Recently, the Chinese automotive manufacturer Geely Holding Group (referred to as "Geely") shared its experiences and practices in carbon emission reduction, carbon utilization, and carbon management at COP28 in China. Against the backdrop of increasing attention from automotive companies on zero-carbon products, low-carbon brand images, and climate leadership, companies across the entire automotive supply chain, from upstream to downstream, also need to accelerate their pace of carbon reduction and collaborate in building a green and low-carbon supply chain.

01 Geely's full carbon reduction practices

「 Carbon emission reduction」

Key Initiatives: Accelerating the development of intelligent electric vehicles and vigorously promoting new energy for low-carbon travel.

Actions: From design to research and development, from manufacturing to product delivery and recycling, comprehensive implementation of carbon neutrality throughout the entire chain has been deepened. Several low-carbon and environmentally friendly vehicle models have been developed. Among them, the Geely Intelligent Plug-in Hybrid SUV, Galaxy L7, received the 2023 Low Carbon Leader Model Award. The body of the Jikey 001 utilizes 15% renewable steel sheet material and 25% renewable aluminum alloy material. The Jikey 009 uses environmentally friendly materials throughout the vehicle, achieving a 30% proportion of plant-based raw materials.

In terms of mergers and acquisitions related to sustainable development, Geely fully acquired LEVC in 2013, assisting in its transition to new energy. In 2017, the construction of the first electric vehicle factory in the UK was completed, launching the high-end travel vehicles TX5 and VN5.

「 Carbon utilization 」

Key Initiative: Delving deep into the green methanol ecosystem, continuously exploring solutions to energy challenges.

Actions: Geely has matured its entire industry chain in methanol energy preparation, methanol energy transportation and distribution system, and methanol vehicle applications. It has achieved preliminary implementation of a methanol recycling ecosystem that utilizes carbon dioxide resources. Additionally, Geely is actively researching and developing on-board carbon dioxide capture systems to achieve near-zero emissions for methanol heavy-duty trucks.

「 Carbon management 」

Key Initiative: Leveraging digital technology innovation to achieve comprehensive carbon management throughout the entire chain and lifecycle.

Actions: Geely, through cutting-edge IT technology, tracks and manages the carbon emissions of automobiles, power batteries, and the entire supply chain throughout the entire process. Geely has conducted carbon footprint calculations for over 100 vehicle models and thousands of components within its system. Additionally, Geely owns 16 national-level green factories and zero-carbon factories.

02 Automotive full-chain low-carbon transformation in progress

The automotive industry is one of the major contributors to global carbon emissions. According to the International Energy Agency's projections, by the year 2070, global car usage is expected to double compared to 2020, with a 60% increase in the total number of cars. Against the backdrop of the "1+N" policy framework for carbon peak and carbon neutrality, the green and low-carbon transformation of the entire automotive supply chain is a prevailing trend. Both domestic and international automotive companies have put forth carbon neutrality goals. Porsche and Mercedes-Benz, for instance, have committed to achieving full-value chain carbon neutrality by the year 2030.

Carbon neutrality goals of some automakers, compiled by CarbonNewture

In fact, many leading automakers have already begun optimizing supplier admission processes and actively introducing low-carbon suppliers. For example, Mercedes-Benz announced in 2021 that carbon neutrality requirements would be included in contract terms, and by 2039, only production materials that have achieved carbon neutrality will be procured. Volkswagen Group, on the other hand, requires supply chain companies to achieve a 30% reduction in carbon emissions by 2025 and carbon neutrality by 2050. Suppliers failing to meet the specified carbon reduction targets will lose their procurement qualifications.

Furthermore, some automakers have directly stipulated clear low-carbon or carbon reduction requirements for their suppliers. For instance, Toyota Motor Corporation requires its major suppliers to achieve a 3% year-on-year reduction in carbon emissions in 2021. BMW Group plans to reduce the average carbon emissions per vehicle in the supply chain by 20% compared to 2019 by the year 2030. Volvo mandates that all primary suppliers must use 100% green electricity by 2025.

