“I’m here because you probably think that the automotive industry is kind of a proxy of the situation in Europe” in the industrial sector, said Luca de Meo, CEO of Renault Group, at a European Investment Bank conference on Wednesday. He suggested that his industry is confronted with the “biggest transformation” of the last 30 years.
In the urge to reduce the emission impact to zero, de Meo explained that electric mobility is part of a grander scheme that includes matters such the digital revolution and increasing regulation.
[EVs] accelerate better, they are silent and there’s no vibration.
“It’s not just about changing one part of the car. It’s about reinventing what a car is.” He remarked that electric vehicles require a “completely” new value chain and infrastructure as 70% of the material cost are from new components specific to these cars.
The cradle-to-grave carbon footprint of an EV made and used in Europe will be 70% lower than that of a combustion engine car over the whole life cycle.
De Meo reminded the audience that EVs require less maintenance than a combustion car, whilst opening new business opportunities related to connectivity and energy ecosystems. From a customer perspective, he thinks that EVs are already better than IC cars, as “they accelerate better, they are silent and there’s no vibration.” Besides, EVs enable manufacturers to provide “more space for the people and a smaller space for the vehicle itself.”
Europe’s automotive industry is “fully committed”
“We [the industry] are investing €250bn in electrification, and I think there will be no going back… but all players are not advancing at the same pace,” stated de Meo. The EV shift creates “a major moment of discontinuity” and some parts of the new value chain are not yet ready.
The effort may be worth it in terms of future environmental impact. “The cradle-to-grave carbon footprint of an EV made and used in Europe will be 70% lower than that of a combustion engine car over the whole life cycle,” said de Meo.
Yet he noted that only 10% of global battery production capacity is based in Europe, not a surprising observation given that 90% of the world’s refining capacity of lithium is in China.
He explained that European charging infrastructure “is deployed seven times slower than necessary.” He is concerned that it could put the European industrial pillar--which accounts for 30m jobs on the continent, representing 8% of the GDP--in jeopardy.
Mobility may be more digital than you think
De Meo remarked that EVs have twice as many semiconductors as a combustion car. As there is more electricity on board, it enables the car to achieve more computer power to run semiconductors and the software. Some of those operations are not possible on a traditional 12-volt battery.
Interestingly, he pointed out that about 30% of the research, private research and development comes from automotive industry and its suppliers.
Paradigm shifts
For decades de Meo noted that the combustion engine worked like a barrier to entry that benefited Europeans as they have invented the technology with the intellectual property. “This is no more the case.”
The automotive industry has moved from a matured industry with stable demand to a world where technology is evolutionary, and demand and raw material prices are very volatile. The “price of lithium multiplied by 12, then divided by two in the space of two years.” A company may invest billions in a giga factory “that will become obsolete overnight because of a new battery chemistry.”
Innovate, imitate and regulate: reshuffling the cards
The “Chinese have learned from us.” Chinese manufacturers were known to imitate their western world competitors. Nowadays, he noted that Chinese have taken the lead by innovatiing in the value chain. For example, BYD vertically integrated 75% of its value chain and revolutionised the user experience. He remarked that Xiaomi claimed that it is successfully integrating over 200 product categories in one connected ecosystem that seamlessly communicate with the customer digital life and “the car becomes part of the user digital ecosystem.”
Therefore, de Meo sees a new role for European car makers: “be humble and learn.” He thinks that the European industry must imitate their competitors where they do better before prioritising innovation again.
Structural challenges: no quick fixes in sights
“We have opened an engineering centre in Shanghai enabling us to develop [a new car] in less than two years that we will produce and source in Europe,” stated de Meo. It is a target for all its cars.
[European OEMs] should be eight times more productive just to keep up.
Yet de Meo is concerned by adverse structural issues in Europe that are amplifying the challenges of the automotive sector. He noted that European consumers are being squeezed with less purchasing power to buy cars with a real income 25% lower compared to the US. Over the past 20 years household incomes have grown by only 10% while car prices have increased by more than 50%. As an average EV sold in Europe was three times more expensive than the average European income in 2023, it will come as no surprise that the age of an average new car buyer is 56. “It was 47 in 2005, and it is around 35 years old, in average, in China.”
European competitiveness must be addressed to improve affordability issues. “European productivity is less than 80% of that of the US. We have electricity costs up to three times what they are in that country, double than China.” He explained that the cost of electricity to produce an EV is twice the labour cost. Besides, Chinese manufacturers are running their operations “four time ours, and they work double the number of hours we do.” In other words, “we should be eight times more productive just to keep up.”
De Meo estimated that regulations siphon off up to 25% off the R&D from European car makers. “A 25% cost advantage for a company [manufacturing] in China.”