Remanufacture, refurbishment, reuse and recycling of vehicles: trends and opportunities

7. Medium to long term commercial opportunities

The medium to longer term opportunities, arising from the trends identified in section two, are relevant to the ELV dismantling sector as well as a wider range of businesses with capabilities in financial product development, risk management, logistics and electronics, for example.

In terms of scale of the opportunity it is useful to consider estimates from the recent Ellen MacArthur Foundation report. This report estimates that material cost savings of between USD340 - 630 billion per year in the EU could be achieved by adopting a circular approach in markets for complex durable products, with the motor vehicle sector making the largest savings ^[87] . This reduction in material use would help mitigate against price volatility and supply risks. It would also reduce externalities including environmental costs of disposal, CO ₂ associated with primary extraction, process energy use and process water use. The report further highlights the benefits of this type of approach in the development of local and regional skilled employment to support new business models.

To consider the areas of opportunity in the automotive sector, arising from the medium and long term trends, it is useful to consider a potential future supply chain. The current supply chain was discussed in section two (figure 13). Developing this to reflect anticipated changes of moving towards a 'circular economy' model could lead to a future supply chain with the features and characteristics shown in figure 42. This is a simplified representation of a potential future supply chain. Each section of the supply chain will have more intricate relationships within it. For example, a Tier 1 remanufacturer could have Tier 2 and Tier 3 contractors in its supply chain which source, remanufacture and supply components and sub-components, respectively. Each part of the supply chain will have its own process of obtaining used components and sub-components through reverse logistics and related requirements for information, diagnostic and testing equipment, etc. The figure below presents a high level overview of a potential future supply chain to enable the potential opportunities to be better understood and discussed.

Figure 42 - Potential future automotive supply chain based on a move to a circular economy model

The key features and characteristics of a potential future automotive supply chain (by position in the supply chain, including support activities) include:

OEM remanufacturer - Across all types of vehicle, a high proportion of the OEM business relates to remanufacture of vehicles. The OEM retains ownership of the vehicle and, instead of generating revenue through sale of vehicles to consumers, their business model is based on maximising the utilisation of the vehicles through performance/service contracts. The OEM works with financial service companies to facilitate such exchanges. It is, therefore, in the interest of the OEM to design vehicles which are durable, easy to service, repair, refurbish and remanufacture. The remanufacturing process maximises the use of remanufactured parts and components around a core vehicle skeleton (which itself can be remanufactured). New vehicle production also uses remanufactured parts and components, where possible.

Minimum service level agreements are the same for both remanufactured and new vehicles. The OEM contracts with local garages to ensure vehicles are serviced and repaired to ensure service level agreements are met. The OEM also contracts with the local garages to carry out agreed levels of refurbishment to maximise the time between full remanufacture of the vehicle (whilst still meeting the service level agreements with the consumer).

The OEM shares information across the supply chain about all aspects of design (and involves others in the supply chain in new design to optimise functioning at each stage). The information is shared on accessible ICT platforms and covers aspects of disassembly, quality checking, sub-component sourcing, remanufacture and testing.

Tier 1 remanufacturer - The Tier 1 remanufacturer supplies original parts and components to OEM vehicle producers/remanufacturers. In some instances, the Tier 1 remanufacturer retains ownership of some key parts/components and supplies to OEMs under a service level agreement (for example, key parts such as electric batteries, engines, etc.). In this instance the Tier 1 remanufacturer is responsible for ensuring the part provides the agreed performance within the vehicle. They contract directly with local refurbishment, service and repair garages to ensure this level of performance is achieved. Once the part is no longer able to be repaired or refurbished locally it is sent back to the Tier 1 supplier for remanufacture, as they are the legal owner. Tier 1 owned parts and components are also sent back from disassemblers. The Tier 1 remanufacturers work with financial service companies to enable these service level agreements to operate.

New and remanufactured parts and components are supplied to both OEMs (for new vehicle production and vehicle remanufacture) and local garages. Some parts/components may continue to be sold rather than provided under a performance contract. Where this is the case, both new and remanufactured parts/components are supplied with the same warranty.

Tier 1 remanufacturers share information with others in the supply chain and involve other stakeholders in the design process for new parts/components. Information is shared on new ICT platforms which are accessible to all parts of the supply chain and covers aspects of disassembly, quality checking, sub-component sourcing, remanufacture and testing.

Independent remanufacturer - Independent remanufacturers focus on parts and components not owned by Tier 1 remanufacturers. These businesses have significant skills in mechatronics to reflect the prevalence of this technology across a wide range of parts and components.

