Electric vehicles charging

Beyond batteries: Unlocking the value of circularity in electric vehicles

Integrating circularity into all automotive parts enables businesses to increase profitability and reduce risk and resource scarcity.


In brief
  • What barriers limit automotive companies from implementing circular strategies for materials in addition to the battery?
  • On average, 60% of EV materials by value are non-battery-related components.
  • Circularity benefits from the EV materials outweigh existing barriers.
  • Circular economy first movers will benefit substantially from these circularity benefits. 

The electric vehicle (EV) is a complex piece of machinery, made up of roughly 30,000 parts. While much of today’s conversation focuses on the material breakdown of an EV battery, which is approximately 40% of the vehicle by value, we will examine the remaining 60% of the vehicle. We will demonstrate the opportunities that exist in incorporating circularity into automotive design and disassembly. Circularity, a systems-based framework grounded in zero-waste production and endless lifecycles, is and will continue to be a business imperative as industries seek to capture value and drive growth in a world increasingly impacted by climate change.

Barriers to circularity

While we recognize there are numerous barriers to the adoption of a circular economy in the automotive industry business model, we identify four significant roadblocks, which are discussed below.

1. Complexity of the EV

As noted above, the staggering number of parts required to assemble a modern-day automobile presents the first and most obvious barrier to creating a fully circular car. Although the number of parts is expected to decrease over time with the adoption of EVs, this will not eliminate the mechanical complexity inherent in these machines. Furthermore, as ICE (internal combustion engines) are replaced with EVs and self-driving capabilities are slowly integrated, the type of parts will begin to change¹. The necessary components are already transitioning from spark plugs and transistors to highly complex supercomputers. Finally, OEMs (original equipment manufacturers) rely on many suppliers to fulfill their needs. For each part to be fully circular, suppliers will also have to adopt circular strategies, which further adds to the complexity of an OEM’s circularity undertaking. Despite the complexity, driving circularity across the value chain will create economic opportunities, as well as opportunities for enhancing positive relationships with suppliers as reverse logistics will need to be implemented to support the circularity of each OEM’s suppliers.

 

Broadly, an EV consists of four key sections: exterior, interior, structural components and electric motor/torque converter.

EV section

Description

 

Exterior

The exterior of a car is primarily made from metal. Additional components include glass for windows and plastic used for lights and in the vehicle’s front grille. The exterior comprises the hood, trunk, doors and body panels. The components of the exterior are made of sheet steel.

Interior

The car interior is comprised of textiles and plastics. Textiles wrap the seats and line the floor, ceiling and trunk. Plastics make up the dash, door panels and other interior coverings, including the column or pillar where the seat belt attaches.

Structural components

The structure of a car is primarily made from metals and composite materials. Steel is the most prevalent material and accounts for 65% of the body by weight. The remainder of the exterior is 13% aluminum, 6% composites, 4% magnesium and 12% other (e.g., dampeners, sealers and adhesives)².

Electric motor/torque converter

In an EV, there is an electric motor and a torque converter, whereas in a nonelectric vehicle, there is an engine and a transmission. In nonelectric vehicles, the combination of these two components is commonly called the drivetrain or power train. The outside or “housing” of an electric motor and torque converter is made of cast aluminum. The electric motor is made of aluminum, copper and a variety of rare earth metals, the most common of which are neodymium and dysprosium³.

Image 1: Exterior and electric motor/torque converter by material type

Electric vehicle 2

Image 2: Interior and structural components by material type

Electric vehicle 1

2. High transition and implementation costs

In the initial transition phase to a circular model, there is lower profitability due to high up-front investments, including the establishment of new facilities to accommodate new processes and technology, training of personnel in circular economy strategies (including dealers for reverse logistics) and design costs to incorporate disassembly into the vehicle up front¹,⁴,⁵. However, these initial investments are necessary for companies to capitalize on circularity benefits (e.g., decoupling from legacy supply chains). Further, although the up-front fixed costs could be substantial, circular business models are expected to be more profitable than traditional models, with some estimates showing improved profitability by as much as 1.5 times along the value chain⁶. This shows the opportunity to absorb these costs over the long term.

3. Lack of disassembly design built into existing EVs

To achieve full circularity and associated profitability opportunities⁶, disassembly must be built into the design of the vehicle from the initial product design, making future vehicles more compatible with the circular economy. However, the problem remains that legacy automobiles were not designed for disassembly and circularity. As OEMs implement circular strategies, the lack of disassembly design built into legacy automobiles will become apparent.

Disassembly can be a difficult process, as strong adhesives, welding and composites are frequently used to bind various car parts together¹. As cars become more advanced (i.e., self-driving), the density of technology within the vehicle will increase. This requires OEMs that outsource production of semiconductors (for example) to either acquire the knowledge necessary to recycle these components or work more closely with suppliers to set up reverse logistics. For OEMs that build these pieces of technology in house, knowledge of how to specifically recycle these components will have to be developed¹. Despite these obstacles, the disassembly design hurdle will need to be addressed for OEMs to fully capitalize on the opportunity for circular business models to enhance profitability⁶. If disassembly design is not implemented, OEMs will have more difficulty extracting materials from end-of-life vehicles and increased profitability will not be realized due to limited material extraction or greater disassembly costs.

4. Existing societal pressures

OEMs must grapple with the landscape of societal pressures facing the automotive industry. Societal pressures in the environmental landscape today are primarily focused on the carbon footprint of their vehicles¹. This makes implementing a circular economy model more difficult as OEMs are currently responding to this pressure by electrifying their fleets. The circularity of their products has not received comparable levels of scrutiny, which ultimately decreases OEMs’ motivation to implement circular economy strategies. However, this barrier presents an opportunity for OEMs to become a first mover in the circular economy space and push their sustainability agendas beyond current societal pressures. Furthermore, societal pressures are starting to shift toward circularity. Specifically, in the European Union, the European Commission adopted the new Circular Economy Action Plan (CEAP) in March 202010 and the European Sustainability Reporting Standards (ESRS) by way of the Corporate Sustainability Reporting Directive (CSRD) includes a section on Resource Use and Circular Economy (ESRS E5)¹¹.

