Automakers move to adopt a circular economy

  • Several automakers, including Renault (France), Stellantis (Netherlands) and Volkswagen (Germany), are trying to develop circularity in vehicle production, allowing them to reuse materials and resources to reduce waste.
  • Despite these moves, circularity in the automotive industry remains low at present as most automakers lack a defined process to recycle materials. The European Commission is currently reviewing its targets for end-of-life vehicles (ELVs) and is aiming to submit its proposal in 2023.
  • However, a successful move to circularity will depend not only on regulations but also on automakers’ ability to make recycling profitable.

The circular economy was one of the agenda items of the recent United Nations Climate Change Conference (COP27), which took place in November. However, aside from some small-scale funding for circular economy-related projects in Spain, nothing constructive was concluded at the climate conference. For an automotive industry burdened by high costs, this represents a wasted opportunity. While reducing waste is the central aim of a circular economy, it would also allow companies to cut costs, reduce the uncertainty associated with securing raw materials and comply with emissions regulations. Eventually, recycling should become profit-making.

Shifting to a circular value chain

This is not yet happening, with most recycling efforts driven largely by regulation. European automakers are already required to adhere to the European Commission’s directive on ELVs, which sets targets for the recyclability, reusability and recoverability of motor vehicles and their components. The current directive requires a minimum of 85% reuse and recycling and a minimum of 95% reuse and recoverability for light vehicles. The Commission is reviewing the directive and is expected to present a proposal on it in 2023.

Japan and South Korea have had similar vehicle recycling laws for more than 15 years now. Meanwhile, India also launched a similar framework for scrapping ELVs in August 2021. In the US, there is no federal law for ELVs, but several state governments have legislation and requirements for vehicle recycling.

Pressure groups want this legislation to go further, pushing the automotive industry away from an “open-loop” recycling policy (which allows materials to be turned into other products) towards a “closed-loop” policy (whereby materials are turned into a new version of the original product). They argue that closed-loop recycling processes and life cycle optimisation will be required to attain full circularity in automotive production. It would also reduce uncertainties related to procuring raw materials and help to control costs.

Renault spins off its circular economy business

Automakers are taking voluntary steps in this direction. In November, Renault announced that it will split its business into five units focused on electric vehicles (EVs) and software, low-emission fossil-fuel vehicles, motor racing, financial services and the circular economy. The last of these, called “The Future is NEUTRAL”, aims to achieve closed-loop circularity across the vehicle life-cycle, starting from procuring raw materials, production, and use to scrapping. It aims to become carbon negative in automotive production by 2030.

Currently, only about 30% of vehicle materials are recycled for new vehicles – mainly through metal scrapping and battery repairs for ELV, but Renault claims that about 85% could be. Renault has three subsidiaries – Gaia, Indra and Boone Comenor – which form part of its circular economy factory, Refactory, located in Flins, France. The new addition to this factory will be a closed-loop battery recycling plant. In November 2021, the company launched another circular economy factory in Spain with a targeted roll-out between 2022 and 2024. It is also planning to launch similar projects in Turkey, South America and Portugal.

Automakers set material recycling targets

Stellantis (Netherlands) has also announced plans for the launch of its circular economy business unit to become carbon neutral by 2038. The company is aiming to generate about €2bn in revenue from the unit and will launch a “Circular Economy Hub” in Italy in 2023. In September, the company unveiled its concept electric vehicle, Citroën oli, made from recycled material and with end-of-life recyclability. Meanwhile, Volkswagen is aiming to set clear targets and indicators as part of its circular economy strategy, according to its 2021 sustainability report.

Ford has set an interim target of using 20% recycled and renewable plastics in new vehicle designs by 2025 at its factories in North America and Europe and a 10% target for its factories in China and Turkey. Ford also uses a closed-loop system to manufacture its F-series trucks and is the largest closed-loop aluminium recycling automaker in the world, according to its 2022 sustainability report.

The government push will play a key role

Despite these initiatives, companies are far from attaining a closed-loop recycling system for their vehicle production. Most of their initiatives are limited to Europe, where both national and regional governments have strict targets. However, to achieve a full shift to circularity carmakers need to be driven not only by regulation but also by the potential to develop more efficient – possibly even profit-making – business models for recycling.

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