Carmakers’ green targets a challenge to meet
Auto suppliers are feeling the green squeeze as carmakers get clean. Victoria Waldersee, Nick Carey and Giulio Piovaccari ,of Reuters, report.
THE auto industry’s drive to a greener and cleaner future is a treacherous road for companies in its beleaguered supply chain. Only the strong and the shrewd may survive.
Many auto suppliers, already squeezed by rampant inflation and energy prices, say they have little choice but to shoulder the extra costs of making their components sustainable to meet carmakers’ environmental targets.
‘‘If you don’t, you’re not going to have a business in five or six years supplying major carmakers,’’ said Shane Kirrane, commercial director at Autins Group, which has plants in Britain, Sweden and Germany that make acoustic and thermal insulation for cars.
All major carmakers have committed to green targets, seeking to purge dirtier materials from their supply chains to satisfy regulators and investors as they transition to electric vehicles (EVs).
BMW, for instance, expects all of its battery and many of its steel and aluminium providers to produce materials made using renewable energy, while Volvo is targeting 25% recyclable plastic in its cars by 2025.
Many suppliers are consequently making large investments to green up their acts, from developing recyclable parts to hooking up their businesses to renewable energy, according to interviews with more than a dozen industry players.
At the same time, many say they have little leeway to raise the prices they charge big automakers, which are themselves laserfocused on costs as they shell out tens of billions of dollars to reinvent themselves for a lowercarbon era.
‘‘We use the term disruptive all the time, but it’s much more than just disruptive,’’ said Joe McCabe, chief executive of researcher AutoForecast Solutions. ‘
‘‘We’re going to see a real big shakeout the next five, 10 years in the auto supply chain.’’
Philadelphiabased AutoForecast compiles auto industry production estimates and advises suppliers on whether the requestsforquotes (RFQs) they receive from carmakers are based on realistic assumptions for vehicle production volumes.
‘‘Suppliers are being asked to develop new technologies to support EVs and invest in a greener supply chain with [high] volumes we don’t believe are obtainable based on the actual RFQs,’’ McCabe said.
‘‘But carmakers are also telling suppliers: ‘If you want to be part of this new green revolution, give me the best price possible so I don’t go to your competition’.’’
‘A monumental task’
Carmakers are often reluctant to discuss contractual relationships with suppliers.
MercedesBenz, which aims to extensively use recyclable material and ‘‘green’’ steel made using renewable energy in its cars, said it was fully aware that going to zero emissions was ‘‘a monumental task’’ for suppliers.
It said it planned to reach this goal collaboratively, including providing training to suppliers or shared research and development.
Volkswagen, targeting a 30% reduction in CO2 emissions for its vehicles including their supply chain, said it had a collaborative relationship with suppliers, citing a joint programme it created to tackle rising energy prices, without providing details.
Going green is costly for even the biggest suppliers, such as American Swiss connector maker TE Connectivity, according to its chief technology officer Ralf Klaedtke. The company, which is worth about $US39 billion ($NZ68.5 billion), launched its own sustainability drive in 2020 and is working on recyclable products with carmakers including Volkswagen, Volvo and BMW.
‘‘For smaller suppliers, the challenge is even more severe,’’ Klaedtke said.
‘‘The suppliers that don’t qualify for sustainability will be ruled out of the procurement process.’’
For Britain’s Autins, which had revenue of about
£23 million ($NZ44 million) for the fiscal year ending September 2021, one part of the green solution is to shift to 100% renewable energy later this year, according to chief executive Gareth KaminskiCook, speaking at the company’s plant in Tamworth, central England.
He said this would cost his company several thousands of pounds more per year — the cost of building out infrastructure to connect renewable energy to the grid was passed on to business customers. Eventually, though, those bills would come down.
The publicly traded company has also been pursuing its own green targets to satisfy shareholders.
Autins, whose customers include Volkswagen and Jaguar Land Rover, had invested about £50,000 in developing a recyclable insulation material that should be ready about the end of 2022, KaminskiCook said.
‘Killed our margins’
Plastic and rubber component maker Sigit, with annual revenue of about
$US200 million, spent
¤10 million ($NZ17 million) in 201920 on a research centre in Turin that has developed a recyclable thermoplastic composite bracket 90% lighter than the previous metal part.
Chief executive Emanuele
Buscaglione said supplychain problems that began during the pandemic plus soaring costs had ‘‘killed our margins’’ and ‘‘created the perfect storm’’ for the industry.
The SwissItalian company spent three years developing the bracket and now had its first contract, for vans made by Stellantis, the world’s No 4 carmaker, Buscaglione said.
‘‘We are trying to concentrate the few resources we have available on innovation,’’ he said.
However, Sigit’s carmaker customers had been unwilling to pay any more for new, greener products so far, even the luxury brands.
The challenge of passing on added costs to customers was ‘‘anything but trivial’’, Buscaglione said.
Suppliers are also feeling the strain in Germany, Europe’s biggest car market.
M. Busch, which makes castiron parts including brake discs and gearboxes in NorthRhine Westphalia, wanted to shift from burning coke to ‘‘biocoke’’ made from organic waste, use renewable energy and replace gas for melting the metal with hydrogen, owner Andreas Guell said.
But the organic waste was hard to find, there was not enough hydrogen fuelling infrastructure to meet his needs while renewable energy was still expensive compared with conventional power, he said.
Guell said carmakers only wanted to work with suppliers who used green energy, leaving him in a tight spot.
German aluminium supplier Gerd Roeders, the owner of G.A. Roeders, which provides material for Volkswagen and Continental, wants to shift to a hydrogenandgas mix from just gas, but says government and carmaker support is needed to build green infrastructure.
‘‘To be innovative, the supplier industry needs money,’’ Roeders said.
‘‘We feel a bit stuck.’’
THE United States may regard itself as a ‘‘leader of the free world’’, but an index of development released in July
2022 places the country much further down the list.
In its global rankings, the
United Nations Office of Sustainable Development dropped the US to 41st worldwide, down from its previous ranking of 32nd. Under this methodology — an expansive model of 17 categories, or ‘‘goals’’, many of them focused on the environment and equity — the US ranks between Cuba and Bulgaria. Both are widely regarded as developing countries.
The US is also now considered a ‘‘flawed democracy’’, according to The Economist’s democracy index.
As a political historian who studies US institutional development, I recognise these dismal ratings as the inevitable result of two problems. Racism has cheated many Americans out of the healthcare, education, economic security and environment they deserve. At the same time, as threats to democracy become more serious, a devotion to ‘‘American exceptionalism’’ keeps the country from candid appraisals and course corrections.
‘The other America’
The Office of Sustainable Development’s rankings differ from more traditional development measures in that they are more focused on the experiences of ordinary people, including their ability to enjoy clean air and water, than the creation of wealth.
So while the gigantic size of the American economy counts in its scoring, so too does unequal access to the wealth it produces. When judged by accepted measures such as the Gini
❛ The suppliers that don’t qualify for sustainability will be ruled out of the procurement process.
AS travellers head to airports, railway stations and cruise ships for international travel, many will likely forget to pack their overthecounter and prescription medicines. Many more will forget to check the international rules for common medicines easily obtained in their