2024 Solutions Webinar Series

Sustainability Challenges in
Automotive Industry Susanna Huang
Consulting Principal, Consulting
A Focus on Decarbonization S&P Global Mobility
Feb 23, 2024

© 2024 S&P Global.

Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Global.
Agenda

• The Rising Tide: Why Sustainability Matters

More Than Ever
• Industry Action Towards Decarbonization
• Opportunities and Challenges
Sustainability is becoming increasingly relevant thanks to drivers from regulations,
investors and customers
Stringent regulatory requirements

• Carbon footprint disclosure /

reduction
• Supply chain due diligence
• …
Regulations

Sustainable requirements
from investors Greener Preferences of Customers
Investors Customers
• ESG scores will impact stock • Increasing concerns over
market performance environmental issues
• ESG performance will shape • Willingness to pay for more
funding condition sustainable future
• … • ...

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Regulations to direct companies towards sustainability

Mandatory ESG Disclosures Regulations Driving Sustainability /Decarbonization

Examples Obligations Implications

+ 60 Stock Exchanges
provided written guidance for ESG reporting • Carbon tax for steel, iron, aluminum, electricity,
cement and fertilizer Reducing
CBAM • Carbon tax depends on carbon emission, EU
Carbon Price, free carbon allowance and carbon
carbon
+ 25 Stock Exchanges price in production country etc. footprint
Mandate ESG reporting as a listing
requirement • Label, BMS, Battery passport
EU Battery • Carbon footprint disclosure, threshold Increasing
Regulation • Recycling efficiency, recycling contents, Recycling
+ 50 Central Banks / Regulatory bodies • …
contents
Announced to monitor / regulate environment
factors of companies • Recycling materials, e.g., plastic, steel, aluminum
ELV • Extended production responsibility
Directive • Circularity passport Boost local
+ 25 Central Banks / Regulatory bodies • … ecosystem
Considered assessing climate risk as a
… …
financial risk in stress testing

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With increasing financial institutions committing to Net-Zero, sustainability has
growing impact on companies’ capital market performance
Growing Pledges towards Low-carbon Investment Better Market Performance for those excel in ESG

Net Zero Asset Managers Initiative

Asset • 220 signatories
Mana- • $57 trillion in assets under mngt.
gers • Aiming for net-zero emissions
based on targets by 2050 or earlier

Net Zero Asset Owners Alliance

• 66 signatories
Asset • $10 trillion in assets under mngt.
Owners • Transitioning the investment
portfolio to net-zero greenhouse
Improvements in ESG key performance indicators in the S&P 500 ESG
gas emissions by 2050 Index, relative to the S&P 500

Score Score Score

Net Zero Banking Alliance +15% Increase
+15% Increase
+14% Increase
• 101 signatories
• $67 trillion in assets under mngt. Effectiveness of Ability to Attract & Company Performance
Banks ....
• Targets set for 2030 & 2050, Company Strategy on Retain Top Talent on Key Human Capital
interim targets established every 5 Climate-Related Risks Development
years starting from 2030 & Opportunities Indicators

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Globally, sustainability is a growing societal concern and consideration factor in
decision-making process of product purchase
Sustainability concerns remain Sustainability becomes a Customers are willing to pay
top societal concerns consumer trend extra for low-carbon cars
2022 Global consumer survey on societal concerns % take environmental protection in purchasing % willing to pay extra for green cars

Average ~40% of respondents take environmental Extra amount

Covid
protection into purchase decision-making in RMB
Inflation
Money for
basics unw illing <10k
to pay
4th Envir. pollution extra for
green
Recession
th w illing to 1k-5k
6 Climate change pay
extra for 5k-10k
Healthcare cost green
>10k
Educational equality Region Region Region Region Region
A B C D E
…

As eco-concerns emerge amid global pandemic and growing extreme weathers, customer-driven
sustainability gains momentum in strategy making of auto makers

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What are the
forward-looking
OEMs doing?

