Auto brands must meet EU end-of-life vehicle (ELV) requirements to include 25% post-consumer recycled (PCR) plastic in their vehicles by 2030. The operational reality in most automotive Original Equipment Manufacturers (OEMs) however, is cost cutting comes first.
There is a world where both outcomes can be true: Circular’s AI platform finds recycled material that meets desired OEM specs with cost savings opportunities across the entire material portfolio (aka Bill of Materials, or BOM). OEMs can now save millions in raw materials costs per year and hit Extended Producer Responsibility (EPR) goals.
Context
Circular’s recent customer case studies showed that sourcing recycled plastics to spec, and achieving savings, can be done efficiently with its unique global supplier model and AI tools. Circular also worked with OEMs that need to meet new ELV requirements in Europe, and have a large plastic portfolio in production. The one critical catch is that the competitive dynamics in the auto market mean a prioritized focus on budgets; any project that adds cost will likely not be approved. A typical incumbent response would be to assume PCR costs more than virgin plastic (green premium) and deprioritize all PCR projects. But two progressive OEMs circularity teams working with Circular.co found a better way.
Approach
( NOTE: All data has been adjusted and anonymized to protect privacy)
Even though OEMs use tiered suppliers to manufacture most of their plastic parts, they still manage the BOM (and the portfolio of raw materials, and the costs that go into it), helping guide their suppliers to achieve goals. Circularity teams at two OEMs chartered with the mission to figure out how to hit ELV requirements within budget provided Circular with their current (virgin) plastic portfolio, consisting of over 40 types of plastic and all the detailed volumes and technical specs associated with them.
Circular’s AI tools analyzed each of the materials, and all the associated technical spec data, to instantly find relevant PCR suppliers who have produced that exact match of material before, at what capacity, where and for how much. (NOTE: This is no small task: we have observed incumbent teams take years to develop viable PCR suppliers for production). With that data, Circular’s software then calculates and proposes minor modifications to specs that will not affect performance but can broaden the chances of finding a match in PCR markets. The platform then repeats this process many times across the entire virgin plastic portfolio, ultimately summarizing findings into recommended scenarios to hit minimum PCR % and/or find cost savings.
This “PCR Portfolio View” is then used by the OEM’s circularity team to define their strategy, get budget approval, and go to market with their suppliers. The suppliers identified in Circular’s initial proposal are then part of a digital RFQ process that secures custom quotes within days and efficiently connects the OEM with suppliers online throughout the remaining procurement and onboarding processes.
Insight
An average passenger vehicle is approximately 50% plastic by volume and 10-15% by weight (~300kg). The OEMs Circular works with make millions of vehicles per year across global manufacturing facilities. If one brand's output is 500,000 vehicles, for example, that equates to approximately 150,000 metric tons of plastic. And, if you apply a conservative broad average cost per ton of $1,000/ton, that equals $150,000,000 per year in raw material costs for plastic alone. Now do that for multiple brands across a portfolio and you can see the opportunity. Then think across the industry as a whole: combined auto OEMs use approximately 50 million tons of plastic per year, and as the EV market expands, the total auto plastics market is projected to increase at >6% CAGR.
(Additional sources: Statista, BCC research, Circular analysis)
Implications
- PP and HDPE are excellent candidates for transitioning to PCR in automobiles. The majority of plastic in a typical vehicle is Polypropylene (PP) and High-Density Polyethylene (HDPE), comprising many interior and non-performance applications. The volume and spec requirements in these areas fit with Circular’s projection of market availability, making these materials the primary avenues to hit ELV requirements.
- Portfolio savings opportunities are significant. Using transactional price history from Circular’s supplier network, together with specific technical specs and volumes, Circular found savings vs. benchmarks such as virgin plastic and market indices. Of note here, total portfolio savings opportunities were significant, yielding approximately 2% raw material cost savings, which translates to multiple millions for a typical OEM.
- Innovation is required to create real closed loops. The EU ELV Directive also requires that 6.25% of the vehicle's recycled plastic (25% of the 25%) comes from recycled ELVs (i.e. a “closed loop”). That means OEMs must find new ways to source recycled vehicular plastic and ideally create true circularity by recycling their own vehicles. Many OEMs are experimenting and looking for innovative approaches, a big opportunity for scaling startups.
As observed in prior cases, Circular’s customers avoided the common pitfalls in transitioning to sustainable materials and proved not only technical but also economic viability. The same can be said for Circular’s auto clients, who are on a path to hit ELV goals within budget. Now, that’s real, tangible progress toward a circular economy!
Is your brand ready to transition to sustainable materials?
Book a demo of Circular’s platform today.