The transport sector is for around 20 Prozent of greenhouse gas emissions in Germany and is therefore one of the three largest polluters in the country. 96 percent of these emissions are caused by road traffic. Car manufacturers are facing increasing pressure to reduce some or all of the emissions from their manufactured vehicles and to achieve carbon neutrality in manufacturing.
The emissions for a product not only occur at the producer, but also relate to the entire upstream and downstream supply chain. The latter fall loudly Greenhouse Gas Protocol (GHG Protocol) under "Scope 3" emissions and are taken into account in the emissions balance of a product, so they count towards the total emissions of the manufacturer. It is therefore not surprising that automobile manufacturers are holding their suppliers to account in the face of increasingly strict regulations.
Getting started with decarbonization: Automotive suppliers are still in the early stages – Interview with Mathias Loeser, Senior Manager Sustainability Solutions at ENGIE Impact.
Against this background: Are there legal requirements that force the automotive industry to transform to sustainability and will there be any in the future?
There is not yet much pressure from the government, but mainly from industry - i.e. consumers and competitors. However, that will change in the near future, especially with the EU Fit for 55 Agenda, aiming for a significant amount of CO2 savings in industry. Most manufacturers (OEMs) have now published targets for 2025 to 2030 – which is not far off given the significant changes required. In the regulatory environment, reporting and disclosure guidelines are currently being worked on, such as the EU CSRD, which is primarily intended to help the market regulate itself.
However, the activities that we have seen so far are mainly focused on the development of strategies and framework conditions. It is unclear whether the defined goals can be achieved at all. In general, the focus for OEMs seems to be more on the electrification of the car and its infrastructure than on the carbon emissions from production. This is because the emissions throughout a car's lifetime have so far been mainly caused by use rather than production, but this seems to be changing for electric cars. Unfortunately, it's also not uncommon to use this fuel-based calculation as an excuse not to focus on emissions in production. However, if the market is unable to meet the targets set on its own - which is very likely - sooner or later government agencies will have to intervene. The most likely scenario here is the introduction of CO2 tariffs or other punitive measures.
More and more manufacturers, such as Daimler or BMW, are demanding certificates and reporting documents from their suppliers. What documents and evidence do they need to be able to present? And who is responsible for checking that?
Daimler announced in 2019 that carbon-neutral production would be a criterion for future supplier contracts. Audi and also VW announced that they want to operate completely CO2050-neutral by 2 at the latest. These goals not only relate to the OEMs' own production sites, but also include the entire supply chain – including the suppliers. In their tenders, they formulate requirements for the suppliers who should meet these goals in the shortest possible time. This is the only way for the suppliers to remain relevant for the manufacturers. It remains unclear whether this is an important decision-making factor for procurement or whether other factors such as price or availability are still more important. The major manufacturers publish their own individual targets for Scope 3. For suppliers, this means that they would need different certificates and verifications depending on the customer. However, OEMs are also responsible for checking the evidence themselves. It is not known to what extent this review of suppliers is carried out in detail.
Suppliers also report that manufacturers tend to be less proactive in working with their suppliers to develop a viable and reasonable business plan. Instead, it is up to the suppliers to develop their own strategies to meet the manufacturers' requirements. The burden is shifted to the supply chain.
Changes in production
To what extent can production be changed at all to meet the requirements of the manufacturers? Or where do you start?
Suppliers are often only represented in individual product areas and within these specialize in a few product groups and manufacturing technologies. Companies in the drive product area and to a lesser extent also in the chassis product area sales reductions today, which place a significant burden on companies. The extent to which a conversion is possible here depends entirely on the development of the industry and the willingness and ability of the suppliers to invest. Suppliers from other areas that are not too dependent on the long-term Abolition of the combustion engine affected can of course - more or less - adapt their production to the requirements of the OEMs. But before production can be switched over, the basics have to be in place.
The first thing to do is to clarify the sustainability question for your own company: Why are we doing all this? So to define the motivation behind the transformation. The answer to the question provides company-wide direction and helps make consistent decisions. Finding out the status quo is also one of the basics. Where are we as a company? And as a follow-up question: Where do we want to go and what do we have to do to get there? This allows individual goals to be defined that need to be implemented. In short, companies need to thoroughly assess their current situation and also try to look into the crystal ball. What will the future look like in terms of energy prices and potential decarbonization technologies? Of course, we can only make an informed forecast, but this consideration helps to develop realistic strategies for the future.
What are the risks of this change? And what opportunities open up when the sustainability transformation is actively tackled?
Time is clearly a risk here. Anyone who invests too late in the sustainability of their own company will sooner or later have to react to the goals set elsewhere and will not be able to develop their strategies quickly enough. The prepared competition will then simply leave you behind. In the next year or two, many OEMs will continue to increase their requirements. Therefore, significant investments may come to suppliers to master the sustainability transformation and stay relevant. Suppliers who deal with their own situation at an early stage and are already developing strategies and scenarios, perhaps even having worked out investment plans, will gain a clear advantage over the competition - and become the pioneers of an entire industry. The closer the "deadline" for the goals the OEMs have set themselves, the greater the pressure that suppliers will see themselves exposed to. Prepared and planning-safe suppliers can react faster and more realistically to inquiries, assess and justify the feasibility of goals.
trends and market developments
You talked about looking into the crystal ball: How do you see the future of the automotive industry? Or to put it another way, what is your personal assessment of the market development?
The market can certainly develop in many directions. We are already in the midst of change and there are many new and old trends that are sometimes more and sometimes less realistic. I'm not sure how future-proof this is, but there is a trend of moving from ownership to use, for example. So the transition from a product - the car - to a service - mobility - for example in the form of car sharing. I could also imagine that the automotive suppliers of the future will look different than in the past: produce parts on a white-label basis, as needed, 100% commodified and only pay as a service. Maybe something will change in the balance of power between manufacturers and suppliers and partnerships will be intensified or completely rebuilt. New market entrants are also likely to play a role. They will no longer rely on big, old, inefficient factories whose facilities are no longer adapted to production needs. But whether new factories are actually more efficient is not necessarily clear. Cost "engineering" is still prevalent in new factory builds and means that many then significantly more expensive retrofits may be required. In addition, long-established suppliers bring with them experience and, last but not least, financial strength, which should not be neglected in view of the pending necessary process changes and the associated investments in the next decade. With increasing pressure in the years to come to balance operational success, financial performance and emissions reductions, companies need to ensure their investment decisions result in the most effective and cost-effective roadmap to achieve their goals. And this is exactly where we support. As more and more companies shift production to reach net-zero emissions and meet tightened deadlines, swift and coordinated action is needed.
The Engie Group is a global reference in the field of low-carbon energy and services. Together with our 170.000 employees, our customers, partners and stakeholders, we are committed to accelerating the transition to a carbon-neutral world by reducing energy consumption and offering greener solutions. Inspired by our corporate purpose (“raison d'être”), we balance economic performance with a positive impact on people and the planet, building on our core businesses (gas, renewable energy, services) to offer our customers: to offer internally competitive solutions.
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[Self Portrait of the Engie Group]
Cover picture - E-mobility has a future - Copyright: Gunnar Assmy @ fotolia.com
Interview partner Mathias Loeser, Senior Manager Sustainability Solutions at ENGIE Impact.
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