By optimizing for car circularity across the entire vehicle life cycle, automotive companies could significantly improve profitability across the value chain.
Circularity significantly expands the value pools per vehicle
With circularity, companies can tap into new value pools beyond the limits of their current business model. It holds the potential to improve profitability by 1.5x along the value chain and generate revenues per vehicle of 15-20x its sales price. These value pools are mostly in “as-a-service” models, such as leasing and subscriptions, vehicle-on-demand or mobility-on-demand, as well as life cycle services, such as repair, remanufacturing and end-of-life recycling and material processing. This shift in focus helps maximize the vehicle’s lifetime performance. The circularity business case is driven by cross-value chain cost and revenue synergies, positive technology cost curve developments, and a range of breakthrough business models, especially “as-a-service” becoming viable in a fully circular value chain.
Shifting perspective to the full life cycle and value chain
Automotive companies can create value potential from circularity by taking a new perspective in their business case in order to optimize the full vehicle life cycle across the value chain. Costs and revenues of circularity initiatives are often spread between value chain players and are interdependent with other initiatives. For example, sourcing of recycled materials depends on vehicle recycling, which in turn is impacted by design choices. By accounting for these interdependencies and finding new revenue mechanisms (e.g. with “as-a-service” models), companies can drastically improve the circularity business case.
For example, modular vehicle design is a cost in production, but enables profits 1.5-4x its costs in repair, as well as 2-5x in end-of-life recycling and material processing. Cost improvements in advanced recycling technologies, vehicle end-of-life treatment and material processing could generate drastically higher revenues than in today’s models and reduce sourcing costs for low carbon materials. And once a value chain is circular, many business cases, including “as-a-service”, repair or remanufacturing, generally benefit from improved vehicle mileage and the alignment of initiatives. The marginal value created through circular solutions outweighs the potential revenue loss from vehicle sales as the industry shifts to a higher vehicle utilization model.
The value chain orchestrator is critical to enabling a circular transition
The creation of a circular value chain requires companies to collaborate and build common platforms for data sharing and transparency. A new role, “the value chain orchestrator”, will be critical to fostering inter-company alignment and enhancing the creation of circularity benefits. R&D and finance take on a broader role in working across the value chain. Companies will have to make strategic choices regarding the transformation of their core business (e.g. by co-innovating and partnering more), and expanding into synergetic activities or the full circular value chain (e.g. recycling, repair or “as-a-service models”), by building new capabilities or conducting acquisitions. As sustainability becomes increasingly important to the automotive industry, adopting a circular car approach will not only increase supply-chain resilience, but also holds the potential to increase your bottom line.