Circularity and the Automotive Sector Part 2

The Circular Economy is not just an environmental regulation, but is being promoted in many countries as a policy to change the very structure of the economy. How is Japan faring in this context? How does it look to those who, like investors, keep a close eye on economic trends and changes?

 In 'Talk Circular x Economy', Mr. Andre-Hottinguer, who has been involved in investments in global companies for more than 10 years and has travelled back and forth between Europe and Japan, gives his unique perspective on these topics, drawing on his background as an investor and as a foreigner.  Let's enjoy his 'way of seeing' and explore the 'Circularity x Economy

In the previous installment, we examined how the automotive sector is advancing decarbonization through the adoption of hybrid and electric vehicles. In this second part, we shift our attention to the broader scope of circularity—addressing battery recycling, lifecycle design, production efficiency, and next-generation mobility models that promise both sustainability and resilience.

Having explored decarbonization in the automotive sector in part one, let’s now turn to two other critical topics: batteries and the vehicle lifecycle

Battery circularity and in particular battery recycling are other essential aspect of the automotive sector’s transition. The infrastructure for recycling EV batteries is still developing, as most EVs on the road today are relatively new and their batteries have yet to reach end-of-life. But multiple initiatives are already emerging to increase circularity in the sector, such as the repurposing of used EV batteries for less demanding applications, such as stationary energy storage, before they are ultimately recycled. This second life extends battery utility and can support the power grid as backup storage.

Whereas a decade ago, most recycling initiatives originated from battery manufacturers, today many automakers are investing in closed-loop systems to reuse recovered materials in new batteries. This is increasingly important given the scarcity and procurement challenges associated with key minerals—such as copper, rare earth elements, nickel, manganese, cobalt, and graphite—which are needed in much greater quantities for EVs than for conventional vehicles, by a factor of more than six according to the IEA. Since these resources are concentrated in a handful of countries, effective recycling becomes even more critical for both Japan and Europe as they pursue circularity in the automotive sector.

While circularity in the automotive sector is often discussed in the context of decarbonization, a truly holistic view reveals broad progress made over recent decades. Today, circularity spans the entire vehicle lifecycle—from initial design to end-of-life recycling—driven by innovation, regulation, and shifting consumer expectations.

Increasingly, manufacturers are embedding circular principles at the very conception of new vehicles. Modern cars are now designed for durability, easy disassembly, and recyclability even before the vehicle is even put to production. This shift ensures that vehicles can be more efficiently repaired, upgraded, or recycled, reducing waste and resource consumption over their lifespan.

Automotive production is a complex process, often involving thousands of components and suppliers. To optimize resource use and minimize waste, manufacturers are adopting connected supply chains and smart factories. Real-time monitoring and data analytics now play a crucial role in streamlining operations and reducing waste. One of the most transformative developments has been the adoption of common vehicle platforms. In Europe, Volkswagen’s Modularer Querbaukasten (MQB for Modular Transversal Toolkit) and Stellantis’s Common Modular Platform (CMP) have set industry standards, while in Japan, Toyota’s New Global Architecture (TNGA) and its electric counterpart, e-TNGA, have driven significant efficiencies. These platforms not only reduce production costs—a critical factor in the low-margin automotive industry—but also enable greater parts commonality. This simplification makes manufacturing, sourcing, and even repairing vehicles easier and more sustainable.

Extending vehicle life is also key to circularity. Common platforms enable better repairs, but another key driver is the availability of non-branded (private label) replacement parts. The demand for affordable aftermarket parts—often 20% to 50% cheaper than OEM parts—is rising, making it easier and more economical to keep vehicles on the road longer.

Last but not least: recycling. End-of-life vehicle recycling is an area where Japan stands out. Legislative action in the early 2000s has led to more than 95% of car content being recycled today, according to the Japan Automobile Recycling Promotion Center. Japanese automakers have invested heavily in dedicated recycling plants, using robotics and AI for precision dismantling and material recovery. Toyota Circular Factory (TCF) is another initiative focusing its approach to end-of-life vehicle processing around three key areas: re-usable parts, commodity items that can be re-manufactured and materials that can be recycled. Re-usable parts go through a validation process and if they pass it, they will be reintroduced into the market through retailers or parts distributors. Commodity items such as batteries and wheels will be assessed for their potential to be re-manufactured, re-purposed, or recycled. Toyota is also trying to recycle raw materials such as copper, aluminum, steel, and plastic in order to then replace virgin materials as much as possible in the production of new parts for new vehicles.

A key measure of circularity is how long vehicles remain in use. Japanese manufacturers excel here: their cars retain value far better than most competitors. Toyota, for instance, boasts the highest resale value as a percentage of the original price after five years, with Honda, Mazda, and Subaru also ranking among the world’s top brands for value retention. This not only reflects durability but also supports a virtuous cycle where longer vehicle life doesn’t contradict with economic imperative of selling news cars.

Looking ahead, new business models are poised to further enhance circularity. In both Europe and Japan, short-term rental and car-sharing services are gaining traction, enabling better vehicle utilization. Automakers are experimenting with "rent instead of sell" strategies—charging monthly fees for vehicle use while retaining ownership and providing lifetime warranties. While leasing has long been part of the industry, these very flexible models—driven by both economic and environmental concerns—are expanding the concept of mobility as a service.

In conclusion, circularity in the automotive sector is evolving rapidly, with Europe and Japan offering valuable lessons. By focusing on design, production, repair, recycling, and innovative business models, the industry is moving toward a future where environmental responsibility and economic viability go hand in hand.

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