The ongoing process of digital transformation — the move to a connected, data-intelligent, Industry 4.0 approach to doing business — may well be setting the stage for another transformation that could profoundly change how entire economies and industries function.
This next transformation is about sustainability, and according to Gartner, it is already underway. “By 2029, the circular economy will be the only economy, replacing wasteful linear economies,” the firm declared in 2019.
Gartner defines the circular economy as “an economic model that separates the ability to achieve economic growth from the consumption of natural resources. Circular economic business models encourage continuous reuse of materials to minimize waste and the demand for additional natural resource consumption.”
The automotive/mobility sector is among a wide range of industries, from clothing to consumer electronics to construction, that are looking beyond the traditional take-make-use-dispose route, to a future built on the zero-waste principles of reuse, remanufacture and recycle. For Groupe Renault, “it’s a question of designing sustainable vehicles with recycled and recoverable materials,” the automaker says in its marketing materials. “More specifically, for our electric vehicles, it’s about finding a second life for batteries that are no longer usable, e.g. for storing renewable energy or providing power for buildings.”
The electric batteries in Renault’s New ZOE electric vehicle are being reborn within stationary storage installations for renewably-generated electricity to power buildings, for example. Meanwhile, the French company is sourcing textile products made from old seat belts, fabric scraps and plastic bottles for use in the New ZOE’s seat covers, dashboard trim, gear lever console and door fittings.
Designing automotive components like lithium-ion batteries specifically for re-use is one particularly promising circular approach. Those batteries could even be designed to enable the raw lithium to be extracted and returned to the value chain for re-use.
The opportunities extend well beyond the electric vehicle and its battery. Other vehicle components and parts, from nuts and bolts to entire drivetrains and chassis, also could be modularly designed for repurposing, re-use or recycling instead of scrappage. BMW is exploring that pathway into the Circular Economy via Encory, a partnership with the recycling company ALBA that is working to re-engineer the logistics of vehicle scrappage by creating a system for extracting materials and parts/components from cars to remanufacture them before they are junked.
BMW also has begun the process of integrating circular practices into its 31 manufacturing plants with a new system that separates aluminium sheet waste from its production presses, then turns those bits of sheet metal into pressed cubes that its partner, Novelis, melts and reshapes into fresh sheets of aluminium.
Various internal and external factors are driving the shift to a more circular way of doing business. Clearly the most pressing of those is the broad and escalating global waste problem. In releasing its Circular Economy Action Plan earlier in 2020, the European Commission notes that global consumption of materials like biomass, fossil fuels, metals and minerals is expected to double in the next 40 years, while annual waste generation is projected to increase 70% by 2050.
That waste carries substantial disposal, compliance, health and environmental costs that are borne by individual companies, their customers, the communities of which they are part, the public at large, and, of course, the ecosystems it impacts. The more evident those costs become to companies, consumers and policy-makers, the less appealing the linear model looks — and the greater the impetus to pursue circular opportunities.
Shifting consumer and shareholder preferences provide another compelling strategic justification for that pursuit. More consumers are basing purchasing decisions as much on a product’s sustainable attributes (recycled content, lower carbon footprint, etc.) as on other factors like price and product quality. What’s more, consumers increasingly want to do business with brands and companies that demonstrate a commitment to sustainable business practices. In a 2019 global survey of nearly 30,000 consumers, Accenture Strategy found that 62% of customers “want companies to take a stand on current and broadly relevant issues like sustainability, transparency or fair employment practices.”
Where Technology Fits in
With many circular projects, automotive-related and otherwise, the value chain includes strange bedfellows — companies from disparate industries that bring complementary needs, skillsets and value propositions to a venture. Digital technologies and infrastructure can give circular ventures an edge on the cohesiveness, common language and connectivity needed to succeed.
A shared digital platform can be the conduit that enables information and insight to flow seamlessly, in real time, among the various constituencies of a circular venture. Having a strong and reliable information set is critical to developing a common knowledge base for meaningful collaboration, enabling decisions to be made based on a single version of the truth.
As part of the move to a circular model, linear supply chains will need to be re-engineered into ecosystems. Advanced modeling and analytics can show companies how to most efficiently and profitably source, produce, trace, recycle and recirculate materials and goods. They can show an auto manufacturer how to most efficiently build a component or part with durability, recyclability, carbon content and reuse as priorities. They also can enable companies to evaluate and re-engineer logistics and material flow streams, taking into account location and value up- and downstream.
Digital track-and-trace capabilities like blockchain provide the means to verify information about a certain material or product (authenticity, content etc.) along its journey from raw material, through production, to finished goods, then back into the value chain. By accounting for the carbon emissions of a product across the entire value chain, including production, raw materials, and transportation, companies can factor metrics about a product’s carbon footprint, recycled content, etc., into their operational decision-making and how they manage not only their top and bottom line but also their green line.
These metrics also carry immense external value. The more visible, transparent and accessible data like this is to the broad spectrum of retail, commercial and industrial consumers, the more readily they can factor sustainability into their purchasing decisions, and the closer we’ll be to leaving the linear economy behind once and for all.
Hagen Heubach is vice president and global head of the automotive industry business unit at SAP SE, with responsibility for SAP’s automotive solution portfolio as well as the company’s strategy on future mobility and new business models.