Renault CEO calls for EU regulatory overhaul

The EU should follow the Chinese model for developing its EV industry, avoiding over-regulation, rebuilding supply capacity for critical minerals and concentrating subsidies in tax free zones, according to Renault CEO Luca De Meo.

In a letter to European lawmakers, De Meo says that the current operating environment for European automakers made it hard for them to compete against US and Chinese firms.

“[There is] an imbalance in competition,” says the letter. “Industry incentives in the US, strategic planning in China, but new regulations in Europe.

It notes that a C-segment car costs €6,000-€7,000 less to make in China than in Europe — around 25pc of the total price.

China has subsidised EV manufacturing heavily, and has lower energy and salary costs than Europe.

The nation has also put in place a plan to underwrite the risk of start-ups going bust.

“This strategy is bearing fruit: China today has a major competitive advantage across the entire electric vehicle value chain,” says De Meo. “It controls 75pc of the world's battery production capacity, 80-90pc of materials refining and 50pc of rare metals mining.”

Meanwhile the US has introduced significant incentives for EVs and the EV supply chain through the Inflation Reduction Act (IRA).

But in Europe lawmakers have put in place rules to phase out ICE vehicles without providing automakers with the means to achieve them.

“This regulatory burden aims to make Europe a champion of environmental protection with the hope that it will be a factor of social progress for everyone on the planet,” says De Meo. “The problem is that the other blocks are slow to follow this path.”

Policy recommendations

The letter lays out a number of recommendations for EU lawmakers to re-fashion industrial policy:

End the current system of overlapping standards and regulation, and introducing a single body that oversees regulation for the auto industry.
Create a European platform for purchasing critical raw materials, in the mould of Covid-19 vaccine purchasing programme.
Establish a system that rewards early movers as well as punishing slow movers in the transition.
Create green economic zones inspired by China's special economic zones. Subsidies and industrial investments should be concentrated in these zones, taxation and payroll costs lowered for ten years, and any profits on capital invested be made tax-free.
Allocate a quota of low-carbon, low-cost energy to the automobile industry to help match lower wholesale electricity prices in China and the US.

De Meo did not explicitly call for import tariffs at EU borders, but said the EU should adopt a mix of the Chinese and US strategies in this regard.

“Alongside China which wants to dominate the world and the United States which protects its playing field, Europe must invent a hybrid model. This means starting with a defensive approach to ensure we get off to a a good start, before seeking conquer global markets,” says the letter.

De Meo adds that relations with China need to be managed and that “completely closing the door would be the worst possible response”.