Automotive Pathway to net-zero 

News of disruptive, even historic, climate change has reached into many aspects of societal, political, and economic discussion—and fundamental readjustments seem inevitable across industries. And while the target of “net-zero” is the objective within automotive, the journey depends on the ability of all industries to join forces toward achieving that common goal—and therefore, remains speculative. For example: is reaching net-zero in automotive futuristic or realistic? Scientific communities and policymakers have been able to describe workable scenarios. Even so, automotive players will likely need to recalibrate their position to move from their finite business models towards a sustainable future.

Today's sustainability decisions have massive implications for a company's future viability. Now more than ever, the pace and impact of current climate change demands bold action. Deloitte published Pathway to net-zero, in a scenario-based model, describes plausible outcomes and the impact of selected decarbonization levers, depending on the willingness to change across global markets.

Transforming the global economy to achieve net-zero emissions by mid-century is an unprecedented economic challenge. The automotive sector is a cornerstone of the world's mobility systems and a key pillar of the global economy. At the same time, it is also a major contributor to climate change.

Over the past few decades, car manufacturers have made significant improvements in the fuel efficiency of vehicles. However, the growing prevalence of larger and heavier cars, especially SUVs, and larger engine sizes have counteracted these efficiency gains.

How can the net-zero targets be achieved?

Original Equipment Manufacturers (OEMs) know what they must do – reduce emissions along the entire value chain by 90% by 2050 at the latest – and have set reduction targets accordingly. However, what remains unclear is how the ambitious net-zero targets can be achieved in a cost-effective way while staying on the "below 1.5°C" path. To answer these questions, we modeled potential decarbonization pathways to net-zero emissions for OEMs and their associated impacts on corporate carbon footprints, profit, and loss (P&L), and the OEM corporate workforce.

To help differentiate the effects of decarbonization for companies, the Pathway to net-zero model provides relevant outputs related to carbon emissions, P&L and the OEM workforce: 

Figure: Pathway to net-zero model structure

There are relevant decarbonization levers for OEMs to reach net-zero emissions. The carbon impact of the levers also depends on their interactions with one another. For example, applying the drive train shift as a decarbonization lever is not as effective if it is not paired with green energy contracts in the use phase. Only when both levers are combined can their full potential be realized.

Figure: Main decarbonization levers across the value chain

Our pathway to net-zero model compared the carbon, P&L, and workforce impacts of different decarbonization levers to achieve long-term emissions reductions in the most economical way, using six potential pathways in two climate scenarios. 

Our study delivered the following key takeaways: 

While current decarbonization discussions are mainly driven by regulation, car manufacturers (including OEMs, suppliers, etc.) may need to take the wheel and play an active part in the solutions that help ensure reaching the net-zero goal. The industry has responded already as demonstrated by their ambitious near-term targets.

For OEMs, the right strategic moves as well as endurance may be needed to help master the coming years successfully. Individual pathways and focus areas should be defined, based on the OEM’s specific background and values as well as its long-term vision and mission, which could include the following aspirations:

• Become a decarbonization leader by massively investing in new business models that, combined with a strong brand image, could translate into a sustainable offering and leads the market.
• Set up strategic partnerships and joint collaborations with suppliers or extend the supplier base to help enable BEV ramp-up at scale and quickly make the BEV product range more economical.
• Survive the profitability dip by working actively with financial investors to fund the transformation under the best conditions and staying closely aligned to regulators to be up to speed when new regulations are enacted.

To prepare for the future, OEMs will likely need to evaluate their current operating models in light of external market conditions. In the face of uncertainty, discussing different options can allow us to map out clear paths to the future. This is by no means limited to qualitative observations. By using a structured, holistic decarbonization model, we were able to show that quantitative insights into the P&L are possible, permitting us to provide sharp, qualitative insights.

In fact, this approach can help enable today's automotive decision-makers to take the necessary steps on an informed basis, shape the future of the industry and their own companies, and continue to play a significant role in 2030 and beyond. Now is the time to start on the pathway to net-zero.