summary:
This article analyzes the strategies used by major international automakers to address the net-zero emissions issue. It also investigates the measures being implemented by small and medium-sized enterprises (SMEs) in the international automotive industry to promote carbon reduction, addressing the carbon reduction needs of automakers. This research serves as a reference for SMEs in the machinery industry to identify carbon reduction strategies and address missed opportunities. Drawing on the experiences of major international automakers and SMEs, this article suggests that in addition to promoting carbon reduction efforts through strategies such as energy conservation and low-carbon product design, product/raw material recycling and reuse, process upgrades, and the introduction of renewable energy, SMEs in Taiwan's automotive industry can also strive for credible international certification to enhance communication of their carbon reduction efforts.
I. Background of the Issue
According to surveys and estimates by the International Energy Agency (IEA), over one-third of global carbon emissions come from transportation, with road transport accounting for over 70%. This phenomenon has not only driven the rapid development of new products like electric vehicles, motorcycles, and trucks, but has also focused the attention on carbon reduction efforts by major automakers. Furthermore, given the massive export volume of auto parts in Taiwan, we believe it's necessary to study carbon reduction trends within the automotive supply chain. This research aims to understand the carbon reduction strategies of leading automakers and to clarify the key measures being taken by small and medium-sized suppliers in the automotive industry to address these strategies.
According to statistics from the Taiwan Automotive Industry Association, Taiwan's auto parts exports exceeded US$200 billion in 2014 and reached US$253 billion in 2022. The top five export destinations for auto parts in 2022 were the United States (56.2%), the European Union (9.58%), Japan (4.72%), Mexico (3.23%), and Mainland China (2.93%).
The latest statistics from the Taiwan Automotive Industry Association (January to June 2023) show a slight structural shift in the top five export destinations for Taiwan's auto parts. The top four export destinations remain the United States (50.37%), the European Union (11.46%), Japan (5.53%), and Mexico (3.6%), respectively. However, the fifth place was taken by the United Kingdom (2.75%), which had previously replaced mainland China.
Auto parts exports to the top three markets of the United States, the European Union, and Japan account for nearly 70% of total exports. Therefore, this article will examine the carbon reduction strategies of leading automakers in these three markets: Ford Motor Company in the United States, Volkswagen in Germany, and Toyota Motor in Japan.
II. Carbon reduction trends in the automotive industry:
1. Ford Motor Company
Ford Motor Company holds a 13.9% market share in the United States, a gap of about 2.5% from the largest automaker, General Motors. However, Ford is the only American automaker to have pledged its commitment to the Paris Agreement and set a goal of achieving carbon neutrality by 2050.
To achieve its 2050 carbon neutrality goal, Ford Motor Company is focusing its carbon reduction strategy on reducing vehicle emissions during use and emissions from suppliers. Ford's research reveals that Scope 3 emissions are the primary source of its carbon emissions, with vehicle use accounting for approximately 81% and suppliers accounting for another 15%. Therefore, Ford is committed to developing hybrid and electric vehicles to reduce the carbon emissions generated by its products during use.
Ford is also requiring its suppliers to align with the Science-Based Targets (SBTi) initiative, setting carbon reduction targets, developing strategies, and publicly disclosing their progress. Ford's current supplier carbon reduction target requires Tier 1 suppliers to achieve Scope 1 and Scope 2 carbon neutrality by 2035. In addition to these measures, Ford has also set a milestone of using 100% renewable energy across all its production sites by 2035.
2. Volkswagen Group of Germany
The Volkswagen Group, comprised of brands including Volkswagen, Porsche, Audi, Škoda, Lamborghini, and Bentley, holds a market share of approximately 23.3% in the European Union, making it the current leader in the EU's consumer auto market. On April 29, 2021, Volkswagen Group President Ralf Brandstätter unveiled the Group's carbon neutrality roadmap, declaring it will achieve carbon neutrality by 2050, in anticipation of investors and consumers.
To achieve its 2050 carbon neutrality goal, Volkswagen has set the following milestones. First, by 2030, Volkswagen will fully integrate renewable energy at its plants in Europe, North America, and South America, reducing its Scope 1 and Scope 2 carbon emissions. Second, Volkswagen will expand its electric vehicle product line and production capacity, producing more electric vehicles to reduce its lifetime carbon emissions. It will also increase the proportion of sustainable materials in its electric vehicles, even going so far as to exclusively use recycled aluminum rims and tires produced using low-carbon processes. Through these measures, Volkswagen aims to achieve its goal of a 40% carbon reduction in vehicles shipped in Europe by 2030 (base year 2018).
Supply chain carbon reduction is also a key priority for Volkswagen. Volkswagen emphasizes that suppliers' carbon emissions will be a key indicator for determining the sustainability of future partnerships. Volkswagen will also expand its collaboration with suppliers who are consistently reducing their carbon emissions, both to encourage high-quality suppliers and to ensure the sustainability of its product supply chain.
