With more than 1 billion cars on the road expelling tailpipe emissions, the automotive industry is the world’s largest carbon producer, representing 12% to 15% of all emissions.
This has, understandably, thrust original equipment manufacturers (OEMs) into the center of the carbon footprint conversation and spurred several regulations around emissions reductions. Some, like electric vehicle (EV) tax credits and the Inflation Reduction Act, are incentive based, while others, such as greenhouse gas regulations and Corporate Average Fuel Economy (CAFE) standards, include tighter restrictions. All have rightfully directed automakers’ focus on the transition to EV—OEMs know it is one of the most material ways to slow climate change and deliver on ESG promises.
Today, 85% of the industry’s total carbon emissions are downstream. As EV adoption grows, this portion of automakers’ carbon footprint will shrink. But OEMs won’t be able to improve their carbon footprint with their electric portfolio alone. Given the high carbon intensity of EV battery manufacturing, upstream emissions will make up more than 60% of an EV’s total lifecycle scope 3 emissions in 2040, compared with less than 15% for an internal combustion engine (ICE) vehicle today.
To meet their net-zero targets, industry leaders will set their sights upstream, pursuing aggressive agendas to decarbonize manufacturing as the EV industry scales. Given changes to the powertrain, required manufacturing investments, and regulatory incentives, the shift to EVs creates a unique opportunity for OEMs to redesign their supply base. The strategic decisions that OEMs make today can reduce their carbon footprint, ensure flexibility, and boost profitability in the future.