The auto industry will need to expand its focus
from vehicle sales to the full vehicle lifecycle, collaborating
significantly with other players in the value chain
A new report from Accenture (NYSE: ACN), the World Economic
Forum and the World Business Council for Sustainable Development
suggests that the automotive industry could increase the
profitability of its value chain by 50% by achieving full
circularity.
The report, titled “Driving Ambitions: The Business Case for
Circularity in the Car Industry”, is a follow-up to a report the
three organizations issued last year on the case for circularity in
the industry. Circularity is about extending a product’s lifecycle
through the repair, refurbishment, recycling and/or reuse of
materials to reduce waste and minimize pollution and other
ecological impacts — i.e., returning items back into the supply
chain rather than to landfill.
According to the new report, circularity can enable automakers
and mobility providers to tap new sources of value beyond the
limits of their current business models — with an opportunity to
improve profitability across the value chain by 50% and generate
lifetime revenues 15 to 20 times greater than the vehicle’s initial
sales price. The greatest value pools would be achieved mainly
through as-a-service models, including leasing/subscription, car
sharing, and mobility as a service, as well as through lifecycle
services of remanufacturing, repair and recycling.
While it is possible to improve circularity in today’s
ownership-based model, in which individuals own the vehicles they
drive, the returns on circularity — from both profit and
environmental standpoints — are strongest in the as-a-service
models, where vehicle use is intense (in the ownership-based model,
vehicles often sit idle most of the day). Shifting consumer
preferences toward mass adoption of access-based models, the report
states, will be a key strategic enabler to higher circularity
returns.
The report notes several other actions required to achieving
full circularity:
- Automakers will need to broaden their perspective from one that
is mostly internally focused — i.e., on vehicle sales — to one that
considers the full vehicle lifecycle.
- All actors along the value chain will need to collaborate
closely and develop partnerships, building on a high level of
transparency acquired through the exchange of data and information.
This would entail building common platforms for data sharing and
transparency, with an “orchestrator” organization fostering
alignment and the creation of circularity benefits.
- Players will need to transform their operating models and
develop new capabilities and technologies to govern, steer and
manage collaborations and to optimize the lifecycle of vehicles and
their components.
- Companies will need to make strategic choices regarding the
transformation of their core business — through, for example,
co-innovation and partnership, and by expanding into collaborative
activities or the full circular value chain (recycling, repair or
as-a-service models). They could start slowly, first transforming
selected vehicle models or components and later the full
business.
The report suggests two possible scenarios for the
transformation. Individual players could either gradually adapt
their operating model to the circular car strategy, or they could
follow a “leaping” transformation through horizontal expansion,
which can be achieved through mergers and acquisitions or strong
investments in building new capabilities.
“Increasing circularity in the automotive industry will require
a significant mindset shift among car makers and mobility
providers, requiring them to collaborate with others, which include
competitors, more than ever,” said Axel Schmidt, a senior managing
director at Accenture who leads its Automotive industry group
globally.
The report notes that the transformation from a linear to a
fully circular value chain would likely have a significant impact
on profitability in the first three to five years, due to the
research and development costs required to build the infrastructure
and advance key technologies such as recycling and modularity.
However, it’s expected that profitability would return to its prior
levels within five years of the transformation and increase further
thereafter.
In addition, the shift to a fully circular value chain could
change profitability so drastically that, in addition to improving
the profitability of existing businesses, some businesses that are
not currently profitable could become viable — especially in the
areas of full lifetime leasing, vehicle-on-demand, and mobility as
a service. These business models profit from maintaining asset
ownership over the full life cycle and thus incorporate all
circularity cost and revenue improvements into their business
case.
Pedro Gomez, Head of Shaping the Future of Mobility, Member of
the Executive Committee, World Economic Forum, said: “The time to
shift to circular economy in automotive and mobility is now.
However, transforming business models and operations from linear to
circular and creating new business value through circularity is
indeed a paradigm shift for most players. Thus, there is a need for
all stakeholders in the automotive ecosystem to work together to
rethink and redesign their approaches to manufacturing and supply
chains, sales and distribution, reuse, recycling, and
remanufacturing. With this report, the Circular Cars Initiative
(CCI) in collaboration with Accenture, put forward a clear business
case and a direct roadmap for strategic transformation.”
“Circular economy principles naturally align with how companies
in the automotive industry ecosystem manage their businesses, given
the focus on longer product life cycles and strong after-sales
maintenance. The automotive industry can drive many other
industries forward and lead by example with a swift transition to
circularity, which for many in this space is natural extension of
business as usual, only with sustainability built in, not just
bolted on,” said Peter Lacy, Accenture’s global Sustainability
Services lead and chief responsibility officer.
The report notes that while transformation to circularity is
costly, the “cost of inaction might be significantly higher.”
For more information and to view a copy of the report, please
visit www.accenture.com/CircularCarsReport.
About the Research The automotive industry is at the
beginning of its deepest transformation since its rise.
Electrification, digitalization and decarbonization require massive
investments and attention. Supply chain volatilities demand
immediate answers and additional shifts in the value chain.
Environmental, Social and Governance (ESG) investors and regulators
require far-reaching accountability for the supply chain and use
phase. The potential for vehicle sales growth, particularly in
developed markets, is finite, as are options to reduce costs and
improve margins in the current sales-based business model. The
Circular Cars Initiative (CCI) hopes that this report will help
companies across the automotive industry to identify and unlock the
massive environmental and business benefits of a circular economy.
Over the last two years, the CCI has convened a group of over 60
companies and organizations in an array of workshops, one-to-one
interviews and discussions to explore how automotive circularity
can be achieved.
About Accenture Accenture is a global professional
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accenture.com.
About the World Economic Forum The World Economic Forum,
committed to improving the state of the world, is the International
Organization for Public-Private Cooperation. The Forum engages the
foremost political, business and other leaders of society to shape
global, regional and industry agendas.
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Youssef Zauaghi Accenture +49 175 5766458
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