The Automotive Industry Is Moving Beyond Traditional Sustainability
Automotive manufacturing is undergoing a fundamental transformation. For decades, the industry followed a largely linear production model: extracting raw materials, manufacturing vehicles, and disposing of components at the end of their service life. Today, growing environmental pressures, rising resource costs, and stricter European regulations are pushing manufacturers towards a more circular approach.
Sustainability is no longer limited to reducing factory emissions. It increasingly involves controlling material flows, recovering valuable resources, increasing recycled content, and redesigning production systems to minimize waste.
According to the 2026 Low-Carbon Steel Automotive Manufacturing Survey conducted by AMS in partnership with SSAB, 72% of automotive manufacturers have established formal steel recycling targets. However, only 20% have developed direct closed-loop agreements with steel suppliers.
This difference highlights an important issue: setting recycling targets is considerably easier than building an integrated system that returns recovered materials to the original manufacturing process.
Daniel Harrison, Senior Automotive Analyst at AMS, points out that sustainability priorities vary across the automotive value chain. Carbon reduction remains a leading objective, but manufacturers are also responding to recycling requirements, renewable energy integration, and broader circular economy commitments.
Volkswagen Demonstrates How Existing Factories Can Be Decarbonised
Volkswagen's Autoeuropa plant in Palmela, Portugal, provides a practical example of how an established automotive facility can transition towards lower-carbon production without requiring an entirely new factory.
Under Volkswagen Group's Zero Impact Factory initiative, the Palmela facility has reduced its environmental impact per vehicle by 65% since 2010. Its next objective is to achieve a 90% carbon reduction by 2030, supported by a €300 million decarbonisation investment programme.
One of the most significant projects involves replacing natural gas-based heating and cooling systems with geothermal energy. By March 2027, the plant plans to operate a network consisting of 336 boreholes, each drilled approximately 120 metres into the bedrock. Together, these boreholes will support an 80-kilometre geothermal network, expected to reduce heating and cooling energy consumption by 25%.
The paintshop is another major focus. In conventional automotive plants, paintshops can account for approximately 60% of total factory energy consumption. Volkswagen Autoeuropa is addressing this challenge through electrified ovens and primerless water-based coatings, reducing painting-related CO2 emissions by 40%.
From an engineering perspective, these improvements demonstrate why factory decarbonisation requires more than replacing individual energy sources. Heating systems, process equipment, thermal management, electrical infrastructure, and production control strategies must be evaluated as an integrated system.
Margarida Pereira, Head of Product Management and Planning at Volkswagen Autoeuropa, also highlights the long-term implications of investment decisions. Factory energy infrastructure is expected to remain in service for decades, meaning that decisions made today will influence operating costs and emissions well into the future.
Low-Carbon Steel Becomes a Strategic Procurement Priority
Steel remains one of the most important materials in automotive production. It is used extensively in vehicle bodies, chassis structures, reinforcement components, and numerous mechanical assemblies. However, conventional steelmaking is energy-intensive and contributes significantly to industrial carbon emissions.
Consequently, low-carbon steel is becoming an increasingly important consideration in automotive procurement.
According to the AMS-ABB survey, sustainability considerations influence more than 93% of automotive steel procurement decisions. Internal net-zero commitments account for 39% of the reported drivers behind low-carbon steel adoption, indicating that manufacturers are not responding to environmental regulations alone. Corporate carbon reduction strategies and brand positioning are also influencing purchasing decisions.
Nevertheless, measuring the actual environmental impact of purchased steel remains a challenge. Only 29% of surveyed respondents reported complete carbon traceability per tonne of steel, while another 31% were working towards this capability.
This is an important distinction for procurement departments. Purchasing steel described as low-carbon does not automatically provide sufficient evidence of its environmental performance. Manufacturers need transparent supplier data, consistent carbon accounting methods, and traceability throughout the material supply chain.
Volkswagen's Palmela plant is also exploring a more direct approach to material recovery. An approved baling press will compress metal scrap generated at the end of production lines, making it easier to transport and process.
The longer-term objective is to establish a supply arrangement in which recovered scrap is returned to a steel producer, processed into new coils, and supplied back to the automotive plant.
