Where Circular Models Fail in Automotive – 7 Operational Traps

On paper, the automotive industry is a perfect playground for the circular economy.

Cars are high-value, long-lived assets. They already have strong second-hand markets, parts reuse, remanufacturing, and recycling flows. In theory, it should be easy to build profitable circular models around them.

In practice, a lot of “circular” initiatives stall, shrink, or quietly disappear.

This piece looks at seven operational traps that repeatedly trip up circular ambitions in automotive – and what we can learn from real-world examples.

This is not about naming and shaming; it’s about understanding where good ideas die in execution.

1. Turning ownership into subscription without a value story

One of the most visible recent missteps was BMW’s heated-seat subscription. Forbes+1

BMW experimented with charging customers a monthly fee to activate heated seats that were already installed in the car’s hardware. On a whiteboard, this fits a broader “functions-on-demand” logic: build the hardware once, unlock features over time, and generate recurring software-like revenue.

On the road, customers hated it.

The reaction was swift and brutal. Many saw it as “paying twice” for the same hardware and an example of greed rather than innovation. After sustained backlash, BMW dropped the heated-seat subscription in 2023 and said it would focus on other digital services instead. autoevolution+1

Operational trap:
The company had the tech, but not the narrative or pricing logic to match customer expectations. Circular and access-based models only work when:

the customer clearly sees incremental value, and
there is a transparent logic between hardware cost and ongoing service.

If the perception is “we’re charging you rent on something you already bought”, no amount of clever backend architecture will save the model.

2. Underestimating reverse logistics for parts and vehicles

Circularity in automotive leans heavily on reverse flows: cars, components and materials have to come back into controlled channels to be refurbished, remanufactured or recycled.

EU-funded projects like CarE-Service and related research show how even established players struggle with fragmented returns, inconsistent quality and lack of standardisation in how parts are collected and sorted. careserviceproject.eu+2iwu.fraunhofer.de+2

In simple terms:

without predictable, high-volume, well-sorted returns,
your fancy refurbishment process sits idle or becomes too expensive.

The companies that are starting to get this right – such as Renault with its Re-Factory at Flins and newer sites like Valladolid and Seville – have invested heavily in dedicated circular plants and structured inflow of vehicles. Renault Group+2Ellen MacArthur Foundation+2

Operational trap:
OEMs announce big circular ambitions but leave reverse logistics to “the market”, informal networks or under-funded pilots. The result is high variability in quality and volume, which quietly kills the business case.

Reverse logistics is not a side project. It’s a core capability if you want circular revenue to scale.

3. Dealer and network economics pulling in the opposite direction

In many markets, dealers still depend heavily on aftersales revenue – service, repairs, parts – to remain profitable. Circular and digital models can easily clash with that:

electric vehicles can need less routine maintenance,
over-the-air updates avoid some workshop visits,
centralised refurbishment or take-back programmes can bypass local dealer margins.

From head office, these moves look logical: they support circularity, improve asset usage and enable new service models. From the dealer’s office, they can look like a direct attack on income.

This misalignment shows up as resistance to pushing EVs, lukewarm promotion of OTA-capable models, or token support for buyback and certified pre-owned schemes when dealer margins aren’t attractive.

Operational trap:
Circular initiatives are launched on top of an incentive structure built for linear sales and workshop dependency.

Until OEMs redesign economics so that dealers (or new types of retail/service partners) earn visibly and fairly in circular loops, execution will stay half-hearted. The model will fail not because customers don’t want it, but because the frontline system doesn’t.

4. Treating end-of-life as pure compliance, not as a value stream

End-of-life vehicles (ELVs) are a major focus of regulation in Europe. The current End-of-Life Vehicles (ELV) Directive and a proposed new ELV Regulation push targets for reuse, recovery and recycled content. Environment+2European Parliament+2

But a lot of OEM activity around ELVs has historically been compliance-driven, not opportunity-driven. The goal becomes “meet the legal recycling rate at minimum cost” rather than “design a profitable materials and parts loop.”

It has even backfired. In recent years, European competition authorities have investigated and fined several carmakers over vehicle-recycling cartels, where manufacturers coordinated over terms with recyclers instead of building genuinely competitive, transparent recycling systems.

Operational trap:
If end-of-life is treated purely as a regulatory burden, the organisation optimises for minimum spend, not maximum value. That keeps circularity stuck in the legal department and CSR slides instead of pulling it into strategy, design and procurement.

New rules explicitly push for design-for-circularity and digital traceability, not just shredding and recycling quotas. Companies that still see ELVs only as a cost centre will struggle as expectations rise. Epthinktank+1

5. Scaling remanufacturing without standardisation and design support

Remanufacturing – taking used components, restoring them to like-new condition and reselling them – is one of the most mature circular practices in automotive. Engines, gearboxes, turbochargers and other high-value parts already have established reman markets.

