Renault CEO Luca de Meo writes a ‘Letter to Europe’

Renault Group CEO (and current ACEA President) Luca de Meo has addressed a ‘Letter to Europe‘ to “all key decision-makers and stakeholders across Europe”. It’s an “Advocacy for a sustainable, inclusive, and competitive automotive industry.”

With just a few months to go before the European elections, this twenty-page document calls for European mobilization “to succeed in the automotive industry’s energy transition collectively” and “to make this period of unprecedented transformation the springboard for an industrial renewal in Europe.”

“Before the electoral campaign gets underway with its attendant arguments, I wanted to make my voice heard, not to get involved in policy but to contribute to a decision on the right policy. The sort of policy that will enable European business to meet the technological and geopolitical challenges of today,” de Meo stresses.

“I believe that we can achieve our aims through joint efforts and partnerships between the public and private sectors. With Airbus, we have already seen what Europe can do. By stepping up cooperative initiatives, we will set our industry on the road to revival.”

Onslaught of EVs from China

In his diagnosis, Luca de Meo sees that the European automotive industry, a pillar of the European economy,
is facing an onslaught of electric vehicles from China. After stressing the importance of the industry for Europe, de Meo is seeing growing signs of weakness that could be a cause for real concern if nothing is done.

“The center of gravity of the global automotive market has shifted to Asia, with 51.6% of new passenger cars now sold in this part of the world. This is double the figure for North and South America combined (23.7%) and for Europe (19.5%),” de Meo notices.

“The shift to electric vehicles is a huge challenge that is completely transforming the industry. The value chain of vehicle manufacturing remained unchanged for around 140 years.  The revolutions currently underway have seen the emergence of at least four new value chains: electric vehicles, software, mobility (including finance and energy services), and the circular economy,” de Meo continues.

“The result is a doubling of the potential scope for business: an industry opportunity estimated at $ 200
billion within the geographical scope of Renault. Manufacturers need to acquire expertise in these new disciplines, each of which has its own rules and business potential. The new automotive world demands a
horizontal, ecosystemic approach.”

6 simultaneous challenges

According to de Meo, European players in this sector are under huge pressure. In the battle for sustainable development, they are simultaneously taking on six challenges: decarbonization, the digital revolution, regulations, technological volatility, price volatility, and workforce reskilling.

Regarding these huge challenges, de Meo sees a growing imbalance in competition all over the world: “China rules because it has a major competitive advantage across the entire electric vehicle value chain. It controls 75% of global battery production capacity, 80-90% of materials refining, and half of the mines producing rare metals.”

For their part, the United States stimulate, sees de Meo. “The purpose of the IRA program with its € 387 billion in funding, is to encourage investment. It places particular emphasis on electric vehicles: only models
assembled in the United States with local content are eligible for purchase subsidies, and this is boosting sales.”

“The IRA is also helping the US to beef up its industrial base: the capacity of the battery gigafactories to be completed by 2030 has risen from 700 Gigawatt-hours in July 2002 to 1.2 Terawatt hours in July 2023. What’s more, these plants cost considerably less than before. This places the US on par with China, while the
cost in Europe remains far higher.”

And Europe, de Meo complains, only regulates: “Europe is in the process of drafting a whole new array of standards and regulations. The purpose of this regulatory burden is to make Europe a champion of
environmental protection in the hope that this will contribute to global social progress. The problem is that the other trading blocks are slow to follow suit, and this is having a negative impact on the competitive performance of European businesses.”

Learning from and cooperating with China

“As a result, Europe is facing a complicated equation,” says de Meo. It should protect its markets, but it is dependent on China for its supplies of lithium, nickel, and cobalt and on Taiwan for its semiconductors.

“It is also to Europe’s advantage to learn from Chinese manufacturers, who are a generation ahead in terms of
the performance and costs of electric vehicles (range, charging time, charging network, etc.), as well as the software and speed of development of new models (between 1.5 and 2 years versus 3 to 5 years).”

De Meo’s conclusion here is clear: “Relations with China will need to be managed. Completely closing the door to them would be the worst possible response.” With this, he’s rather joining the recent observations of Mercedes boss Källenius and somewhat countering the anti-Chinese French offensive he was/is part of together with Stellantis CEO Carlos Tavares.

Seven recommendations

As a result of all this, de Meo gives seven recommendations for a competitive, low-carbon European industry: develop an industrial strategy for Europe, bring all the stakeholders together around the table, put an end to the current system with the continuous rollout of new standards, adopt an approach that is horizontal rather than just vertical, rebuild supply capacity in raw materials and electronic components, invent a hybrid market model, and, last but not least, avoid challenging the Green Deal.

To realize this, de Meo wants us Europeans to “adopt a principle of technological and scientific neutrality; in practical terms, this means no longer dictating “technological” choices to industry. We have to involve the 200 largest cities in Europe in the strategy to decarbonize the automotive industry. They could have a say in traffic management systems, local taxation, and vehicle access to urban areas.”

Other measures are to introduce a sort of industrial ‘Champions League’, create green economic zones, allocate a quota of low-carbon, affordable energy to the automotive industry, accelerate the development of smart, hyper-connected autonomous vehicles, involve people in the green transition, and implement a new deal between the public and private sectors.

10 concrete projects

In order to start immediately, de Meo pushes forward 10 concrete projects for Europe to catch up:

1) Promote small, affordable European cars

2) Revolutionize last-mile deliveries

3) Accelerate the pace of  parc renewal

4) Develop charging infrastructure and vehicle-to-grid technology (V2G)

5) Achieve sovereignty of supply for critical raw materials

6) Boost Europe’s competitive performance in semiconductors

7) Standardize the software-defined vehicle (SDV)

8) Encourage the emergence of a European champion in the industrial metaverse

9) Unify battery recycling

10) Boost the potential of hydrogen

Conclusion

The conclusion to de Meo’s 20-page long ‘letter’ sounds as follows. “The proposals put forward in this advocacy paper are ambitious but practical. They show that the European automotive industry could rapidly emerge as
the solution to the challenges facing the continent. We are aware that this will require a paradigm shift.”

“The next step must be to take our inspiration from best practices elsewhere. Working together is vital for competitors and for industrial sectors. We are ready to cooperate with all the institutions and stakeholders
involved to take these ideas forward. The prosperity of Europe is at stake.”