7
© 2024 S&P Global.
Decarbonization | OEM pledges towards Net-Zero

2025 2030 2050 2060

Key
CN Carbon Peak CN Net-Zero
Government Pledges Implications
EU emission -55% EU Net-Zero

2030 LCA
Net-Zero
Global OEMs, in
2030 LCA emission 2039 LCA
cut by 30% Net-zero
particular, premium
2030 LCA emission 2040 LCA
brands from EU made
cut by 60% Net-zero
aggressive
2030 1st Model 2040 LCA
LCA Net-Zero Net-zero decarbonization targets,
2030 LCA emission 2050 LCA echoing EU’s Net-Zero
cut by 30% Net-zero

2035 Production 2050 LCA

ambition by 2050
Net-Zero Net-zero
whereas, few a Chinese
2050 LCA
Net-zero
OEMs clearly stated their
2045
carbon neutral timeline
Net zero

Source: S&P Global Mobility Desk Research

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Green House Gas (GHG) Protocol Scopes
Scope 1, Scope 2, and Scope 3 are classification system for GHG emissions

Scope 3 Scope 1 Scope 3

Scope 2

Transport &
Leased Purchased distribution
assets energy
Company
facilities

Processing of
Employee Purchased sold products
commute heating & cooling

Company
vehicles
Capital Transport & Fuel/ Business Purchased Use of sold Leased End of life
Waste Purchased Investments Franchises
goods distribution energy travel Goods/services products facilities treatment
steam

UPSTREAM ACTIVITIES REPORTING COMPANY DOWNSTREAM ACTIVITIES

Source: GHG Protocol

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Most OEMs target to reduce use-phase emission by electrifying their product

Brand Origin Brand 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 …

+80% BEV new car sales

> 50% BEV new car sales

100% BEV readiness1

+50% BEV new car sales

80% BEV new car sales in Europe

30% BEV new car sales in Europe 55% BEV new car sales in US

100% BEV new car sales

100% BEV new car sales

100% BEV in US

70% BEV in US

1. Depending on market conditions

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That fixes
everything?

11
© 2024 S&P Global.
Scope 3 category 11 emission is consisted of 2 elements, Well-to-Tank emission
and Tank-to-Wheel emission

Scope 3
Scope 3 Category 11:
Scope 3 Category 11: Use of Sold Products = Well-to-Wheel (WTW)
Use of Sold Products
accounts for around 80% of
Internal Combustion Engine
current top OEMs total carbon (ICE)
emissions

Hybrid Electric Vehicle

Oil extraction Oil refining Tank refueling (HEV)
Car Maker Scope
CO2 1+2
Emission Plug-In Hybrid Electric Vehicle
(PHEV)

Battery Electric Vehicle

Coal mining Electric power Battery charging (BEV)
generation

Well-to-Tank (WTT) Tank-to-Wheel (TTW)

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Electrification is only part of the story
New Car Fleet Lifecycle Energy LCA Carbon Emission of BEV
Consumption

Total Electricity Consumption of New

500 1200 Vehicle Production Well-to-Tank (Fuel and Electricity)

Lifecycle CO2 emissions of BEV [g/km]

Total Fuel Consumption [Bn L]

450
1000
400
180

Cars Fleet [TWh]

350 160
800
300 140
120
250 600
100
200 80
400
150 60
100 40
200 20
50 EU, China, US total
0
0 0
2021 2024 2027 2030 2033
Note: based on SBPT, VPaC 2021H2 Note: 2020 EU, China and the US, assuming serving time of 15 years, average 150K KM life-cycle mileage
Source: S&P Global Mobility Source: S&P Global Mobility

With growing BEV penetration, electricity demand will increase. Rapid and successful power grid
transition towards clean energy determines use phase emissions.

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To grapes carbon reduction and reach net zero, a holistic life-cycle approach is
indispensable

Carbon Net Zero Target

Phases Product Logistics &

Procurement Production Recycling
Development Usage

Strategy
Fields Electrification & Sustainable Production Low-Carbon Use Circular
Circularity Supply Chain Decarbonization & Logistics Economy

Supplier sustainability Energy efficiency Battery recycling & 2 nd

Portfolio electrification Efficient powertrain
rating program life
Project
Circular design to use Increase share of Exchange parts
Initiatives Decarbonization target Shift to renewable
recycled/renewable renewable energy program for repair,
set for suppliers energy
materials source in the grid recondition

Battery & charging Shift value chain to Aluminum closed-loop

Net- Zero impact plants Zero impact logistics
strategy renewable energy project

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Despite efforts in decarbonization, given complexity of automotive supply chain,
grasping the overall pace of decarbonization is challenging
Observed Pain Points

Lack of Methodology Inconsistency in Dynamic Changes in

Transparency Baseline Decarbonization

Detailed assumptions are Various baseline timeframe Energy transition &

missing or inconsistent by different OEMs, making it decarbonization technology
among OEMs, making difficult to monitor industry- is rapidly evolving, making it
results incomparable among wide decarbonization difficult to simulate future
different brands/vehicles pathway pathways of emission

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Contact Us
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SPGlobal.com/en/enterprise/about/contact-us.html

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