Revealing the ‘green growth’ opportunities in the automotive sector

As pressure grows on the automotive sector to become more sustainable and reduce emissions, there will be commercial (and reputational) opportunities for automotive manufacturers and others if they improve their sustainability and pricing amid new green policies, programmes and regulation.

According to the International Energy Agency, more than 2.1 million electric cars were sold globally in 2019 – a year-on-year increase of 6%. However, that’s still a fall from recent double-digit growth, and electric vehicles still only accounted for 2.6% of total auto sales that year.

People will buy electric vehicles, but like many would-be green consumers they still tend to privilege price over environmental impact – and electric vehicles are still solidly more expensive than their conventional counterparts. So, who is responsible for making sustainable vehicles more affordable? One group worth focusing on is the original equipment manufacturers (OEMs), which face their own challenge of complying with legal requirements while meeting consumer demands and ensuring cost-efficient production. If they can find ways to make vehicles cheaper and greener, then they will meet regulatory and societal expectations at the same time as creating ‘green growth’ opportunities for their bottom lines. There will be a chance for suppliers and others to make greener strides, too.

Feeling the policy squeeze

Globally, automotive manufacturers are feeling pressure to make fleets cleaner and more efficient, says Christian Back, Global Co-Head of Automotive Sector, Mazars, with Europe seeing “ever tightening requirements and a clear direction of travel.” He adds, “EU regulations require OEMs to reduce emissions to 95 grams per kilometre on average, and OEMs are under a lot of pressure to bring their fleets in line and avoid fines for non-compliance.”

As for other parts of the world: “China is matching this 95-gram per kilometre aspiration – albeit with the slightly longer timeline of 2025,” says Jean-François Salzmann, Managing Partner, Mazars, Mainland China. And in Brazil, “A nationwide biodiesel programme is encouraging the use of biofuels in the national energy mix to replace automotive diesel,” according to Franciane Moraes, Senior Manager, Mazars, Brazil.

While exact policy measures may be different in different countries, the march towards more sustainable operations is clear. “However, the aforementioned EU regulation does not take into account the actual environmental pollution,” says Back. “The intended environmental protection goals have already been reached because Covid-19 led to a significant reduction in emissions. With the number of kilometres driven globally falling, there should be no reason to oblige OEMs to pay fines for pollution that didn’t happen - at least not in 2020. But there are no indications that the EU will release the OEMs from this commitment – even for a year or two.”

Seizing opportunities at every step in the chain

Companies should recognise the innovation and growth potential as regulatory and policy pressures align with budding customer demand – with opportunities to transform the assembly line, showroom and the motorway.

Reducing emissions from production and the supply chain

Christian Back notes that most OEMs have plans to produce cars in a climate neutral way: Volvo, for example, has committed to climate neutrality by 2040, not just for its vehicles but for its manufacturing network and operations. Other large OEMs are following suit with similar commitments, including Daimler, VW, Toyota and Ford. “They want to show people they're interested in handling environmental and sustainability questions in a serious way," says Back. Companies can differentiate themselves by showing leadership and making bold commitments not just for their operations but for their whole supply chain.

Lighter vehicles, less petrol

Pursuing fuel efficiency is a challenge OEMs know well, and they’ll continue to find ways to make vehicles lighter and use less petrol. “The Made in China 2025 plan and the Automobile Industry Mid- and Long-Term Development Plan focus on ‘light-weighting’ by using new, composite materials and reducing fuel consumption for the Chinese market as well as on developing new energy vehicles,” says Salzmann. Globally, companies are looking at every component of a vehicle – from the lights to the tyres – to figure out how to push the use of petrol to an absolute minimum.

‘Greening’ the front office and after-sales service

Covid-19 may speed up existing trends towards buying cars digitally rather than in the showroom, notes Moraes: “Companies are aware of the possibility of strengthening sales through digital channels, reducing contact between customers and employees at dealerships.” Fewer heavily lit showrooms mean a smaller carbon footprint, and the shift to digital channels can be an advantage for buyers looking for customisation rather than an in-person sales pitch. “Audi and Porsche offer online platforms and have sold hundreds of units using them,” says Back, “and there are market opportunities for those OEMs and dealers that harmonise their online platforms in a way that serves customers best.”

Accelerating demand for more sustainable cars

Manufacturers can be leaders in convincing car buyers of the long-term value of a sustainable product – especially when customers may be turned off by a high upfront price. “It’s important for OEMs to orient their communications strategies towards climate and sustainability,” says Grégory Derouet, Global Co-Head of Automotive Sector, Mazars, “to open the minds of customers and partners, to think outside the box and show in the end what they are producing is an evolution towards a greener world.”

Successful suppliers will pivot to a technology mindset

It’s not just OEMs who may see significant opportunities from a shift to more sustainable models. “Whenever OEMs face a problem,” says Back, “they typically pass on a bigger part of the problem to the suppliers – but at the same time they offer support to the suppliers to find a solution.” With the coming of electric vehicles and automation, there’s likely to be a huge redesign of vehicle fleets.

In response, “Successful suppliers will act quickly to pivot from a manufacturing mindset to a technology mindset,” says Jeremy Rice, Managing Partner, Mazars. “The future of manufacturing will be less parts and pieces and more tech. It’s hard to just hire engineers and become a tech company. Suppliers need to be in the market for acquisitions of start-ups and stay proactive on acquisitions that make you a leader rather than just reacting to events.”

It’s an approach that suppliers are already taking up. “Progressively, suppliers are developing other activities,” says Salzmann. “A major exhaust supplier, Faurecia, now has a business line in clean mobility. They bought tech companies to make the change.”

Demand for sustainable vehicles is coming, albeit slowly. What is needed to accelerate customer interest is collaboration of automotive companies – from across the market –

to create components that bring down the price so that sustainable vehicles are more accessible. In doing so, suppliers, manufacturers and vendors have the potential to secure green commercial opportunities, while boosting the sustainability credentials of the sector at large.