3. Toyota Motor Corporation of Japan
Toyota is Japan's most influential auto brand, with a 55% market share. Compared to Ford and Volkswagen, Toyota began promoting its carbon reduction strategy years earlier, starting in 2016.
Since 2016, Toyota has been promoting its "2050 Environmental Challenge," setting an overall goal of achieving carbon neutrality by 2050 and implementing six key challenges. The first challenge is to reduce the average carbon emissions of all Toyota vehicles produced by 90% by 2050 (based on a 2010 base year). The second challenge is to eliminate all carbon emissions throughout the product lifecycle. Specifically, Toyota will achieve zero carbon emissions throughout the entire lifecycle of its vehicles, from raw material production, component manufacturing, assembly, use, and disposal, through recycling.
The third challenge is to achieve zero carbon emissions at all Toyota Motor plants by 2050. This challenge also includes reducing carbon emissions at all new plants by one-third by 2030 (based on a 2001 base year). Specific measures to achieve this goal include the introduction of renewable energy, hydrogen energy, energy conservation, and process upgrades. The fourth challenge is to optimize water resource utilization according to local conditions, primarily through wastewater and rainwater recycling and water reduction.
The fifth challenge is to develop recycling technologies and promote the dismantling and recycling of end-of-life vehicles worldwide. The sixth challenge is to leverage Toyota's experience and network to promote environmental education and conservation worldwide. In addition to these six major challenges, Toyota also emphasizes that raw material and component suppliers must cooperate with Toyota's carbon reduction strategy, promote carbon reduction measures, and disclose relevant information.
Ⅲ. Carbon reduction cases of small and medium-sized enterprises in the international automotive industry:
Below, we will introduce three small and medium-sized enterprises: Penda Corporation, an American automotive parts supplier to multiple auto brands; Calamason Industries, a British family-owned SME that produces a variety of auto parts through stamping processes; and Kyohatsu Industries, a Toyota supplier and the first Japanese company to obtain Science-Based Initiative (SBTi) certification. These companies are promoting carbon reduction through strategies such as product design, resource recycling and reuse, process technology upgrades, and energy conservation, responding to the carbon reduction needs of auto brands.
1. Penda Corporation (USA)
Founded in 1975 in Portage, Wisconsin, USA, Penda Corporation is a professional automotive parts original equipment manufacturer (OEM) with a staff of between 150 and 200 employees. Its main products include truck bedliners, pickup truck bed racks, and roof-mounted luggage. Its clients include major automakers such as Ford, General Motors, Honda, and Toyota. In recent years, Penda Corporation has been committed to promoting corporate carbon reduction to meet the environmental sustainability demands of its clients.
Penda Corporation is promoting carbon reduction through two approaches: product design and manufacturing. First, Penda Corporation is increasing the proportion of recycled plastics used and designing products with the goal of producing 100% recyclable products, in order to achieve the goal of reducing the carbon footprint of the product life cycle. Second, during the product manufacturing process, Penda Corporation recycles and reuses all scraps generated during the production process, both improving the efficiency of raw material use and reducing the amount of waste. Currently, 50% of Penda Corporation's product design and manufacturing materials come from scraps or recycled products, 20% comes from recycled materials, and the proportion of virgin materials has dropped to 30%.
In addition, to meet the needs of suppliers, Penda Corporation has implemented an environmental management system. Based on the ISO 14001 standards and framework, it has developed a company environmental management policy, such as setting environmental goals and related indicators. Based on these policies, Penda Corporation provides internal employees with environmental management-related training to improve the efficiency and implementation of the company's environmental policy.
2. Clamason Industries, UK
Clamason Industries is a family-owned precision stamping manufacturer with approximately 200 employees. Founded in 1947 in Kingswinford, central England, Clamason Industries currently serves clients in the automotive, medical, industrial, and environmental technology sectors. Its automotive products primarily include components for cockpits, engines, fuel systems, lighting, and tire pressure sensors. In addition to the UK, Clamason Industries also has a production base in Slovakia to provide close service to European customers.
Considering the UK government's 2050 national net-zero emissions target and the ongoing efforts of major automakers to reduce their environmental impact, Clamason Industries has set a goal of a 25% carbon reduction by 2040, aiming to make a greater contribution to reducing environmental impact. Currently, Clamason Industries is focusing on four key areas of carbon reduction: raw material substitution and process improvements, investment in energy-saving equipment, energy consumption reduction, and operational optimization.
First, in terms of raw material substitution and process improvements, Clamason Industries uses aluminum as the primary raw material for its products, considering its recyclability, lightweightness, and durability. They upgraded their manufacturing process from traditional casting to stamping, thereby reducing energy consumption and implementing the concept of low-carbon manufacturing. Second, Clamason Industries replaced all of its factory boilers with new A+-rated boilers and implemented an integrated AI digital monitoring system to improve temperature control and energy efficiency throughout its operations.
