UK Automotive Manufacturers Face Net Zero Challenge

UK automotive component manufacturers are navigating the complex path to achieving net zero, viewing the transition as both a short-term challenge and a crucial step for long-term sustainability. 

A new report by BDO, UK Automotive Component Manufacturers: Getting Ready for a Net Zero Future, explores how the sector is balancing these pressures while driving innovation.

The report highlights that while many automotive suppliers, 68%, see the push towards net zero as a short-term threat, the vast majority understand its importance for future business success. With regulations tightening and consumers increasingly demanding environmentally friendly solutions, manufacturers are feeling the heat to evolve quickly.

Net zero: A near-term challenge, long-term necessity

The sector is clearly committed to this transformation. Nearly all surveyed businesses have integrated net zero into their strategies, with 88% expecting to hit their targets by 2030 or earlier.

In fact, 80% have already started implementing their plans, showing a strong focus on taking immediate action.

In the report, Stephen Cooney, Head of Automotive at BDO, asserts "The end of internal combustion engines and the rise of alternative propulsion technologies are pushing suppliers to innovate faster.

"At the same time, they need to reduce their own emissions. While these pressures can feel like threats, most suppliers recognise the need to confront them."

Addressing emissions: Priorities and obstacles

A key challenge for manufacturers is controlling emissions across three different greenhouse gas protocol scopes. While progress is being made in reducing direct (Scope 1) and energy-related (Scope 2) emissions, only a small percentage (17%) are focusing on Scope 3 emissions, which encompass the wider supply chain.

“Many suppliers are working hard to reduce the emissions they control, but Scope 3 emissions are much harder to measure and manage," Stephen explains.

"As the industry starts to fully account for these emissions, the cost and complexity of reaching net zero will inevitably rise.”

The urgency is not just driven by regulatory requirements. Investor pressure, customer demands and the need to remain competitive in a green-focused market are also key motivators.

Companies that fail to meet environmental expectations may find themselves at a disadvantage, with environmental performance increasingly influencing business partnerships.

Innovation fuelled by the electric vehicle market

The shift to net zero is spurring a wave of innovation across the automotive sector, particularly in the electric vehicle (EV) market.

The majority of suppliers expect decarbonisation to drive new research and development (R&D) efforts, with many focusing on EV products and services. This includes developing new offerings for the EV market and upgrading existing ones.

However, the future of EV adoption in the UK remains uncertain, with increasing competition from Chinese original equipment manufacturers (OEMs) adding further pressure on UK suppliers.

Stephen warns that this could have a knock-on effect: "The unclear pace of EV uptake, combined with rising competition from abroad, presents challenges for British suppliers. To stay competitive, manufacturers will need support from policies like the Carbon Border Adjustment Mechanism to create a level playing field."

Despite these challenges, the commitment to innovation is strong. UK automotive suppliers are showing resilience, with the majority already on their way to implementing decarbonisation strategies.

The growing significance of Scope 3 emissions

One of the toughest challenges for manufacturers lies in tracking and reporting Scope 3 emissions, which cover upstream and downstream activities.

These emissions are often the largest component of a company’s carbon footprint and the hardest to control.

Howard Lungley, Director of Carbon Advisory at BDO, stresses, "As OEMs push for net zero targets across their supply chains, suppliers face stricter emissions reporting requirements.

"Those who can’t meet these will risk penalties or exclusion from future business."

This challenge is compounded by the fact that only a small number of suppliers are currently focused on Scope 3 emissions.

While companies are making progress on Scope 1 and Scope 2, most are not yet addressing the broader impact of their supply chains. With 25% of respondents noting their customers are already engaging them on net zero efforts, the pressure is mounting.

The rise of EVs further emphasises this; as tailpipe emissions from traditional vehicles fall, attention will shift to the emissions generated in the production and supply chain of EVs, where the majority of lifecycle emissions occur.

Manufacturers will need to go beyond simple, spend-based calculations and gather more accurate, supplier-specific data to meet these expectations.

UK automotive component manufacturers are facing a crucial moment. While the shift to net zero is seen as a challenge, it is also an opportunity for innovation, growth and long-term success.

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