The auto industry is up and about sustainability and electrification but not everything is rosy for the companies that maintain the supply chain. Many auto suppliers are experiencing the pinch of rising inflation and now automakers with their set environmental goals, the former are bearing the extra cost to make their products meet sustainability requirements.
Automakers are trying to convert their supply chains into greener ones to satisfy investors as well as regulators. Auto companies such as BMW and Volvo are trying to incorporate as many sustainable materials as they can in their vehicles. BMW, for instance, wants all of its batteries and many of its steel and aluminium providers to produce materials made using renewable energy while Volvo is aiming to achieve the usage of 25 per cent recyclable plastic in its cars by 2025.
Commercial Director at Autins Group Shane Kirrane shared that if the supply companies do not keep up with these demands of the changing times, there are high possibilities that these companies find it difficult to survive. “If you don't, you're not going to have a business in five or six years supplying major carmakers," Kirrane was quoted in a Reuters report.
Many auto suppliers are making big investments to change the work process into an environment-friendly one. These are mainly by developing recyclable parts or incorporating renewable energy in their businesses. Multiple supplier companies also shared that they don't have a high scope to increase the prices which they offer to big auto companies as the latter too are mindful of costs.
A Philadelphia-based company AutoForecast works on auto industry production estimates and also gives suppliers advice on whether the requests-for-quotes (RFQs) that they get from automakers are based on realistic assumptions for vehicle production volumes. The CEO of researcher AutoForecast Solutions, Joe McCabe, said that in the next 10 years, one will observe a massive change in the supply chain and its workings. With demands to create new technologies by suppliers to support EVs, McCabe stated, “Carmakers are also telling suppliers: 'If you want to be part of this new green revolution, give me the best price possible so I don't go to your competition'."
Adopting a sustainable business model is heavy on smaller suppliers as well as on big ones. “The suppliers that don't qualify for sustainability will be ruled out of the procurement process," said Chief Technology Officer of TE Connectivity Ralf Klaedtke. The company, TE Connectivity, with a valuation of $39 billion launched its sustainability drive back in 2020 and is currently working on recyclable products with automakers including Volkswagen, Volvo and BMW.