After the launch of China's "dual carbon" strategy, the entire automotive industry chain has witnessed a surge in the "carbon reduction trend." However, carbon reduction in the automotive industry chain is not easy, with the first hurdle being whether companies have the capability to understand their own carbon emissions. Without knowledge of carbon emissions, setting up carbon reduction plans is like a "blind person feeling an elephant." In recent times, there has been a growing trend in the automotive industry towards "carbon footprint certification or carbon neutrality certification." What are the reasons behind car manufacturers engaging in "carbon certification" and what are the "chain reactions" involved?

01 The increasing trend of "Carbon Footprint Certification or Carbon Neutrality Certification"

Recently, several automakers have successively announced "carbon footprint verification," "carbon neutral verification," and other "carbon" certificates, including Shanghai Automotive Industry Corporation (SAIC), smart, BYD, and Lotus. As "high carbon" practices become increasingly unsustainable, adopting "low carbon" strategies has become an essential path for corporate competition. Carbon footprint verification and carbon neutral verification may emerge as a new kind of "green pass" for the automotive industry.

SAIC：

On December 22, 2023, three overseas best-selling models of MG4 EV, a subsidiary of SAIC Motor Passenger Vehicle, received whole-vehicle carbon footprint verification from an international certification organization. In addition, SAIC Motor Corporation has committed to striving for carbon peak by the year 2025.

Source：SAIC

It is worth mentioning that, in the effort to build a low-carbon supply chain, Yanfeng Automotive Trim Systems Co., Ltd., a subsidiary of SAIC Motor Corporation, has formulated medium- to long-term decarbonization plans and goals. The company regularly submits "carbon footprint" reports for its products.

smart：

smart is an automotive brand jointly owned by Mercedes-Benz and Geely Auto. On December 8, 2023, the smart Elf #1 electric vehicle received a whole-vehicle carbon footprint certificate based on the ISO 14067 standard from an international certification organization.

Source：TUV Rheinland

As early as 2022, the new smart Elf #1 power battery (model NBE661) obtained a carbon footprint certificate based on the EU Battery PEFCR and ISO 14067:2018 standards. Prior to this, smart had committed to offering carbon-neutral pure electric vehicle models to the market by 2045.

Source：China Carbon Disclosure Planform for Machinery and electronics (CCDP)

BYD：

On January 3, 2024, two all-electric urban buses developed and produced by BYD (models: B13E01 and B15E01) received product life cycle assessment certification and International EPD (Environmental Product Declaration) certification from international certification organizations. In 2022, BYD Group's global headquarters obtained ISO 14064 certification and PAS 2060 carbon neutral certification, making it the first zero-carbon zone headquarters among Chinese automotive brands.

Source:BYD

Lotus：

At the end of October 2023, Lotus Technology and the Lotus Global Smart Factory received the 2022 ISO 14064-1 organization carbon verification certificate and the organization carbon neutrality certification based on the PAS 2060:2014 standard from an international certification organization. Prior to this, Lotus committed to achieving a 100% full-line electric vehicle product portfolio by 2027 and a complete value chain carbon neutrality target by 2038.

02 The reasons why car manufacturers are engaging in the "Carbon Certification" trend

Car manufacturers are engaging in the "carbon footprint certification or carbon neutrality certification" trend for three main reasons. Firstly, they are facing energy-saving and emission reduction requirements in domestic and international policies and regulations, such as the Paris Agreement representing the global direction of green and low-carbon transformation, and China's "3060" dual-carbon target policy.

Carbon tariffs and barriers are increasingly becoming challenges for the automotive supply chain in global competition. As one of the world's largest exporters, China annually exports a significant amount of goods worldwide. In 2023, China exported 4.91 million cars, a YoY increase of 57.9%, potentially surpassing Japan to become the world's largest car exporter (Japan's 2023 car export data will be announced at the end of January). Notably, carbon emissions accounting is being incorporated into mandatory regulations related to imports and exports, such as the EU Carbon Border Adjustment Mechanism and the EU's new battery regulations.

Secondly, clear and reliable carbon footprint data benefits companies in identifying emission reduction opportunities, facilitates the development of low-carbon products, enhances market competitiveness, and enables them to secure more "green premiums." Additionally, publicly traded automotive companies face pressure to disclose carbon information.

Thirdly, car manufacturers are increasingly focused on cultivating differentiated core competencies, and low-carbon competitiveness is a form of differentiation. Carbon footprint certification serves as a concrete manifestation of a company's low-carbon competitiveness.

The domino effect triggered by car manufacturers aiming to enhance their low-carbon competitiveness is unfolding globally. As complex mechanical goods, each car is estimated to consist of nearly 30,000 parts, with each part corresponding to multiple component manufacturers. The creation of a car, from conception to reality, is the result of the collaborative efforts of thousands of companies. Similarly, calculating the carbon footprint of a car requires data on carbon emissions from multiple supply chain companies.

