Mobility services: In pursuit of a fully circular business model

In recent years, automotive and manufacturing industries have made significant strides towards achieving more circular business operations, emphasising sustainability and resource efficiency. Spurred on by sweeping regulatory change such as the End-of-Life Vehicle (ELV) Directive, original equipment manufacturers (OEMs) are incentivised to create products that contain greater recycled content and are easier to repair, disassemble and recycle at the end of their useful life. On the surface, this approach is seen to conserve resources, aligns with growing consumer demand for eco-friendly products, and paves the way for a more sustainable future.

Whilst significant progress has been made across the segment – the word “circular” now mentioned an average of 22 times in the annual reports of Europe’s five biggest automakers – the in-life portion of the product lifecycle has been largely ignored.

Based on our experience working on this challenge with companies from across the automotive value chain, BearingPoint conclude that retaining control of vehicles throughout their useful life now represents the greatest hurdle to unlocking the potential of a circular business model.

Meanwhile, the in-life stage of passenger cars and light commercial vehicles represents some of the biggest and most immediate returns associated with the move to a circular business model. OEMs that have traditionally focused investment at the beginning and end of their products’ lifecycle must now turn their attention to controlling the in-life stage of their products should they wish to reap the rewards of a circular future.

Design and Manufacture

In lockstep with other industries, the automotive industry has invested in the design of its products and the manufacturing processes it employs to produce them. In recent times, vehicles such as the Volvo EX30 have been launched alongside comprehensive Lifecycle Assessment Reports (LCA). The EX30 LCA report published in March 2024 labours the importance of “cradle-to-gate” carbon footprint analysis^[1].  

Whilst the publication of LCAs has proven popular with environmentally minded consumers, industry regulation has also played a role. For example, recently proposed revisions to the ELV Directive stipulate that 25% of plastic incorporated in the design and manufacture of vehicles must be of recycled origin by 2030^[2]. Regulatory measures such as this mark a significant departure from previous focus on the “recyclability” of materials and shift attention towards the beginning of the product lifecycle. So much is the pressure for regulators and shareholders, the word “recycle” featured in the annual reports of all of the top five European automakers in 2022 and 2021. Over the same period, the term “in-life” didn’t feature at all.

End of Life

Similarly impressive strides have been taken towards efficient refurbishment, reuse and recycling of vehicles at the end of their lives. A critical enabler for the return-leg of a fully circular product lifecycle, the UK and US are leading the way with regards to deployment of intelligent vehicle recycling.

Charles Trent’s state of the art “reverse production” facility in Poole, UK and My Auto Store’s “disassembly plant” in Camden, New Jersey represent recent advances towards high-efficiency vehicle recycling and reuse. The Trent facility which opened in 2022 helps to ensure that over 95% of every vehicle which it processes is recycled or used to supply a burgeoning market for second hand “green parts”.

Demand for green parts from end-of-life vehicles has grown year-on-year and shows no signs of slowing. Despite step-change improvement in technology and techniques used to process end-of-life vehicles, demand for green parts outstrips supply, demonstrating the market’s robust appetite and need for continued investment. OEMs must retain greater control of their vehicles during their lifetime to guarantee the feedstock for end-of-life processing facilities like Charles Trent.

Marc Trent, CEO, Charles Trent Limited

In November 2023 Stellantis inaugurated a €40M Circular Economy Hub in Turin Italy. Following the trend of preparing for the end-of-life aspects of a fully circular business model, the Hub, which will employ up to 550 people by 2025, boasts vehicle dismantling capabilities and plays host to a joint venture between Stellantis and Galloo, a leading metal recycling and recovery company.

In Life

Whilst the beginning and end of the automotive product lifestyle are reaping the rewards of prolonged investment, the “in-life” component of the circular business model has been – by relative measures – neglected. Underinvestment in longest stage of vehicle lifecycle runs counter to the revenue opportunities it presents. Providing mobility services to customers using vehicles throughout their useful life stands to benefit a range of different industry players including OEMs, financiers, and mobility service operators (e.g. LeaseCos).

Consequently – and despite abundant opportunity – industry participants are met with significant gaps concerning the capabilities they require to unlock the full potential of a circular business model. Key capabilities to be considered include:

In Summary – Lessons Learned

As policy concerning the beginning and end of vehicle lifecycles becomes more stringent, industry participants will depend on increased control of vehicles during their lifetime to meet the demands of international regulations. Investing time and energy to address the systems, technology, partnerships, strategy and finance solutions required to operate in-life vehicle services is becoming increasingly important.

Whilst the in-life stage has not benefitted from substantial investment to date, our modelling and experience indicates that it represents significant new revenue and profit opportunities for those who are equipped to service it.

To seize the opportunity that currently faces the automotive industry, whilst mitigating the risks posed by a fast-moving regulatory environment, businesses must consider:

• A rigorous and structured approach when deciding which new capabilities to develop, and in what order. A diligent and systematic approach will avoid scattergun investment and ensure the near-term promises of a circular business model can be achieved.
• Effective incubation of capabilities in such a way that enables companies to realise the financial and economic benefits of the move to a circular model in a timely manner (Horizon 1^[4]).
• The development of capabilities in way that can accommodate the transition of all services and products to a fully circular business-as-usual model in the future (Horizon 2 and Horizon 3).

Automotive business must carefully consider, evaluate, and commit to investments which will prepare them for the long term without sacrificing short term benefits – a multi-time-horizon shift.

Contributing Authors

Joseph Riou, Senior Business Consultant - joseph.riou@bearingpoint.com