Specialist finance can help decarbonise automotive

Major economies across the globe have made substantial commitments to improving environmental sustainability in the face of climate change. In Europe, for example, EU law sets an intermediate target of reducing greenhouse gases (GHG) by at least 55% by 2030 compared to 1990 levels. At the same time, global events (and their inevitable aftermath) are presenting new challenges to the automotive industry in achieving these commitments, driven by geopolitical conflict, fossil fuel supply, supply chain disruptions and inflationary pressures. Despite these challenges, it is unlikely that auto manufacturers will be diverted from their sustainability goals. Because—as many analysts have argued strongly—sustainable manufacturing not only results in moral and climate change benefits but also provides commercial advantages.

As many countries aim to phase out the sale of new gasoline and diesel cars from 2030, the next decade is sure to be one of transformative change for the automotive manufacturing industry. As well as net zero targets looming large on the horizon, auto manufacturers are currently facing significant uplift in energy bills in the here and now, according to analysis.

At the same time, commitment to reaching net-zero emissions has twin implications for auto manufacturers. Not only must they invest in sustainable manufacturing practices, but they must also invest in the development of a new end product entirely, as the move away from internal combustion engines towards electrified vehicles is an inevitable consequence of an enhanced global awareness of climate issues.

So, with the dual challenges of financial and regulatory pressures bearing down on UK auto manufacturers, they must find a way to lower operating costs or risk losing competitive advantage.

Implementing energy optimisation techniques could save American and European manufacturers over US$66bn over a five-year period

Optimising energy generation and consumption is an ideal strategy for responding to both issues. Energy costs in manufacturing typically make up between 2% and 10% of output value, thus a more energy efficient process offers dramatic opportunities to boost productivity and competitiveness as well as providing a more sustainable way of manufacturing. This can be achieved by investing in specialist, digital technology to modernise manufacturing lines, and optimising energy consumption and generation using a holistic, integrated, site-specific approach. In fact, a recent study from Siemens Financial Services (SFS) estimates that implementing energy optimisation techniques could save American and European manufacturers over US$66bn over a five-year period.

In order to achieve these savings, automotive manufacturers must be prepared to leverage and integrate the latest Industry 4.0 technological solutions, such as digital twins. Through the use of a digital twin, a manufacturer could create a digital replica of their manufacturing line, allowing them to virtually optimise and test their processes for any errors or wastage, ensuring everything is streamlined and efficient. This would have a significant effect on reducing emissions in the design phase, where up to 80% of a product’s environmental impact is determined.

Updating existing equipment with sensors and further integration with specialist technology like the internet of things (IoT) is all part and parcel of a modern factory floor. With these upgrades, a manufacturing plant is able to be monitored and managed virtually, making it far easier to spot performance issues, assess and analyse data and react to operational issues in real time.

However, some manufacturers may be put off by the potential levels of capital expenditure needed to facilitate the necessary tech investment. While the UK government’s Automotive Transformation Fund can offer some capital assistance, manufacturers will require additional funds to meet the challenge.

This is where specialist financing techniques can bridge the gap. These solutions are offered by specialist financiers who have a deep understanding and knowledge of the industry and relevant technology and can enable the acquisition of technology and equipment for competitive advantage in a financially sustainable way, tailored to an organisation’s specific business and cash-flow needs.

Specifically, specialist finance makes investments possible for manufacturers and affordable by aligning costs with revenues. Additionally, it offers three major advantages over generalist finance: technology expertise which understands real business outcomes; a breadth of financing solutions which can meet the organisation’s exact needs; and smooth, sophisticated processes which make the use of specialist finance seamless and easy.

The automotive industry is changing. The rising cost of energy and environmental concerns are accelerating this change for manufacturers. Those that are prepared to invest in optimising their energy generation and consumption will find themselves best positioned to deal with future regulatory and financial issues. Where capital is scarce, specialists can step in to offer a strategic approach to achieving sustainability while bringing down costs in the long term.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Neli Ivanova is Head of Sales, Asset Finance, at Siemens Financial Services

The Automotive World Comment column is open to automotive industry decision makers and influencers. If you would like to contribute a Comment article, please contact [email protected]