By Thomas Pohl, Senior Director Marketing, Automotive, SAP
The automotive industry is racing into a new world of mobility and sustainability – and technology is the key to helping automakers achieve both.
The automotive industry is still dealing with supply chain and shipping disruptions resulting from the pandemic, in addition to ongoing parts and semi-conductor shortages. Despite these lingering disruptions, both internal and external pressures are propelling the industry toward the next normal with advanced mobility and more sustainable practices.
Sustainable Evolution of the Auto Industry
Historically, the automotive industry has not focused on sustainable practices. Traditional assembly-line manufacturing processes – many still in use today – use huge amounts of energy, metals, plastics, toxins, and manpower; all leaving behind a massive carbon footprint.
On top of that, once vehicles are produced, most require fossil fuels to operate, which subsequently releases harmful emissions. The entire process has a vast environmental impact that has brought us to where we are today.
While COVID-19 has disrupted supply chains and cars sales, it’s important to note the industry’s trajectory prior to the pandemic. One report estimated that the 86-million cars that were sold in just one year (2018) accounted for 9% of global greenhouse gas emissions. This is exactly why meaningful change is critical, and why the move toward sustainable practices in the auto industry can have such a significant positive impact.
Business leaders understand that considerable change is required for the future of the automotive industry, and that is why they’re shifting gears. Attitudes toward sustainability are maturing, and manufacturers are now leading the way in terms of sustainable change according to a recent survey by SAP and Oxford Economics. The results show that manufacturing executives actually outshine other industries when it comes to taking action to increase sustainability.
Big and small players in the automotive industry are increasingly feeling the pressure to rethink the way they operate. They must reevaluate everything from the design and engineering stages, through the manufacturing and shipping processes, all the way to how vehicles operate, how they are serviced, and how they are dealt with at the end of the product lifecycle.
Some executives are already focused on redesigning processes to meet their sustainability goals – such as Volkswagen building an entirely new plant to manufacture electric vehicles – but all industry players must get on board to make a measurable difference in the evolution of the industry.
Three Drivers of Sustainable Change
There are three main factors driving the push toward sustainability in the automotive industry. Some of the biggest drivers include:
1. Government Interventions
Government agencies are playing an influential role in the growing momentum toward sustainable practices. New directives, such as The European Green Deal and The Paris Agreement, are forcing automotive companies to look for more sustainable solutions to meet stringent carbon-neutral targets.
For example, the European Commission proposes a 55% cut in CO2 emissions from vehicles by 2030, and a 100% cut by 2035, which would make it nearly impossible to sell fossil-fuel-powered vehicles in the European Union. These agreements are in addition to various carbon taxes, incentives, and subsidies being offered by different levels of government to encourage electric vehicle use.
As a result, the auto industry is working closely with the oil and gas industry to build a sustainable future, as oil and gas companies transition into energy companies focused on developing vehicle charging stations and other fuel alternatives to maintain the evolving mobility sector.
2. Changing Expectations
Customer, investor, and even employee expectations are changing, which is having a big impact on the industry. Tech-savvy and eco-conscious consumers increasingly demand intuitive technology in vehicles, while also pressuring automakers to focus on sustainable practices and alternative fuel models, such as electric vehicles.
On top of external pressure from customers and investors, many auto companies are also facing internal pressure from their shifting workforce. Long-time employees are retiring along with their traditional methods and mindsets. They are often replaced with a new generation of tech-savvy, eco-conscious employees who question conventional methods.
Consequently, a growing number of employees are now asking their own employers if they are manufacturing vehicles in the most sustainable way possible, and suggesting alternative ways to save energy and reduce material use. As a result, driving forces for sustainable change are escalating from outside and inside of organizations themselves.
3. Megatrends
Several megatrends in the automotive industry are big drivers for innovative change. These include the progression of autonomous vehicles and fleets, the use of data from connected vehicles, car-sharing programs, alternative transport-on-demand initiatives, and of course the paradigm industry shift toward electric vehicles.
The increased use of advanced technology and the expanding production of electric vehicles has completely altered the way cars are traditionally produced. The shift to manufacturing e-cars has made some jobs redundant, and has also made the traditional assembly line production process obsolete.
Now, employees are being reskilled to acquire advanced technical skills, and line production operations are being replaced with modular production methods, where the car stays in one place, and specialized highly-skilled teams come to the car to work on it at different stages of the process. This has a positive impact on sustainable measures as it reduces the amount of space, energy, and workforce required in the manufacturing process.
How The Auto Industry is Dealing with the Mounting Pressure to Change
Several players in the automotive sector are dedicated to driving sustainable change in the industry. The challenge is getting the entire automotive value chain – including manufacturers, dealers, suppliers, services, and after-market retailers – on the same page.
Some key ways the industry is addressing these ongoing challenges is by encouraging more cross-industry collaboration, and using advanced technology to increase visibility across the supply chain. Supply chain visibility is imperative to future success. In fact, two-thirds of manufacturing executives in the survey said a sustainable supply chain is a competitive differentiator.
That’s why networks of automotive OEMs and technology companies are coming together to address industry challenges such as supply chain issues, secure data transfer and management, electrification of the industry including vehicles and charging stations, battery lifecycle management, and sustainable business practices that lead to carbon footprint reductions.
As new issues arise, such as electric vehicle battery lifecycle management for example, industry groups can work together on developing product lifecycle management from the start – from battery design, to build, through the manufacturing process, to reuse and recycling solutions. Companies cannot manage the entire cycle on their own; they need industry collaboration to develop successful long-term solutions.
Advanced technology can provide the industry with more visibility into supply chains, and can also give companies better insight into product footprints by calculating the environmental impact of products throughout their lifecycle. These types of advanced technology solutions are becoming more important as an increasing number of public companies are required to measure carbon impacts and report on sustainability targets and key performance indicators (KPIs) as they attempt to balance the bottom line with the green line.
Strategies to Balance the Bottom Line with the Green Line
- Automotive companies should consider the following strategies as they focus on adopting more sustainable practices:
- Create a long-term strategy for foundational change that considers sustainability in every process.
- Use technology to increase visibility and transparency in order to source materials ethically and sustainably.
- Plan for sustainability in the design and engineering stages by using relevant data to track, measure, and reduce emissions across the product lifecycle.
- Use logistics processes that optimize loads to increase efficiency and decrease emissions and carbon footprint.
- Operate assets and equipment in an energy-efficient manner that is safe for the environment and for the workforce.
- Collaborate with other automotive and technology companies to work toward establishing more sustainable practices in the industry.
A Sustainable Future is Good for Business
Automotive companies may face many obstacles on the road ahead as they try to balance competing pressures in their industry, but they are up to the challenge. Auto executives understand that sustainability is critical to the future of the industry, and as the survey shows, manufacturers are already leading the way when it comes to adopting more sustainable practices. While some business leaders are more dedicated than others, all organizations in the automotive industry must work together to make the entire supply chain greener – for a more sustainable industry, and a more sustainable planet.
As governments, consumers, investors, and employees accelerate the pressure on automakers to improve, an increasing number of auto executives will jump on board and set sustainability goals.
Once they realize that sustainable choices are actually good for business, they will take further action to balance the bottom line with the green line and make a positive impact on our world.
Learn more about balancing the bottom line with the green line in the SAP and Oxford Economics manufacturing fact sheet, The Sustainable Supply Chain Paradox.