Low-carbon requirements from some automakers for suppliers, compiled by CarbonNewture

While mainstream domestic car manufacturers are actively establishing dual-carbon management organizations, setting dual-carbon goals, and implementing carbon reduction initiatives, the effectiveness of carbon reduction efforts carried out solely by automakers or large suppliers is limited. It is challenging to truly achieve the comprehensive decarbonization goals of the automotive industry.

03 Carbon reduction capability in the automotive industry chain needs improvement

Carbon reduction and emission reduction in the automotive industry require the collective participation of companies throughout the entire industry chain, as the automotive supply chain is characterized by its length, wide coverage, and the involvement of numerous supporting enterprises.

Intelligent automotive industry chain, source: Fangzheng Securities Research Report

From the intelligent automotive industry chain diagram, it can be observed that the upstream is divided into perception systems, control systems, operating systems, communication systems, cameras, LiDAR, mmWave radar, high-precision maps, positioning, algorithms, chips, electronic and electrical architecture, and cloud platforms. The midstream includes executive systems, ADAS execution, intelligent central control, and voice interaction. The downstream comprises operational maintenance, development testing, travel services, and logistics services.

To calculate the carbon footprint of automobiles, it is necessary to break it down into specific components, and even further into individual materials. In the production process of electric vehicles, the most carbon-intensive part is the production of batteries used in cars.

Complete vehicle upstream and midstream supply chain vertical integration diagram

source: Zhejiang Merchant Institute Research Report

Looking at the electric components supply chain of automobiles, there are more than ten categories involved in the upstream, midstream, and downstream combined. It is evident that achieving carbon reduction across the entire automotive chain faces significant challenges in coordinating carbon reduction efforts throughout the industry chain. Therefore, carbon reduction in the automotive industry chain requires collaborative efforts from the upstream, midstream, and downstream of the industry chain to achieve green and low-carbon goals.

At the same time, the full-chain low-carbon transformation in the automotive industry also faces challenges in conducting carbon footprint assessments.

A carbon footprint is analyzed from the perspective of the product's lifecycle, examining the carbon emissions throughout its lifecycle. The product's carbon footprint generally refers to the total carbon emissions generated in processes such as raw material processing, transportation, production, and factory sales. It is an important indicator for measuring the green and low-carbon level of production enterprises and products.

The difficulty in conducting corporate carbon assessments is mainly due to the large and scattered data, high collection difficulty, potential omissions, and complex calculations. Therefore, companies often feel "powerless" in conducting carbon footprint assessments due to challenges such as difficulty getting started, a shortage of professional carbon-neutral talent, and high assessment costs.

The foundation for achieving emissions reduction across the entire automotive chain lies in the effective tracking of carbon footprints. Effective tracking, in turn, relies on a unified digital carbon management platform. Through a digital carbon management platform, companies in the automotive industry chain can share carbon emission data. Additionally, a digital carbon management system enables real-time collection, analysis, tracing, and control of carbon emissions.

It is worth mentioning that on August 17, the official announcement of the "EU Battery and Waste Battery Regulations," which had been in effect for 20 days, was officially implemented. This regulation specifies mandatory requirements for carbon footprint disclosure. According to this regulation, battery manufacturers must publicly disclose the carbon footprint of electric vehicle batteries, batteries for light-duty transport vehicles, rechargeable industrial batteries with a capacity exceeding 2 kWh (fully external storage), and rechargeable industrial batteries with a capacity exceeding 2 kWh (partially external storage).

Key time points for carbon footprint disclosure

source: Minsheng Securities

However, in the long term, the new battery regulations are expected to drive the improvement of carbon footprint and recycling mechanisms domestically, further promoting the acceleration of the domestic battery industry towards green and low-carbon transformation.

With the approaching critical time points for carbon footprint disclosure as required by the "EU Battery and Waste Battery Regulations," relevant battery companies in the automotive industry chain should promptly conduct carbon footprint assessments for their products and initiate carbon reduction actions to meet the EU regulations' requirements for carbon footprint disclosure.

References

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