Independent remanufacturers supply parts and components to OEMs for new vehicle production and vehicle remanufacture. Remanufactured parts and components are also supplied to OEM contracted local refurbishment, service and repair garages. These garages are also a source of supply of core parts, as are vehicle disassemblers. Core parts are sourced directly or via brokers and are restricted to those parts/components where ownership is not retained by Tier 1 remanufacturers.

Information regarding disassembly, quality checking, sub-component sourcing, remanufacture and testing is available to independent remanufacturers via accessible ICT systems. Independent remanufacturers are also involved in the design process for new parts and components in their areas of expertise.

OEM contracted refurbishment, service and repair garage - Refurbishment, service and repair garages have a different customer base, as OEMs and Tier 1 suppliers retain ownership of vehicles and key parts. Instead of generating revenue from end consumers the refurbishment, service and repair garages will contract directly with OEMs and Tier 1 remanufacturers to ensure service level agreements with end consumers are met.

Refurbishment, service and repair garages will source remanufactured parts from Tier 1 remanufacturers and independent remanufacturers. They will also be a provider of core parts to Tier 1 remanufacturers and independent remanufacturers either directly or via core brokers.

Once a garage assesses that it is no longer economically viable to refurbish, repair or service a vehicle it will transfer it to a vehicle disassembler for removal of core parts and materials.

The garages will access information about refurbishment, service and repair from OEMs and Tier 1 suppliers via ICT systems. They will also be involved in the design of new vehicles and parts to optimise refurbishment, service and repair operation.

Vehicle disassembler - Vehicle disassemblers will operate large volume disassembly plants capable of automated and semi-automated operations. As vehicles, and some key parts, are owned by the OEM and Tier 1 remanufacturer the disassembler will have contracts in place to carry out the process and supply core parts (including the vehicle skeleton) back to the owner.

Depending on the arrangements with the OEMs some parts may be supplied to independent remanufacturers, either directly or through core brokers.

The automated nature of disassembly operations means that a higher level of material recovery can be achieved prior to the supply of any end of life parts to downstream material recovery operations. No waste is sent to landfill.

Vehicle disasemblers will have access to information from OEMs and Tier 1 remanufacturers to help optimise the disassembly process. Disassemblers will also be involved in the design of new vehicles and parts with others in the supply chain.

In addition to the different vertical segments in the supply chain, there are a number of supporting activities which will form part of the future supply chain.

Finance and risk management

Companies involved in developing financial and insurance products will work with OEMs and other parts of the supply chain to develop models to enable changes to product service systems. For example, at a vehicle level, this could include financial models to enable OEMs to move from generating revenue from sale of vehicles to a greater use of leasing, sharing, rental, pay-per-use models. At a parts and components level this could involve Tier 1 suppliers retaining ownership of certain parts ( e.g. electric batteries) that are leased to OEMs but remain the property of the Tier 1 supplier.

Consultancy

Consultancies with a range of specialities provide support in a number of areas across the supply chain. This includes development of business process systems for existing supply chain players and new entrants. Material scientists and nanotechnologists will provide services to alter material structures to extend life cycles and/or enable easier separation of waste materials at the end of life. Expertise in standards accreditation will be required to support implementation and ongoing auditing of new standards for reuse, repair, refurbishment and remanufacture. Expertise will also be required to quantify, certify and trade the carbon savings made through reuse, repair, refurbishment and remanufacturing operations (compared to carbon emissions associated with new component/part/vehicle production) in response to increasing drivers from carbon related regulation and targets. Consultancies with expertise in life cycle analysis and life cycle costing are also required to provide evidence of wider environmental benefits and lifetime cost savings associated with reuse, repair, refurbishment and remanufacture.

Education and skills

A wide range of nationally/internationally recognised education and skills programmes are developed by the public and private sectors to support increasing demand for a labour force with capabilities in reuse, repair, refurbishment and remanufacture. Company specific training is also carried out by training service providers.

Tool developers

New tools developers provide a wide range of operation specific hand tools and larger physical equipment for disassembly, diagnostic and testing operations. In addition to this a wide range of software tools will be required for diagnostic and testing of increasingly complex mechatronic parts and components.

Reverse logistics

Optimising reverse logistics is a key element in a successful remanufacturing operation. Reverse logistics are required to transport vehicle skeletons, core parts, components and sub-components from vehicle disassemblers and OEM contracted refurbishment, service and repair garages. The destination for these elements is OEM remanufacturers, Tier 1 remanufacturers, independent remanufacturers, component remanufacturers and sub-component remanufacturers. As parts and components develop from mechanical to mechatronic composition, this requires greater expertise in handling, transportation and storage to maintain quality of the different elements.

