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Auto Industry Is Betting on Sustainability

The automotive industry and its suppliers are realizing that they must invest in sustainability initiatives because of their importance to customers and shareholders alike.

2021 Auto/Aero Site Guide
Renovations and new construction are 
under way at General Motors’ Factory ZERO in Hamtramck, Michigan, which will be fully dedicated to assembling electric vehicles. 
Courtesy of General Motors
Renovations and new construction are under way at General Motors’ Factory ZERO in Hamtramck, Michigan, which will be fully dedicated to assembling electric vehicles. Courtesy of General Motors
Within the plethora of buzzwords that grew in popularity over the COVID-19 pandemic, there is one that will live on stronger throughout the foreseeable future. Beyond terms like lockdowns, mandates, bottlenecks, shortages, SPACs, and inflation, it’s the word sustainability that will have a lasting effect on companies, their employees, and their customers for the next 100 years. This term is the same one that has been nagging on the ear of executives throughout industries for decades. A small annoyance perhaps at the bottom of the barrel, but now it is, or should be, cemented on to-do lists across the globe.

A Shift in the Marketplace
For automotive OEMs the word now goes beyond a handful of production lines for hybrid and EV offerings or buying carbon offsets to make the state of California happy. As we’ve recently seen with Exxon Mobil and ESG activist investment firm Engine No. 1, if you aren’t thinking about or actually making a dent in this sustainability thing yet, then you have direct career risk.

The rampant rise in EV SPACs and sustainability stocks that rocketed up in 2020, along with a new administration pushing for change, forced the hand of many of the biggest companies in the automotive world. Companies like General Motors — which went from fighting against new emission standards to announcing within a matter of months $35 billion of EV and AV investment and a goal to go completely electric by 2035 — are a great example of the winds that helped to shift the marketplace.

Looking back in time we can see a similar scene evolving now to what took place in the 1970s. U.S. automakers continued to design and produce bigger and bigger cars for the American market and weren’t remotely worried about the smaller, more fuel-efficient front-wheel drive cars that international vehicle-makers were beginning to mass-produce. That was until an oil shock hit the global markets and put the domestic industry on edge. International carmakers pounced and the U.S. automakers never truly regained the market share that was forever taken by this unforeseen shift. As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes”.

Looking back in time we can see a similar scene evolving now to what took place in the 1970s. There may not be any oil shock per se in the near future, but auto executives have certainly seen the writing on the wall regarding the importance of sustainability efforts, and the pandemic certainly helped light a fire in the process. The years leading up to the pandemic were marked by a reduction in passenger car production and a significant rise in SUV and large truck offerings, similar to the 70s era. Companies were pouring investment into their biggest money-makers and best-sellers, as one would naturally expect. Now, it’s the money made by those trucks that’s bankrolling the newest EV revolution.

The revolution includes the likes of Volvo, Mini, Cadillac, and Jaguar going completely electric within the next decade; Stellantis planning to announce 10 hybrid or electric models by the end of this year; Mercedes planning to introduce 10 EVs by the end of 2022; Nissan launching eight EVs and a goal to sell one million by the end of 2023; Land Rover releasing six pure electric vehicles in the next five years; Audi planning to have 30 EVs by 2025; BMW expecting their EV sales to account for 15–25 percent of their total sales; Hyundai having 23 EVs by 2025; and the list goes on and on. It goes beyond Tesla, which while taking up 99 percent of the media airtime only takes up less than 1 percent of total new car market share. It’s up to the incumbent automakers with their massive manufacturing base to bring change.

Building a Sustainable Supply Chain
But sustainability needs to go beyond the car; it needs to go into every step of the supply chain. The automotive industry is arguably the epitome of the word industry, but it’s hardly ever been known as the poster child for sustainability success. In an industry historically dominated by oil, it grew up in an area now known as the Rustbelt — littered with millions of square feet of abandoned manufacturing buildings, forgotten companies, and decay. But there are many things being done and many simple things that can be done now to rewrite their future histories.

For one, we can look at General Motor’s Factory ZERO facility in Hamtramck, Michigan. On the back of their new Zero, Zero, Zero initiative (Zero crashes, Zero emissions, Zero congestion), GM has transitioned this facility from the brink of extinction in 2018 to the bedrock of their electric future. The facility will repurpose old concrete for temporary roads, recycle stormwater to reduce water dependency, feature a wildlife habitat, and will be sourced with 100 percent renewable energy by 2023. In turn, this facility will now roll out vehicles like the Hummer EV, Silverado EV, and the Cruise Origin. It’s the first facility on GM’s stated commitment to have all U.S. facilities powered by 100 percent renewable energy by 2030.

Sustainability needs to go beyond the car; it needs to go into every step of the supply chain. Volvo has also taken some of the most defiant steps toward sustainability throughout its vehicles and manufacturing facilities. Recently the company announced that its plant in Torslanda, Sweden, had become the company’s first manufacturing plant to reach carbon-neutral status. It achieved such status by utilizing climate-neutral electricity and climate-neutral heating through biogas and industrial waste heat. It is Volvo’s stated goal that its manufacturing network achieve climate neutrality by 2021.

But it isn’t just up to the automakers to make the changes in their facilities. The pressure should be passed down to all throughout the supply chain. Porsche, for example, recently called for all 1,300 suppliers to use exclusively renewable energy in the manufacturing of all Porsche components as of July 2021. Suppliers who are unwilling to switch to green energy will no longer be considered. Porsche wants to be carbon neutral across its entire supply chain by 2030, and such restrictions will certainly act as a wakeup call.

Continuing down the supply chain, among many other examples, are Bridgestone’s focus on recycled rubber initiatives; ArcelorMittal announcing a $1.2 billion investment in a green and clean steel manufacturing building; and startups like Redwood Materials and Li-Cycle focused on perfecting the recycled battery for an entirely EV future. This particular point revolving around batteries, as we’ll see, will be one of the most important aspects of true sustainability. It’s one of biggest ironies of clean energy manufacturing that isn’t being talked about as much as it should. In order for us to achieve sustainability with electric vehicles, we are currently relying on an unsustainable mining effort for the raw materials that make up a lithium-ion battery. Certainly, this is something being looked at across the board, but it goes to show that sustainability will go beyond finished products in the future — it has to also be imbedded in every nook and cranny of the automobile.

Investing in cleaner technology is more important to shareholders and customers today than ever before. The New Shareholder Value
The automotive industry is a very asset-heavy, energy-reliant, and labor-intensive industry. Because of this, many companies have been able to use the same facilities for decades — some that may require an unnerving number of updates to be truly sustainable. As my company’s energy division has proven, change can come about in simple ways that over time can pay for themselves. Things like replacing old and outdated systems with lighting upgrades, HVAC updates, smart/automated energy management systems, water conservation, as well as renewable energy sources are great ways to start toward building a sustainable future. It doesn’t all have to come at once and can be built up over time.

Being sustainable doesn’t have to necessarily cost more green either, and this article certainly doesn’t cover all the cause and effect items that can be discussed ad nauseum. In a thin-margin business there will always be a hesitancy to perhaps invest in such initiatives. But what’s different now is that maybe…just maybe…investing in cleaner technology is more important to shareholders and customers today than ever before. Dividend growth and stock buyback are boring; they’re old news. Pumping millions into streamlining your supply chain, cleaning your manufacturing processes, and reducing your reliance on dirty energy is the new shareholder value. People and large public companies are now more interested in aligning themselves with those that will affect their sustainability initiatives and their environments in positive ways.

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