Such an arrangement would transform conventional scrap disposal into a more integrated material supply cycle.
Circular Manufacturing Extends Beyond Steel Recycling
A circular automotive production model cannot depend exclusively on recycling raw materials. Engines, transmissions, batteries, electronic components, and vehicle structures also contain materials and components that can be recovered, refurbished, or reused.
Stellantis is demonstrating this approach through its Circular Economy Hub in Mirafiori, Turin, operated by its Sustainera business unit.
The facility combines several activities within one operational environment:
- Remanufacturing of engines, transmissions, and high-voltage batteries.
- Sorting and management of used automotive components.
- Vehicle reconditioning and dismantling.
- Recovery and classification of reusable materials.
The facility itself reflects the same circular principles. Approximately 55,000 square metres of its 70,000-square-metre site have been recovered from previously unused industrial space.
According to plant manager Stanislao Monfreda, the hub has processed 40,000 tonnes of material, remanufactured 90,000 engines, transmissions, and batteries, dismantled 2,000 vehicles, and sorted four million used components.
The economic benefits are also significant. Remanufactured components carry the same warranty as new original parts, while Stellantis estimates their prices can be approximately 35% lower. Reused components can offer savings of up to 70%.
However, the success of this business model depends on more than dismantling capacity. Storage availability, component identification, inventory management, quality assessment, and sales channels all influence whether recovered parts can be returned to productive use.
In practical terms, a component has little circular economy value if it cannot be identified, stored, verified, and supplied when required.
Toyota Develops a Closed-Loop Aluminium Recovery System
Toyota is also expanding circular manufacturing through dedicated recovery facilities in Europe.
Its first circular factory opened at Burnaston in Derbyshire, UK, in the summer of 2025. The facility applies Toyota Production System principles to dismantle end-of-life vehicles and recover components and materials for reuse.
One particularly interesting example involves aluminium recovery. Aluminium extracted from end-of-life vehicles is transported to Toyota's Deeside plant in North Wales, where it is processed into hybrid engine components before returning to Burnaston for installation in new Corolla vehicles.
On 19 March 2026, the first vehicle containing this recovered aluminium rolled off the production line.
At launch, Toyota estimated that Burnaston could process approximately 10,000 end-of-life vehicles annually, recovering 120,000 parts, 300 tonnes of high-purity plastic, and 8,200 tonnes of steel.
Toyota is also preparing a second circular factory in Wałbrzych, Poland, with twice the capacity of the UK facility. The expansion reflects the importance of securing a sufficient supply of end-of-life vehicles close to recovery and manufacturing operations.
The broader lesson is that circular production requires coordinated logistics between dismantling facilities, material processors, component manufacturers, and vehicle assembly plants. Without these connections, recovered materials may still enter lower-value recycling channels rather than returning to automotive production.
Designing Vehicles for Easier Disassembly and Material Recovery
Recovering materials efficiently also depends on decisions made during the original vehicle design process.
JLR's Project Cornerstone demonstrates how manufacturers can incorporate circularity into component selection and product architecture. Developed with more than 40 suppliers, the Range Rover L460 showcase includes 49 components manufactured using recycled, bio-based, or lower-impact materials.
Together, these components reduce their combined carbon footprint by 50%.
Several design changes are particularly relevant from a manufacturing engineering perspective.
A Valeo headlamp incorporates 30% recycled material and features a repairable lens rather than a permanently sealed assembly. A redesigned steering wheel uses only five core components, simplifying separation and material recovery at the end of its service life.
These examples demonstrate that recycling performance is not determined solely by the availability of recovery facilities. Fasteners, adhesives, material combinations, component geometry, and assembly methods can all affect how easily a product can be dismantled.
JLR's Project Cornerstone is intended to establish a scalable design approach rather than remain a single demonstration vehicle. Its wider objective is to apply these principles across future production programmes.
This is an important shift in engineering priorities: manufacturers must consider not only how efficiently a component can be produced and assembled, but also how easily it can be repaired, separated, and recovered after years of operation.
Steel Recycling Targets Are Growing, but Closed-Loop Systems Remain Limited
The 2026 AMS and SSAB survey provides a useful indication of how far the automotive industry has progressed in steel recycling.
