World’s Largest Automakers Go Carbon Neutral

In 2020, the World Resources Institute documented that the energy used in industry and transport accounted for 40.4 percent of the global greenhouse gas emissions of 2016, which was the year when the Paris Agreement – the first-ever legally binding international treaty on climate change – was enforced. At the time, only two of the Top 10 largest global automakers had set clear goals toward reducing greenhouse emissions. More players have joined this movement, as companies realize their role in combating climate change. 

The global car industry must shift to low carbon to survive," stated a Carbon Disclosure Project report in 2018.

Climate regulations are not new. Automakers have already begun adapting their product lines to meet EU’s strict CO2 emissions standards enforced in 2020. Under the Paris Agreement, countries must meet strict emissions standards, which means industries must follow. Over the last three years, most major automakers have announced detailed plans to reduce greenhouse emissions. All of these plans focus on the downstream and upstream value chain. Key areas include manufacturing operations, carbon credits, and an aggressive offer of electric vehicles.

Automakers aim to be carbon neutral by 2050. Manufacturing operations are expected to be powered by sustainable energy sources, while suppliers are encouraged to follow stricter environmental standards. Most companies expect to have a green vehicle portfolio, as well, including battery electric vehicles (BEVs), fuel-cell electric vehicles (FCEVs), non-plug-in hybrid vehicles (N-PHV), and plugged-in hybrids (PHVs). Carbon credits will also play an important role. These are permits for emitting greenhouse gases obtained from funding other environmental initiatives.

Before diving into the implications of these commitments on production and sales, it is key to analyze what companies are committing to. MBN presents a brief summary of the carbon neutrality plans of the world’s 10 largest automakers by the number of vehicles produced in 2018. All initiatives are presented by automotive group rather than the brand.

Toyota’s Environmental Challenge 2050

As the largest producer of light vehicles, Toyota has taken bold steps toward carbon neutrality. In 2015, the company announced Toyota's Environmental Challenge 2050. Two years later, the company detailed the six challenges that comprise its greater goal of achieving "zero CO2 emissions and a net positive environmental impact by 2050.” These challenges include:

• New vehicle zero CO2 emissions
• Plant zero CO2 emissions
• Life cycle zero CO2 emissions
• Minimizing and optimizing water usage
• Establishing a recycling-based society
• Establishing a future society in harmony with nature

All of the challenges are expected to be completed by 2050 but important milestones should be reached by 2030 when the OEM grows its EV and PHEV lineup.

Volkswagen Group’s Commitment to the Paris Agreement

Besides Volkswagen and Audi, the German giant includes luxury brands Bugatti and Lamborghini, commercial vehicle brands Scania and Man, as well as volume brands SEAT and Skoda. It is the first largest automaker by sales and second by production. Soon after the Paris Agreement was signed, the company committed to reducing "the carbon footprint of its cars and light commercial vehicles across the entire value chain by 30 percent, compared to 2015."

Just like Toyota, the group's intention is to make its "entire balance sheet CO2 neutral" by 2050. The strategy is to reduce, convert and compensate by focusing on electromobility and the lifecycle of the vehicle. Highlights include new power stations, "climate-friendly batteries" and climate protection projects that offset emissions through "Verified Carbon Units" (VCU).

Hyundai Leads Innovative, Sustainable Mobility

The South Korean corporation also includes Kia and the fully EV brand Genesis. Although the group has not announced a comprehensive strategy toward carbon neutrality yet, as Greenpeace noted in 2019, the group remains one of the most innovative ones in terms of sustainable mobility technologies. From a partnership with Uber on flying vehicles to the recent launch of new brands including Genesis and HTWO – a brand solely dedicated to hydrogen technology –, the auto group has taken bold steps toward more sustainable materials, processes, and vehicles.

In 2020, the chairman of the group stepped down and now his son, Euisun Chung, is taking the reins of the fourth largest automaker. "2021 should be the year in which we kickstart our great transformation into a new growth engine ... Our hydrogen fuel cell technology, recognized as the world’s most advanced, will expand to diverse mobility and industrial sectors to help achieve carbon neutrality under the ‘HTWO (Hydrogen + Humanity)’ brand," Chung said in a statement on Jan. 4, 2021.

GM’s Recent Carbon Neutrality Goals

It was until last week that GM announced its "ambitious" goal to become carbon neutral by 2040. The company that manufactures Chevrolet, GMC, Cadillac, and Buick vehicles, among others, announced its strategy to decarbonize its portfolio by transitioning to BEVs. The three pillars for the company’s strategy are electrification, renewable energy, and carbon offsets and credits. Most emission cuts, according to the company, will come from incoming new models and renewable energy generation at its facilities.

