economy is alternative ownership models. This solution includes car sharing and ride sharing that maximize the usage of the car and offer a solution to the fact that cars are parked for 90 per cent of their time. Another model is the “product as a service” one, where cars belong to the manufacturer but are given to customers based on a leasing offer.
There is an excellent article by Business of fashion (Bof) about the younger generations of consumers that could be helpful in understanding how automotive firms can attract the attention of young drivers with these new models of ownership.
“The four goddesses that govern this realm are Goddess of Nature: Sustainability, Goddess of Health: Wellness, Goddess of Experience: Experientialism and Goddess of Simplicity: Minimalism. The emerging millennial customer today is looking for meaning in the way he or she spends his or her money. By touching brands with their wallets, the consumer identifies with the values for which each brand fervently stands.”
Moreover, another study by Circle Economy estimates that car owners of 18–35 years of age are increasingly concerned about growing costs of owning a car and are 40% more likely to abandon their vehicles.
For these reason, we were particularly impressed by the new commercial that Volvo released for their “Care by Volvo” program for the XC40 SUV. This is a leasing program where Volvo takes care of insurance, repairs, and maintenance, and the customer can enjoy the free time and flexibility of this alternative ownership model.
The commercial with the headline: “By not owning things, you’re not owned by things. Introducing the new Volvo XC40. The car you subscribe to” talks to the heart and minds of the young generation. As Bof article says: “In contrast to their parents, who took pleasure in materialistic spending, millennials grew up in the midst of the worst economic crisis since the Great Depression. The enduring impact has resulted in the intrinsic value of an experience taking precedence over other consumer goods purchases”.
Even more freedom is what offers the “Drive Now” car rental service previously owned by Sixt and now wholly owned by BMW that offers a fleet of the latest BMW and Mini vehicle models. Users can choose a car on the app, pick it up with a card and leave it anywhere within the app’s area. Already more than 1 million customers registered for the service in 13 cities. BMW calculated that the service might be replacing at least three privately owned cars.
Circular supply chain and reverse logistics
This, more than a single solution, is a whole set of different options that involve a supply chain that is quite large and has many subjects involved. The idea is to keep raw materials in the production loop as much as possible by using recycled and recyclable materials and innovative and efficient recycling technologies. Part of this is the development of a design for disassembly and recovery philosophy. Considering that cars that are bought now will remain in use for 10 to 20 years, this means that design is the first place to start to be sure that in 20 years we will be able to recover almost all the components of a car and reuse them according to the principles of the circular economy.
One of the oldest examples of this efforts is French automaker Renault with its Choisy-le-Roy factory where parts of old cars are remanufactured or reconditioned, putting them back into the market with a 30–50 % price reduction and the same guarantee and quality control test as the new parts. This case study is well explained on the website of the Ellen Mac Arthur Foundation. The ambitious target is by 2015 to recover 95% of each end-of-life vehicle by weight.
Another case we are proud to mention as we are involved with our ECONYL® regenerated nylon is Volvo with its eco-friendly special edition of the V90 Cross Country Volvo Ocean Race. This special edition is to celebrate the start of the 2017/18 Volvo Ocean Race, but the connection is not only in the name as this video well explains.
As expressed by Robin Page, Senior Vice president of Design at Volvo, the link to the Volvo Ocean Race is very much in the philosophy of the material. That is why Volvo chose for the inlay carpets of the ocean inspired model our ECONYL® yarn which is regenerated from waste, such as old carpet and fishing nets, and is also infinitely regenerable without any loss in quality.
It is of these days the news that BMW is working on creating a market for reclaimed sea plastic by finding uses for it in its own cars like the new BMW i3 model. “More than 80 per cent of the i3s’s surfaces visible to passengers are made from recycled materials or renewable resources” says the company.
An increased use of recycled and recyclable ingredients will make a big difference in the future along with the right design that allows an easy disassembly of the various components. Lately, as weight reduction is constantly a target in the industry, the use of plastics is growing. Today’s cars are comprised of about 50 percent plastics by volume. The problem is that often composite mixture of materials and parts cannot be recycled. That’s why design thinking should be applied to focus on the end-of-life phase and recover the ingredients to reuse them.
Designing with low tech solutions before the high-tech ones
If you think about it, it’s no easy task to design something keeping in mind its end-of-life. It’s like planning the funeral service before even thinking about the baptism or the wedding! But this is the task that new design thinking has in the industry. The use phase is critical, but so is the “waste phase”.
“Technological sustainability is quantitative and relies on doing the same things more efficiently, whereas ecological sustainability is qualitative and requires a fundamentally new way of doing things.” David Orr, Environmental Educator.
There is a great number of high-tech solutions that are coming to the market thanks to new technologies and digital tools. Among them are machine to machine communication, analytics, AI and modular design. But before getting to these, as Lance Hosey says in his Shape of Green, there are many things that are possible to do in low tech design by optimizing the design of cars. Lace Hosey uses the quote by Bill Gross, Aptera’s founder: “If a plane looked more like an SUV, it wouldn’t take off. Dolphins don’t look like SUV for a reason. Cars need to look like dolphins, not SUVs”.
In this sense the circular design guide by Ideo and the Ellen MacArthur Foundation is an eye opener with lots of practical advices for designers to shift the mindset.
“Designers and entrepreneurs tend to be familiar with designing for an end user,” he says. “Effective circular design looks beyond a single product lifecycle for a single user, to designing a bigger system–one that creates more value by enabling multiple usages and users of that material.”
Product lifetime extension
It’s a basic rule in sustainability: the shorter the lifespan of a product, the more wasteful it is. So, longer life means lower waste. With this in mind, Tesla developed a Life Extension circular model using their Tesla charger stations. The brand offers an eight-year, unlimited battery and drive unit warranty further strengthening the bond with their customers and the lifetime of the product.
This is another option grounded on the new role of car manufacturers as being closer to consumers and taking care of the “use phase” of the car instead of just selling it. This will be more and more something that car manufacturers together with their suppliers will be involved in.
Volvo named its sustainability program: Omtanke. It’s a great Swedish word that includes the meanings of “caring”, “consideration” and “to think again”. We love this word, and it’s a great inspiration for the industry who will be facing more and more challenges in the future and will have to ride atop the tsunami of change Peter Diamandis has foreseen. To tackle this challenge, collaboration will be essential. It’s important to consider that “suppliers currently develop and assemble 65% of the average value of a vehicle, and this share is expected to increase to almost 80% over the next decade”. This means that not only the big brands of car manufacturers will be responsible for the future of the industry but also suppliers along the value chain will have to take the lead and be innovators in their segment. Each year, Europe’s automobile sector alone spends $50.1 billion on innovation. If a good percentage of these were spent on these new pressing issues and in changing the mindset, it would make a big difference in the future of us all.
This article was originally published on Medium.