Key findings include:
- 72% of surveyed manufacturers have formal steel recycling targets.
- 41% target recycled steel content between 20% and 50%.
- 19% target recycled content above 50%.
- 71% have established target years between 2030 and 2045.
- 39% maintain agreements with recycling companies.
- 37% have agreements with steel suppliers.
- Only 20% have direct closed-loop agreements with steel partners.
These figures reveal a gap between recycling commitments and fully integrated material recovery systems.
A recycling target establishes an objective, but a closed-loop arrangement requires cooperation across several operational stages. Scrap must be collected, sorted, assessed for quality, transported, processed, and returned in a form that meets the technical requirements of new production.
For automotive manufacturers, this also means that supplier agreements must address material specifications, contamination limits, traceability, delivery schedules, and quality verification.
Without these controls, recovered steel may be recycled into lower-grade applications rather than returned to demanding automotive components.
Cost, Supply Availability, and Quality Remain Major Obstacles
Despite growing adoption, low-carbon steel and recycled materials still face several commercial and operational challenges.
The AMS and SSAB survey identifies cost effectiveness as the leading implementation challenge, cited by 41% of respondents. Limited material availability follows at 32%, while scrap quality limitations account for 29%.
One additional concern is the potential imbalance between demand and supply. As environmental regulations introduce higher recycled-content requirements across multiple industries, demand for qualified recyclates could increase faster than processing capacity.
This could raise procurement costs and create competition for materials that meet automotive manufacturing specifications.
Quality perceptions are another obstacle. Approximately 20% of respondents expressed concerns about the quality of low-carbon steel.
However, low-carbon steel is not inherently inferior to conventional steel. Its suitability depends on the specific grade, production route, chemical composition, mechanical properties, and applicable material standards.
Automotive engineers and procurement teams should therefore evaluate materials against verified technical specifications rather than assume that a lower production carbon footprint means reduced performance.
The same principle applies to recycled automotive components. Material origin alone does not establish suitability. Inspection procedures, dimensional verification, performance testing, and traceability remain necessary.
Supply Chain Collaboration Will Determine the Next Stage of Progress
The transition towards circular automotive manufacturing cannot be completed by individual vehicle manufacturers working independently.
Steel producers, recycling companies, component suppliers, logistics providers, and OEMs must establish practical systems for material recovery and reuse.
Steel suppliers play an important role by providing carbon data, advising on low-carbon production routes, and helping manufacturers understand the technical and commercial implications of alternative materials.
Johan Lundin, Head of Marketing at SSAB Europe, identifies the central challenge as moving beyond explaining why decarbonisation matters and helping customers understand how to implement it.
For automotive manufacturers, this means connecting sustainability objectives with measurable production requirements.
Future progress will depend on several factors:
- Establishing transparent carbon accounting and material traceability.
- Expanding low-carbon steel availability and supplier capacity.
- Improving scrap classification and contamination control.
- Designing vehicles and components for easier repair and dismantling.
- Building long-term agreements between manufacturers and recycling partners.
- Integrating material recovery into production planning and procurement systems.
Engineering Perspective: Circularity Must Become Part of Production System Design
The most important takeaway from the 2026 survey and European manufacturing examples is that circular manufacturing is no longer simply a recycling initiative. It is becoming a production system design challenge.
A factory may achieve substantial energy savings through electrification and renewable energy, but its overall environmental performance also depends on the origin of its materials, the efficiency of its production processes, and the destination of its manufacturing waste.
Similarly, setting a recycled-content target does not guarantee that materials will return to the same production chain. That requires compatible material specifications, reliable recovery infrastructure, digital traceability, and long-term supplier coordination.
From an industrial engineering perspective, the next stage of progress will involve integrating energy management, production automation, quality control, material tracking, and resource recovery into a coordinated operational framework.
The difference between having a sustainability target and operating a genuinely circular factory lies in execution. Manufacturers that can connect these systems across their entire supply chains will be better positioned to manage material costs, regulatory requirements, and long-term production efficiency.
The automotive industry's transition is clearly underway. However, the gap between the 72% of manufacturers with steel recycling targets and the 20% with direct closed-loop agreements shows that the real work is still ahead.