Yet studies on European remanufacturing show big barriers when OEMs try to scale: high variability in core quality (the used parts coming back), frequent design changes, limited “design for reman” thinking, and patchy market acceptance. ResearchGate+2CLEPA+2

EU projects like CarE-Service and their summaries on CORDIS highlight exactly these challenges, especially for EV components. careserviceproject.eu+2CORDIS+2

Operational trap:
Companies treat reman as an add-on workshop activity, not as something that has to be wired back into product design, configuration management and market positioning.

Without standard interfaces, modular designs and relatively stable component generations, every reman part becomes a mini-engineering project. Costs and lead times rise, and suddenly the business case looks weak – even if the circular logic is sound.

6. Mobility-as-a-service pilots with broken unit economics

Car-sharing and mobility services are often presented as a “pure” circular play: more people move using fewer vehicles, increasing utilisation and reducing idle assets.

Over the last decade, OEMs have poured money into these experiments. A good illustration is Share Now, formed from the merger of car2go and DriveNow. Wikipedia

Despite early hype, Share Now pulled out of North America and several European cities, citing high costs, intense competition and infrastructure constraints, before ultimately being acquired by Stellantis and folded into its Free2move mobility brand. electrive.com+4Wikipedia+4Stellantis.com+4

Operational trap:
Mobility pilots chased strategic presence and branding without fully solving:

local regulatory friction and parking/charging constraints,
vandalism and misuse,
customer acquisition and churn, and
the harsh unit economics of short, price-sensitive trips.

The circular logic (higher utilisation, fewer cars per capita) is sound. But without a tight grip on operations and pricing, the model bleeds cash. Many pilots were effectively subsidised experiments rather than robust businesses.

The lesson: utilisation alone doesn’t pay the bills. You still have to grind through route density, pricing, asset management, and customer behaviour like any other mobility operator.

7. Building circular promises on a weak digital backbone

Most future-oriented circular ideas in automotive rely heavily on data:

battery “passports” and state-of-health metrics for EVs,
digital service histories that increase trust in used vehicles,
part-level traceability for safety and recalls,
material composition data to support recycling and regulation.

Recent work on new ELV rules and automotive circularity in Europe stresses that richer product data and digital tools are essential to move beyond basic recycling targets towards higher-quality reuse and recovery. arXiv+3Epthinktank+3Environment+3

Operational trap:
OEMs talk about circularity but still run:

fragmented IT systems,
incomplete or inconsistent parts data,
weak links between manufacturing, service and recycling,
and minimal data sharing with partners.

The result: many potential circular plays – advanced CPO analytics, better residual value prediction, second-life EV batteries, parts harvesting at scale – stay on slides instead of the shop floor.

By contrast, industrialised refurbishment hubs like Renault’s Re-Factory are explicitly built around integrated data and process flows: vehicles come in with known histories, get evaluated, refurbished and sent back out under a consistent certification. Renault Group+2Renault Group+2

Without this kind of digital backbone, circularity stays artisanal and local instead of industrial and scalable.

So what should automotive leaders do differently?

Strip these seven traps down and a pattern appears:

Circular models fail when they are bolted onto linear systems without changing incentives, flows and data.
They succeed when they are treated as core operating models, with dedicated facilities, aligned partners, robust reverse logistics and serious digital foundations.

For OEMs, mobility companies and large dealer groups, some guiding questions emerge:

Are we designing vehicles, contracts and IT systems with second, third and fourth revenue loops in mind – or only the first sale?
Do our dealers and partners see circular models as a threat or as a source of margin?
Are our ELV and recycling strategies driven purely by compliance, or by value?
Do we actually have the reverse logistics and data quality that our own circular press releases assume?

The circular economy in automotive will not be decided in glossy “sustainable mobility” videos. It will be decided in reman plants, dealer incentive plans, recycling yards, battery labs and software architecture diagrams.

That’s where circular models either fail in the traps above, or quietly become the new normal.

India’s Used-Car & Reman Loops: Quietly Circular Already

India already has strong circular behaviour around vehicles – even if we don’t always call it that.

Organised OEM-backed CPO:
Maruti Suzuki True Value is one of India’s largest certified used-car networks, with hundreds of outlets where cars undergo multi-hundred-point checks, warranty and refurbishment before resale. Maruti Suzuki True Value+2Maruti Suzuki True Value+2
Multi-brand used-car platforms:
Mahindra First Choice Wheels operates a large multi-brand certified used-car network across hundreds of cities, using inspection and refurbishment processes plus warranties to formalise what used to be a very informal market. Mahindra First Choice+2Mahindra Group+2
Digital marketplaces as circular infrastructure:
Online platforms like CARS24 and car&bike act as national reverse-logistics and remarketing rails for vehicles, standardising inspection, paperwork and financing around second and third lives of cars. Wikipedia+1

A lot of the “circular” behaviour around cars in India is already happening through used-car ecosystems. The next step is to tighten the data, design and incentive systems so OEMs, marketplaces, garages and recyclers all benefit – not just the last trader in the chain.

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