Automotive assembly breakdown diagram, source: Internet

Carbon emission reduction management has a cascading effect, with midstream car manufacturers in the automotive industry chain acting like the "first domino." It will drive the low-carbon transformation of both upstream and downstream enterprises in the industry chain. Compared to the downstream, there are more companies in the upstream industry, leading to a broader impact.

Panorama of the Intelligent Automotive Industry Chain, source: iyiou, TF Securities

As the low-carbon pressure is transmitted from the midstream to the upstream of the industry chain, automotive raw material and component suppliers upstream in the industry chain experience a significant increase in their motivation for carbon reduction.

03 Suppliers' "Low Carbon Awakening"

In fact, in order to better meet the low-carbon requirements of car manufacturers, some perceptive automotive raw material and component suppliers have already initiated low-carbon transformation. They have obtained product carbon footprint certification early on. The following is a list of some carbon footprint certifications from automotive raw material and component suppliers.

Automotive raw material suppliers

Baosteel：

On September 9, 2022, Baoshan Iron & Steel Co., Ltd. received a product carbon footprint verification statement from an international certification organization for its fully recycled steel electric furnace smelting cold-rolled products and hot-dip galvanized products. Its customers include various automotive manufacturers such as GAC Group, Dongfeng Nissan, and XPeng Motors.

Simultaneously, Baosteel committed to striving for a 30% carbon reduction by 2035 and aims for carbon neutrality by 2050. Notably, Baosteel has achieved carbon footprint calculations for the entire range of steel and refined it to each steel coil.

HBIS:

On December 1, 2023,HBIS‘s Handan Iron and Steel Company received product carbon footprint verification statements from an international certification organization for two typical products, hot-dip galvanized plates and cold-rolled plates. Its major customers include SAIC Motor Corporation, Great Wall Motors, BMW, Geely, Chery, and many other automotive manufacturers. Earlier, Hesteel Group planned to achieve carbon peak by 2022 and carbon neutrality by 2050.

Mingtai Al:

On November 24, 2023, a statement on the interactive platform mentioned, "One highlight of your company's products is having a carbon footprint certification. Can you confirm whether most companies in the industry have not yet established carbon footprint certification, or have most companies already achieved carbon footprint certification?"

Mingtai Aluminum responded that the company has successfully obtained the GRS 4.0 standard certificate and has completed carbon footprint certification for over ten product varieties.

Source：Mingtai Al

Mingtai Al has also responded to investors that the company has developed various low-carbon products. According to publicly available information, products from Mingtai Aluminum are indirectly supplied to automotive manufacturers such as Tesla, NIO, and BAIC Group.

Chengxin Lithium：

On December 19, 2023, Chengxin Lithium Group Co., Ltd. received multiple certification certificates from international certification organizations, including ISO 14064 greenhouse gas verification, ISO 14067 product carbon footprint verification, PAS 2060 carbon neutrality verification, and ISO 50001 energy management system. Chengxin Lithium is a lithium battery material supplier for multiple automotive companies and has previously received a strategic investment of 2.3 billion yuan from BYD. On January 10th, Shengxin Lithium Energy signed a "Lithium Hydroxide Supply Contract" with Hyundai Motor.

Automotive parts suppliers

FiberHome：

On June 14, 2023, FiberHome received ISO 14067 Product Carbon Footprint Verification Certificates for eight terminal products from an international certification organization. As one of China's prominent communication equipment suppliers, FiberHome has previously collaborated with Dongfeng Motor Corporation to establish the "Automotive-Grade Chip Joint Laboratory“, aiming to jointly develop automotive chip products. Earlier, FiberHome committed to achieving carbon neutrality by 2060.

Aptiv：

On June 12, 2023, Aptiv received organizational carbon verification and product carbon footprint declaration certificates, confirming that their claimed organizational-level greenhouse gas emissions and product carbon footprints comply with the requirements of ISO 14064-1:2018 and ISO 14067:2018, respectively.

As an overseas component company, Apitv‘s product lines in China include safety electronics, user experience, intelligent connected and secure systems, traditional connectors, high-voltage connectors, special connectors, consumer in-car data connectivity, central electrical boxes, and low/high-voltage wire harnesses. Its customers include Volkswagen, Fiat, Ford, SAIC General Motors, Geely, and many other automotive manufacturers.

PYLONTECH：

On December 21, 2023, PYLONTCH's household energy storage systems (Force and Pelio), microgrid energy storage products (PowerCube), and battery products (UP and US series) received product carbon footprint verification declaration certificates.

Source：PYLONTECH

……

Under the "dual carbon" goals, green, low-carbon, and sustainable practices have become the direction for the development of the automotive supply chain. Simultaneously, the global automotive industry's focus is shifting towards "carbon competition," posing a pressing challenge for automotive supply chain enterprises on how to shed the "high-carbon" label.

Reference

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