Information and communication technologies

Enterprises involved in reuse, repair, refurbishment and remanufacture will have access to relevant technical information to support their operations. The flow of this information will be from OEMs and their supply chains to independent remanufacturers, service and repair garages and disassemblers. Information is also transferred in reverse to support future designs of vehicles, parts and components ( e.g. to support design for disassembly). The exchange of information is facilitated by new information and communication technologies. Commercial confidentiality barriers have been reduced by regulation ( e.g. similar to the International Dismantling Information System developed by vehicle manufacturers in response to legal obligations of the End-of-Life Vehicle Directive).

Repurposing, upcycling and downcycling

Where parts and components are no longer suitable for reuse, repair, refurbishment or remanufacture for their original purpose, alternative uses are found which avoid landfilling of waste. Enterprises are established to repurpose parts and components for use in other applications. For example, the use of electric car batteries where performance has degraded to a level no longer acceptable for a vehicle still has a residual value for use in energy storage for off peak renewable energy generation.

Alternatives to repurposing are upcycling of parts and components into markets where the value created is higher than the original automotive sector value. Frequently upcycling activities involve artists and designers. For example, upcycling end of life seatbelts to produce handbags.

Downcycling of parts and components also has a place in the market where mechanical and/or chemical processes are used to recover materials from parts and components which then have a lower market value than the original automotive sector value. New processes are developed, utilising developments in material science, to lower the cost of recovery.

Summary of commercial opportunities in the medium to long term

There are a number of areas where commercial opportunities may arise (and economic benefits secured) as a result of a move towards the above future supply chain. These include:

1. Development of refurbishment, service and repair operations at the vehicle level (likely to arise in the heavy plant, bus and truck markets before the passenger vehicle/light van market) servicing regional and national markets. These are likely to contract with OEMs and Tier 1 remanufacturers as asset ownership moves from consumer to OEMs and Tier 1 remanufacturers

2. Development of remanufacturing operations at the part, component and sub-component level (with a focus on growth areas of electronic control units, electronic infotainment units and increasing mechatronic components) servicing, regional, national and international markets. Additional focus of these operations could be on remanufacture of parts/components containing high value metals and rare earth elements ( e.g. catalytic convertors)

3. Development of large scale, semi-automated, disassembly plants for vehicles no longer suitable for refurbishment, repair and service. These plants will be capable of achieving a high volume of part recovery (for supply as cores) and segregated material recovery (with reducing amounts being sent for mechanical separation with associated residual waste)

4. Development of services around financial instruments to support different business models ( e.g. wider use of leasing/pay-per-use models, risk management models to support the availability of refurbished and remanufactured parts and vehicles to others in the supply chain)

5. Development of numerous consultancy services including business process engineering, material science services, standards accreditation, carbon trading/carbon capture (to value the carbon savings made in reuse, repair, refurbishment and remanufacture), lifecycle analysis and life cycle costing (to provide evidence to consumers of the benefits of changing product service system models)

6. Development and delivery of education and skills training aimed at schools, colleges, universities and businesses (covering elements of reuse, repair, refurbishment and remanufacture)

7. Development of specialist diagnostic, processing and testing equipment to support disassembly, service, repair, refurbishment and remanufacturing operations. This includes physical tools and equipment and also software tools. Enterprises in this area will also have opportunities to supply service and maintenance contracts

8. Development of reverse logistics services taking into account concerns over the increasing need for safe handling, storage and transportation of parts and components with increasing electronic composition

9. Development and maintenance of ICT systems for information sharing between different parts of the supply chain about vehicle and part design, disassembly, quality checking, sub-component sourcing, remanufacture and testing

10. Development of enterprises established to repurpose vehicle components and parts ( e.g. electric batteries to renewable energy storage uses)

11. Development of enterprises engaged in upcycling of vehicle parts and components ( e.g. artists and designers producing consumer goods)

12. Development of downcycling operations with greater expertise in material recovery ( e.g. extraction of rare earth elements from magnetic components)

A number of potential policy actions to support the above medium to long term commercial opportunities are described in section nine.

The above medium to long term opportunities are likely to occur as businesses adopt different business models in response to the medium and long term trends identified earlier. In addition to this there a number of shorter term opportunities which arise mainly due to the need to meet 2015 targets set in the ELV Directive. The following section describes these shorter opportunities and the extent to which they align (or potentially conflict with) the medium and long term opportunities.