EY study finds ICE could outperform BEV in reduction of CO₂ emissions by adopting remanufacturing in production process

Significance of remanufacturing

Remanufacturing is a framework in which companies retrieve and repurpose components from used products, reintroducing them to the market with a guarantee to meet or exceed the condition and performance of new products. This practice can improve resource and energy efficiency in product manufacturing. Remanufacturing should be distinguished from the circular economy, which involves extracting raw materials from components and using them to produce new parts.

Prompted by environmental concerns and geopolitical tensions, remanufacturing is rapidly gaining traction and particularly so in Europe and the US^*1,2. Remanufacturing has increased in relevance in the US not merely for cost reduction but also in the context of economic security policies aimed at diminishing supply chain reliance on countries of concern. As a result, a wide range of industries have quietly introduced remanufacturing into the production process, with the automobile and electronics industries (including remanufacturing of smartphones and computers) at the forefront.

In the EU, the Digital Product Passport (DPP), mandated in the Ecodesign for Sustainable Products Regulation (ESPR), requires companies to adopt designs that are easy to repair and to ensure the traceability of the repair and reuse history of product components. Automobile manufacturers are now widely employing remanufactured components for engines, engine control units (ECU), transmissions, turbochargers, starter motors and other vehicle parts.^*1,3

Calculation: ICE could outperform BEV in reducing CO2 emissions by adopting remanufacturing in the production process

According to EYSC calculations of the impact of reduced CO2 emissions from remanufacturing in the ICE production process, using remanufactured components for 50% of vehicle components could enable ICE to outperform BEV. This additional reduction in emissions also applies to HV and could be further enhanced by producing HV with 50% remanufactured components. 

Transitioning from ICE, which feature numerous components contributing to job creation, to BEV, with fewer parts and increased reliance on other countries for essential battery components, is an undesirable outcome for the economic security of Japan. Remanufacturing within the domestic automobile industry is an effective measure from the dual perspective of ensuring economic security and achieving carbon neutrality. EYSC sees an imperative for companies in the automotive industry to embed remanufacturing initiatives as a pillar of their management strategy.

Note: Key points for calculations

• A comparative analysis of CO2 emissions was conducted across all processes of production, assembly, usage, disposal and recycling of a remanufactured ICE/HV and a newly manufactured BEV^*4*5(Figure 1).
• Calculations assume that the ICE is a gasoline-powered, standard passenger vehicle, while the HV is a standard passenger vehicle equipped with a 1.3kWh capacity storage battery, running on a gasoline-powered engine and electric motor. The comparable BEVs are two sizes: one equipped with a 40kWh battery and the other with an 80kWh battery. The CO2 emission estimates are calculated for the entire lifecycle of these vehicles, assuming they are on the road for (1) a short period (three years) or (2) a medium-to-long period (five years), reflecting typical vehicle ownership.^*6
• Calculations suggest that:

(1) After a three-year period, a remanufactured ICE has a clear advantage with greatly reduced lifecycle CO2 emissions compared to BEV of any battery capacity.

(2) After a medium-to-long term operation of five years on the road, a remanufactured ICE continues to achieve more reduced CO2 emissions than BEV over its lifecycle. A remanufactured HV also maintains a substantial CO2 emissions advantage over BEV.

• To simplify the analysis, the differences in energy consumption associated with the means of remanufacturing have not been included in these calculations. However, there are environmental benefits to remanufacturing ICE. In addition, the shift from gasoline to synthetic fuels (e-fuels) is expected to further enhance the competitive edge of ICE over BEV as the use of synthetic fuels becomes widespread through public-private collaboration. 

EYSC recommendation: Shift from a single focus on electrification to a remanufacturing strategy that leverages the strengths of Japanese companies

Our calculations cast doubt on the approach to replace ICE with EV solely for the purpose of reducing CO₂ emissions. Remanufacturing represents a genuine step towards achieving carbon neutrality in the automobile industry. In addition, with the anticipated transition to synthetic fuels (e-fuels), ICE may surpass BEV even further in reducing CO₂ emissions. As a result, EYSC recommends that Japanese automobile companies adopt ICE remanufacturing and integrate supply chain reforms in their management strategy to sustain and enhance their competitiveness within the global market.

Comment from Toshifumi Kokubun, Partner at EYSC Strategic Impact:

“Economic security policies change in reaction to heightened geopolitical risks and can, subtly yet profoundly, alter assumptions about the business environment.  Consequently, it is extremely difficult to make predictions about the next three to four decades. This is why a corporate strategy with a primary focus on responding to economic security policies is essential for sustained growth.
The supply of batteries – the BEV’s most crucial component – is reliant on countries of concern. Given there is little likelihood of any change, if BEV do not measure up to ICE that incorporate remanufacturing in 50% of production, companies in the Japanese automotive industry should pursue efforts to introduce remanufacturing. I think that the Japanese automobile industry should acknowledge the value of remanufacturing from the perspective of economic security and carbon neutrality and consider strategies that adopt remanufacturing of automobiles.”

Comments from Kei Hayase, Partner at EY Parthenon Strategy (Mobility & Commercial Vehicles):

“Remanufacturing has been implemented across nine different industries and is now particularly established in the business and market sectors of aviation, aerospace, maritime and construction equipment. The automotive industry has been engaged in remanufacturing for over seven decades, including less visible initiatives undertaken by European companies. The recent increase in international tensions has seen European companies who pioneered remanufacturing shifting operations to domestic or near-shore locations in a reconsolidation of business locations and resources.
The significance of our calculations challenges the prevailing trend of blindly pursuing BEVs based solely on a quantitative assessment, rather than on ideological or intuitive grounds. The findings suggest a notable quantitative impact of remanufacturing, even for regular automobiles. It is plausible that this impact could be generated on an even larger scale with full-size pickup trucks or commercial vehicles such as trucks and buses, which account for approximately 33% of all motor vehicles that exist worldwide.
In the long-term, the automotive industry has a responsibility to protect the environment by employing various combinations of powertrains and fuels. Although remanufacturing may not resolve issues with powertrains and fuels overnight, nor offer a definitive solution, it currently represents a meaningful and viable approach.”