Stellantis Emerging Amid Decarbonization

The merger between FCA and PSA Groupe finally came to reality in January with the creation of Stellantis. The soon-to-be fourth-largest automaker by sales combines the manufacturing capabilities of both groups. Although a clearer strategy is yet to be seen, principles are already in place.

"At Stellantis, we are committed to contributing to a decarbonized economy by engaging our talents and assets on our road to carbon neutrality across our products, plants, and other facilities," the group states. Key areas include diversity, environmental stewardship, support for local communities, innovation, and responsible sourcing.

Ford, Nissan, Honda, Renault

Rounding up the Top 10 OEMs are Ford, Nissan, Honda, and Renault. The US giant announced in its 2020 annual sustainability report its target to become carbon neutral by 2050. The company's focus is on vehicle use, its supplier base, and the company's facilities. Meanwhile, Japanese Honda has set the target of reducing by 50 percent its total CO2 footprint by 2050. The company, however, is taking 2000 as its benchmark year, while most companies are setting their targets against 2010 and 2015 levels. The plan includes "zeroing" emissions using renewable energy while reducing energy risks.

Nissan also climbed on the carbon-neutral-by-2050 trend after announcing in January its goal to achieve carbon neutrality across its operations and its products’ lifecycle. By 2030, every new Nissan vehicle offered in "key markets" will be electrified. The French auto group Renault, part of the Renault-Nissan-Mitsubishi Alliance, has set clearer short-term goals including reducing its carbon footprint by 25 percent by 2022, 50 percent by 2030, and reaching a zero CO2 impact in Europe by 2050. Its strategy is also based on new vehicles, vehicle manufacturing, and optimized operations. 

Toyota’s 2020 environmental report shows that out of 15 categories in the value chain, “purchased goods and services” accounted for 16.4 percent of its CO2 emissions. Most strategies are thus based on reducing emissions in operations across the supply chain, upwards and downwards.

Most OEMs have codes and standards that suppliers must follow regarding quality; IATF, ISO and other certifications; corporate social responsibility; ethics and environmental standards. The latter will become a priority as the deadline to reach carbon neutrality approaches. Toyota has also incentivized this by issuing its Toyota Green Purchasing Guidelines in 2016. Another example is Audi’s facility in Puebla, which is the only manufacturing plant in North America that has announced its sustainability ranking. Audi’s “S-Ranking” ensures “successful and sustainable long-term trade relationships” to make sure the Q5 model manufactured at the facility meets all environmental commitments.

"The environmental trend is gaining strength. Our customers used to focus greatly on auditing our operations and quality systems but now, all of them are asking about the environment, sustainability and green energies,” Felipe Villareal is CEO of Alian Plastics, a Mexican Tier 2 supplier for premium OEMs and EV brands, told MBN. The CEO of Bocar Group, one of the top Mexican Tier 1s with more than five decades in the market also agrees. “It is really important for us to focus on sustainability and that is why we have a team dedicated solely to making our processes and products more sustainable,” he said.

Carbon Neutrality Approach 2: Electric Vehicles

IHS Markit forecasts the existence of more than half a billion electric cars by 2050 globally, when in 2019 there were less than 9 million, according to the International Energy Agency (IEA). IEA also notes that sales of EVs accounted for 2.6 percent of global vehicle sales in that same year, around 2.1 million to be precise, which increased the EV stock by 42 percent compared to 2018. One in every two light EVs in the world is driven in China. Electric commercial vehicles should not be left out of the picture as they are also essential for reducing emissions in logistics and transportation.

Virtually all OEMs will have an electrified vehicle portfolio by 2050, as well. Newer companies like Tesla or NIO understood that an EV is built on software, thus becoming the most important mobile device. However, they lack the production footprint traditional players have, which still puts traditional OEMs in the lead in terms of sales volume.

ost and charging infrastructure remain major obstacles to boost EV demand. In fact, several OEMs including Volkswagen, BMW and Toyota have set goals to also contribute to the deployment of charging points. On the other hand, government's incentives and stricter environmental regulations also help to push demand for these vehicles. Overall, there are many elements involving the actual development of EVs and we will further explore that in an upcoming analysis piece.

Final Thoughts

In 2022 and beyond, re-evaluations of supply chains—including sustainability— may gather steam as business models are redefined."

The pandemic disrupted business models and supply chains. For the automotive sector, that not only meant bringing some suppliers closer to key markets but also thinking about the future. While the pandemic slowed down sustainability projects due to manufacturing shutdowns, the crisis in sales presented an opportunity to take steps toward carbon neutrality. As the MIT Center for Transportation & Logistics 2020 report on the State of Supply Chain Sustainability notes, 2021 will be characterized by supply chain redesign toward recovery. “In 2022 and beyond, re-evaluations of supply chains—including sustainability— may gather steam as business models are redefined."