Why Volvo & Audi Are Assessing Sustainability Across Their Supply Chains

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Much of the progress already observed today in decarbonizing the transportation sector can be attributed to technology developments, policy ambition, and greater consumer interest in climate solutions, including electric vehicles (EVs). That’s the shared viewpoint of Karin Svensson, Volvo Group’s chief sustainability officer, and Spencer Reeder, Audi of America’s director of government affairs and sustainability. They sat for an interview with Forbes during this year’s Climate Week and revealed how Volvo Group and Audi are reducing emissions from their own operations, including corporate offices, production facilities, and the energy that powers those buildings. It’s part of a larger approach to decarbonize their supply chains while identifying opportunities to increase profitability.

Gaining more control of sustainability across operations includes reduction in emissions in material production, reduction in the amount of material used, or using alternative, lower impact materials. The largest carbon footprint stems from energy used to manufacture vehicle batteries, steel and iron, and aluminum, with steel, iron, and aluminum representing 40% to 60% of GHG emissions in passenger vehicle supply chains.

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Offering EVs in a Catalog is Just a Start to Decarbonizing Supply Chains

The global transportation sector is a major polluter, producing more than 7 billion metric tons of carbon dioxide (GtCO₂) a year. Cars and vans were the biggest source of transportation emissions last year, accounting for approximately 48% of global transportation emissions. These gases primarily come from the burning of petroleum-based fuels, such as diesel and gasoline, in internal combustion engine (ICE) vehicles.

This major shift is requiring the automotive industry to drastically change business models and transition away from the more complex combustion technology. If burning fossil fuels in transportation must be eliminated, then, beyond making EVs available to customers, what are manufacturers doing to reduce their own environmental footprints?

ICE and electric vehicles (EVs) both have supply chains that generate environmental impacts. Tailpipe emissions are only one factor in considering a vehicle’s life cycle emissions; gasoline and electricity fuel pathways also have upstream emissions to consider, according to the US Department of Energy, which include extracting, refining, producing, and transporting the fuel. The combined emissions from vehicle and fuel production through vehicle decommissioning, often achieved through recycling or scrapping, are referred to as life cycle or cradle-to-grave emissions.

Automakers must consider tailpipe emissions and all emissions coming from the production, processing, and distribution of the fuel or electricity needed to operate a vehicle. Estimating emissions must account for both fuel-cycle emissions and vehicle-cycle emissions — material and vehicle production as well as end of life.

To alleviate emissions from supply chains, automakers must take a systemic approach to economic development. Such an approach must be regenerative by design and aim to gradually decouple growth from the consumption of finite resources. This is called a circular economy, and only a few in the auto industry so far have endeavored to make it part of committed business planning. Circularity is quite important for EVs, which are essential to reducing global climate pollution. Then again, the automotive sector is under severe scrutiny to move beyond the single goal of fleet electrification to also reduce its carbon footprint by way of its supply chains.

While this shift will result in emissions reductions on the road, how are opportunities to drive greater sustainability improvements through the vehicle supply chain being developed? Decarbonizing supply chains is a complex process. In the Forbes interview, Reeder acknowledged, “What I’ve observed during my time with Audi is that the global transport sector has made significant progress; however, there are hurdles that remain.”

An ICE vehicle has emissions that result from oil extraction at the well; transporting crude oil to a refinery; refining oil into gasoline; delivering fuel to gas stations; and combusting fuel in the vehicle’s engine. EVs add another layer of complexity to the circular economy model, due to the make-up of their batteries. At present, sourcing and manufacture of batteries adds significantly to the EV emissions burden and their environmental and social harm.

Analyzing How Audi & the Volvo Group are Reconciling with a Circular Economy Approach

Volvo Group serves the truck, bus, construction, and mining markets, while Audi is interested in the passenger vehicle space. Volvo Group and Audi have both made net zero emissions commitments in alignment with the Paris Climate Agreement.

By diversifying materials now, manufacturers can get ahead of the curve on sustainable sourcing and reduce the impact of future supply chain disruptions. Svensson called it a “golden opportunity,” as the products are available today, including EVs, trucks, buses, and equipment. “The solutions we’re now seeing become a reality are initiatives we’ve been working on for a long time. Volvo Group has good momentum, and I’m very hopeful for the coming decade.”

Here are some of the ways that Audi and Volvo Group are working toward sustainable supply chains.

Audi:

• Planning toward the goal of carbon neutrality at all its sites by 2025;
• Its Ingolstadt, Germany plant, where the new Audi Q6 e-tron will be built, will begin net carbon-neutral production on January 1, 2024; and,
• Uses recycled glass windshields in the Q4 e-tron and recycled plastic covers for seat belt buckles in Q8 e-tron models.

Volvo Group:

• Gradually shifting its production facilities in 18 different countries to renewable energy sources like wind and solar;
• Partnered with a supplier, SSAB, to source fossil-free steel produced using hydrogen — the fossil-free steel is now making its way into its EVs.

Both vehicle manufacturers:

• Are looking for ways to convert to renewable power investments to help ensure lower, less volatile energy costs over the long term, acknowledging that energy use makes up a large portion of manufacturing costs;
• Are integrating recycled materials into vehicles, and both companies have the goal for EV lithium-ion battery recycling to be part of a closed-loop supply chain in the US;
• Have identified that diversifying materials now will make them out front on sustainable sourcing, which will reduce the impact of future supply chain disruptions;
• Are upskilling current employees and training workers to create a pipeline of next-generation, expert service technicians able to work on both ICE vehicles and EVs as well as R&D; and,
• Recognize the need for continued partnerships and policies to ensure light, medium, and heavy duty EV drivers have a positive charging experiences and are incorporating the skills of installing, operating, and maintaining that infrastructure into worker training.

Both Volvo Group and Audi are establishing partnerships to tackle challenges like grid modernization and more reliable and accessible charging infrastructure to enable greater penetration of EVs. The companies say these partnerships are in addition to working closely with Volvo Group and Audi customers and staying in touch with what those customers need to make the transition to a more sustainable transportation future.