$5 bn opportunity for auto parts industry in material circularity: Report

Business practice could increase companies' top line by 10-20 per cent, it says

India’s automobile parts industry could have a market opportunity of $3.8-5 billion by Financial Year 2029-30 (FY30) in component circularity, said a McKinsey report on Wednesday, referring to a practice that reuses or recycles materials.

The report called 'Mobility 360 degree – Sustainability for Competitiveness' was released at the 63rd annual session of the Automotive Component Manufacturers Association of India (ACMA). It said that material circularity could increase companies' top line by 10-20 per cent, reduce cost by 5-10 per cent, cut down virgin material use by 20-40 percent, and decrease carbon emissions by 50-70 per cent.

The international automobile industry is building itself around the concept of a circular economy, which keeps materials, products, and services in circulation for as long as possible. A car made on the circular economy model can cut lifecycle carbon emissions of the automotive industry by up to 75 per cent by 2030, according to a joint report by the World Economic Forum and Accenture.

“The market opportunity for automotive component circularity by FY30 could be USD 3.8 to 5 billion, across three themes – material recirculation, circular product design and repair, care and refurbishment services. Promoting material circularity in India could call for overcoming the many barriers that complicate circularity – insufficiently organized recyclers, higher costs, low recovery rates (for e-waste and reusable parts), and demand for recycled products as well as hard-to-recycle components,” said the McKinsey report.

Barriers could go over time, with supportive policy and regulatory support (for example Vehicle Scrappage Policy, 2022), improved recycling economics, and advancements in recycling technologies, it said.

Companies using circularity could inspire cooperation and competition. Circularity could also boost local availability of materials and reduce supply-chain risk. “With this growing thrust on sustainability all around the world, companies worldwide and in India are also prioritizing the topic. Over 180 Indian companies have adopted decarbonization targets verified by the Science Based Targets initiative,” the report added.

ACMA’s survey of Indian auto suppliers earlier found that respondents find three themes relevant: New business opportunities, sustainability qualification-led growth, and sustainability-led cost reduction.