The auto industry is making progress on reducing emissions from areas like manufacturing—but slow momentum on vehicle electrification is causing the sector to fall behind its peers.
That’s one takeaway from PwC’s second annual State of Decarbonization report, which found “quiet, but consistent progress on climate action” across 12 sectors including agriculture, automotive, and energy. The report used GenAI to analyze responses from more than 4,000 companies. Overall, 37% reported increasing their climate ambitions, while 16% said they were scaling back.
“Automotive companies’ ability to close the gap between ambition and progress will depend in part on accelerating product R&D to improve EV range and hybrid fuel economy,” the report concludes, “reducing use-phase emissions and lowering costs for consumers and making low-carbon vehicles more attractive and accessible.”
1, 2, 3: Scope 1 emissions come directly from the company (for example, from manufacturing), Scope 2 emissions refer to those that companies create indirectly (like electricity usage), and Scope 3 emissions are from areas the company doesn’t directly control, like its supply chain and product use.
In the automotive industry, Scope 3 emissions account for “over 99% of the sector’s footprint,” per PwC, primarily from fossil fuels burned by combustion engine vehicles.
PwC found that in 2024, 69% of auto companies were on track to meet their Scope 1 and 2 emissions targets. However, only 28% were set to meet their Scope 3 goals. No US automakers were on track with Scope 3 targets, and only 7% of Japanese automakers were. And the auto sector ranked the lowest in terms of progress on Scope 3 emissions.
“Why? A whopping 85% of Scope 3 emissions are downstream and occur once a vehicle leaves the factory floor,” per the report. “While the sector has leveraged process improvements and renewable energy to reduce its direct emissions, full-sector decarbonization hinges on customer adoption of electric vehicles (which has slowed since many companies set their targets), and OEM-led investment and innovation requiring transformation across technology, infrastructure, and supply chains.”
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Policy matters: The trajectory of the auto industry’s progress on emissions reductions is heavily influenced by policy and regulations.
“We have invested significantly in electrification,” C.J. Finn, PwC’s auto industry leader, told Tech Brew, “both the OEMs and the government, to where [reducing] electrification reduces the ability to hit the [decarbonization] target.”
The Trump administration and Republican-controlled Congress have taken major steps to rescind federal support for electrification.
Trump (with support from the auto industry) is moving to halt California’s plan to end the sale of gas-powered vehicles by 2035, an effort that has significant implications for the industry and the 11 other states that have followed California’s lead.
And, Reuters reported, there have been efforts in Congress to nix the $7,500 tax credit for EV purchases, phase out EV battery production tax credits, and repeal vehicle emissions standards that would have pushed automakers toward electrification. The Trump administration has frozen federal funding for EV charging infrastructure projects, among other anti-electrification moves.
According to PwC’s analysis, automakers are boosting their investments in “climate transition-aligned initiatives” and “low-carbon product initiatives,” spurred by projected global growth in EVs and hybrids.
“Yet risks remain,” it states. “In the US, potential policy rollbacks could reduce EV sales by 30%. Given the US market’s global significance, this may affect Scope 3 strategies worldwide even as China and the EU continue to lead on EV policy and deployment.”
Finn pointed to EVs’ higher cost relative to ICE vehicles, as well as concerns around battery range and charging, as barriers to higher adoption rates.
“It’s the customer who is going to be ultimately in control,” he said. “As you see the cost equal parity and the convenience of being able to charge the electric vehicle being consistent to that internal combustion engine, I think you’ll end up seeing mass adoption.”