Third, to reduce energy consumption, since the factory's equipment is mostly pneumatic, Clamason Industries has introduced energy-efficient, environmentally friendly compressors with automatic control functions. These compressors only operate when needed, generating the compressed air needed to power production equipment and thus reducing unnecessary energy consumption. Fourth, to optimize operations, Clamason Industries has replaced all company vehicles with electric vehicles and is also implementing a plan to phase out diesel trucks, thereby achieving its goal of reducing Scope 1 carbon emissions.
3. Japan Kyohatsu Industries
Founded in 1966, Kyopah Industries is a small automotive parts stamping, welding, and assembly plant located in Okazaki, Aichi Prefecture, Japan, employing between 30 and 40 people. Toyota Motor Corporation counts Kyopah Industries as one of its clients. In recent years, Kyopah Industries has embraced environmental sustainability and actively aligned with its clients' net-zero emissions goals (Toyota requires Kyopah Industries to reduce carbon emissions by 3% annually). In February 2021, Kyopah Industries became the first small and medium-sized enterprise in Japan's automotive manufacturing industry to receive SBTi certification.
In response to the SBTi, Hip Fat Industries has set a target of reducing Scope 1 and Scope 2 carbon emissions by 50% by 2030 compared to 2018 levels, based on a scenario designed to prevent global warming of 1.5°C. After conducting a carbon inventory, Hip Fat Industries discovered that electricity use was the primary source of its carbon emissions (accounting for 90%), and therefore selected energy conservation and source conversion as its primary carbon reduction strategies.
Regarding energy conservation, Hip Fat Industries is inspecting and replacing equipment with high carbon emissions, including air compressors, air conditioners, and lighting. They are also installing rooftop insulation and recycling waste heat from air conditioner compressors. Regarding energy conversion, Hip Fat Industries not only purchases renewable energy from renewable energy suppliers but is also planning to install solar panels on the factory rooftop to generate renewable energy for the office and factory.
Promoting these efforts has enabled Hip Seng Industrial to respond to clients' carbon reduction demands and maintain its competitiveness within the supply chain. However, Hip Fat Industrial notes that obtaining SBTi certification may be its greatest achievement in its carbon reduction efforts. Hip Fat Industrial initially responded to SBTi with the goal of establishing a clear path forward. However, after achieving SBTi, it unexpectedly attracted more clients it hadn't previously approached, actively seeking collaboration opportunities.
IV. Discovery and Suggestions
(1) Requiring suppliers to reduce carbon emissions has become a basic strategy for large automakers to promote carbon reduction.
The carbon reduction strategies of three leading automakers—Ford Motor Company in the United States, Volkswagen Group in Germany, and Toyota Motor in Japan—show that requiring suppliers to reduce carbon emissions and implementing carbon reduction measures in the supply chain have become a primary carbon reduction strategy for automakers, alongside the development of new-generation vehicles such as hybrid, electric, and hydrogen fuel cell vehicles. Ford Motor Company has set specific carbon reduction targets for its Tier 1 suppliers, Volkswagen Group has stated that suppliers' carbon emissions are a key indicator of future partnerships, and Toyota Motor Company has even mandated a 3% annual carbon reduction from its suppliers. Small and medium-sized enterprises (SMEs) within the supply chains of major automakers should plan and implement carbon reduction efforts early to better meet customer needs and maintain their supply chain competitiveness.
(2) In addition to promoting carbon reduction, seeking credible carbon reduction certification can also provide substantial assistance to small and medium-sized enterprises
Faced with pressure from automakers to reduce carbon emissions, SMEs can adopt carbon reduction measures including energy conservation, low-carbon product design, product/material recycling, process upgrades, and the integration of renewable energy. These strategies have been proven effective by SMEs in the international automotive industry and are worth considering for SMEs in Taiwan. Furthermore, the case of Kyohatsu Industries in Japan demonstrates that SMEs can also pursue representative carbon reduction certifications. By leveraging credible carbon reduction certification methodologies, they can set carbon reduction targets and develop carbon reduction strategies, gradually implementing these reductions to meet client demands. Furthermore, by obtaining certification, they can enhance their image and open up new business opportunities.
Sources:
1. Refer to IEA survey data, source: https://www.iea.org/energy-system/transport
2.July Sales Press Release (ford.com)
3.2023 Climate Change Report (ford.com)
4.https://media.ford.com/content/fordmedia/fna/us/en/news/2020/06/24/ford-expands-climatechange-goals.html
5.https://annualreport2022.volkswagenag.com/group-management-report/business-development/deliveries.html
6.https://global.toyota/en/company/profile/production-sales-figures/202306.html
7.https://global.toyota/pages/global_toyota/sustainability/report/er/er18_07-13_en.pdf
8.Penda Corporation
9.Clamason Industries
10. Xiefa Industrial
Organizer: Ministry of Economic Affairs, SME Administration
Executing Unit: Plastics Industry Technology Development Center