Value proposition and business case for circularity

Despite the barriers to the adoption of circular economy business models in the automotive industry, there is a strong business case for why the automotive sector should prioritize reusing, refurbishing and recycling components to support a circular economy. The value of a vehicle at the beginning of the lifecycle is well established. Circularity would allow for revenue to be generated repeatedly from the same materials through continuous lifecycles. The circular business model, once implemented, can increase profitability while reducing supply chain risk and resource scarcity. These advantages make a strong business case for first movers adopting the circular model in the automotive industry. Below we describe four reasons why the automotive sector should prioritize implementing circularity into their EV business models to reap the benefits of an untapped market.

1. Increased profitability:

Circularity is expected to become more profitable in the coming years due to cost reductions resulting from circular manufacturing advantages, including⁶:

  • Lower remanufacturing costs
  • Less time required for refurbishment
  • Less energy used and emissions created

2. Reduced supply chain risk:

Decentralizing from existing supply chains with reverse logistics loops will help OEMs build resiliency, as well as reduce dependency on individual suppliers and the risk of one stage in the manufacturing process slowing down the next stage.

3. Enhanced cost and knowledge sharing through partnerships:

OEMs do not have to take on the cost of adoption of the circular economy business model alone. Collaboration with recyclers and reverse logistics providers can reduce the cost and serve as a vital partnership in not only cost sharing but also knowledge and information sharing⁶.

4. Address resource scarcity:

Adopting a circular economy business model can help address the scarcity of various materials that make up the EV. A multinational commodity trading giant warned that deep shortages of aluminum mean the world will run out of stockpiles by early 2024⁷. Similarly, research suggests that known primary metal supplies, such as those for steel, will be exhausted within about 50 years⁸. By creating a system of circular lifecycles for the materials needed in vehicles, OEMs will be much less dependent on raw material inputs from extractive industries. A circular economy model will enable OEMs to continuously utilize and control the supply of the scarce material resources already available to them.

Reuse/recycling opportunities for the remaining 60% of the car

Supporting the opportunities for increased profitability and reduced supply chain risk, each part of the car can incorporate circularity based on its own unique properties. Our analysis identified several areas where additional value can be realized for each part of the car by incorporating a circular mindset.

EV section

Description

 

Exterior

With most of the exterior being made from steel, there are several opportunities for reuse. Today, recycling steel as scrap metal is common practice. Direct recycling, where an automaker would collect exterior metal from its models to be recycled into an exterior for future models, presents an opportunity to ensure the steel is not being downcycled along with other scrap metals. A future opportunity for consideration is for car manufacturers to swap select exterior panels for an aesthetic upgrade on a refurbished vehicle.

Interior

Leather scraps can be recycled and re-entered into the value chain to create small consumer goods. Regenerated nylon can be used for floor mats and other trim. Kenaf, a renewable raw material made from a plant in the mallow family, can be used in door trim panels and recycled polyethylene terephthalate (PET) can be used as an alternative to suede⁹.

Structural components

Direct metal recycling can be utilized for steel and aluminum. Structural material percentages are expected to shift as the trend of light weighting vehicles continues, with aluminum and composites increasing and steel decreasing. Composites pose a new challenge for reusing the material in a circular fashion. A composite is a combination of two or more materials at a foundational level. The increase in composites will make separating structural materials more difficult and will require a new recycling process to be developed. Currently, there is not an established recycling process for composites. As material types change in vehicles, the type of materials being selected and potential circularity of these materials need to be considered in the design phase.

Electric motor/torque converter

The idea of rebuilding an internal combustion engine is well established and a service that mechanics regularly provide. The same concept can be applied to an electric motor and torque converter in an EV, which has fewer components. The expectation is that an EV will require less maintenance and that vehicles will be able to go longer between engine rebuilds. This presents an opportunity for auto manufactures to utilize this additional time not spent on mechanical maintenance to prioritize enhancing circularity in the rest of the vehicle.

Image 1: Exterior and electric motor/torque converter by material type

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Image 2: Interior and structural components by material type

Electric vehicle 1

Conclusion

The modern-day automobile is a complex piece of machinery and the implementation of circular strategies to achieve a fully circular car has challenges. However, OEMs that take on these challenges can emerge as first movers and reap substantial benefits that may include increased profitability and reduced supply chain risks.

To tackle the ultimate goal of a fully circular car, OEMs should first obtain the knowledge and skills required to implement circular strategies, as well as develop a strategic roadmap and investment case to achieving circularity. Once the necessary knowledge, roadmap and investment case have been developed, OEMs should engage with stakeholders across their ecosystems, from individual dealerships, to specific suppliers. Ultimately, OEMs should integrate circular economy strategies across their organizations and throughout their value chains with the goal of a 100% circular vehicle.

Danny Brennan, Sean Spiller, Elizabeth Tual and Kristin Bianca of the Climate Change and Sustainability Services practice of Ernst & Young LLP contributed to this report.

Summary 

When thinking about circularity in electric vehicles, much of today’s conversation is focused on the material breakdown of the battery, which accounts for about 40% of the vehicle value; however, this leaves the remaining 60% underutilized. Implementing circular business models in the automotive industry, by integrating circularity into each section of the automobile, is expected to enable the sector to realize increased revenue, while reducing supply chain risk and addressing resource scarcity.

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