In an open letter to the European Union, Renault CEO Luca de Meo says the European automotive industry “is facing an onslaught of electric vehicles from China” and advocates for “a European Marshall Plan” to accelerate the transition to EVs.
In the 19 page letter, the Renault CEO covers a range of issues facing Europe including the staggering pace at which China is taking global auto market share through its dominance of electric vehicles and proposes a set of recommendations and projects for Europe to respond with.
These include a greater focus on smaller EVs, last mile delivery vans, buying incentives, charging infrastructure and vehicle to grid (V2G) technologies.
“We are aware that this will require a paradigm shift,” says de Meo. “The prosperity of Europe is at stake.”
A European Marshall Plan to rebuild the auto industry
The original Marshall Plan, enacted in 1948 (officially called the European Recovery Program, ERP) was a $US13.3 billion ($US173 billion in today’s money) fund provided by the US to rebuild Western Europe after WW2. De Meo reference indicates the scale of what he says is required for Europe’s car industry to survive the global shift to EVs.
“The principle would be the same as for the post-Covid recovery plan,” de Meo says.
“At national level, incentives would be put in place for the purchase of new or used electric vehicles. In order to be effective, a scheme of this type would need to be based on a timeframe of ten years.”
De Meo says Europe should “revolutionise last-mile deliveries” by establishing a framework for new European companies specialising in electrified solutions for urban deliveries, and focus on coordinating and rolling out charging infrastructure and incentivising V2G.
China dominates the world on electric vehicles
De Meo sees the explosion of electric vehicle manufacturing in China as the greatest threat to the European automotive industry.
“China is making rapid inroads into the all-electric vehicle segment. Buoyed by its huge domestic market (8.5 million electric vehicles sold in 2023, according to the Chinese Passenger Car Association, or 60% of the global total), it already had market share of close to 4% in Europe in 2022,” says de Meo.
“In 2023, around 35% of electric vehicles exported worldwide were Chinese. As a logical consequence of this trend, European imports from China have increased fivefold since 2017. This has sharply widened the trade deficit between Europe and China, which now stands at almost €400 billion after doubling between 2020 and 2022!”
According to de Meo, the auto industry in Europe employs 13 million making up 7% of all employees and 8% of production workers. The sector also accounts for 8% of Europe’s GDP. The European auto industry spends €59 billion per year which equates to 17% of Europe’s total R&D.
China and the US providing massive support for EVs while Europe has none
De Meo points out the huge disparities between government incentives for EV manufacturing in both the US and China compared to Europe. He says China has a comparative advantage on the cost of a C-segment car of €6,000 and €7,000 (around 25% of the total price) compared with an equivalent model made in Europe.
“Concerning the statement of operations, energy costs are twice as low in China and three times lower in the United States, compared with Europe. At the same time, wage costs are 40% higher in than in China.” says de Meo.
In addition the lower cost of production inherent in China and the US, de Meo says it’s thought China is handing out increasingly large subsidies to its manufacturers quoting a report by Polytechnique University which sets the total amount of subsidies up to 2022 at between €110 and €160 billion.
De Meo says since passing the Inflation Reduction Act (IRA) in August 2022, the US has injected €387 billion into its economy, primarily in the form of tax credits.
“Of this total, US$40 billion in tax credits has been granted to develop green manufacturing technologies. Europe has no system of this type.”
China rules, the US stimulates and Europe regulates
De Meo says that in the global battle for EVs he sees three “radically different” strategies.
He says that in 2012 the Chinese government decided to focus on electric vehicles with the stated aim for China to “dominate the global market.” Since then, China has invested heavily in all the sectors involved in the lifecycle of EVs, from the extraction of rare metals to the recycling of batteries.
In addition to this, de Meo says China introduced common standards and encouraged foreign manufacturers to enter into joint ventures and technology transfers with local Chinese counterparts. Finally, government, banks and institutions generously shoulder the risks incurred by EV startups, of which De Meo says, 93% lose money.
“This strategy has brought results, since China now 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.” writes the Renault CEO.
While China makes direct investments and enforces strong rules directing the EV industry, de Meo points out the US strategy is focused more on stimulating private investment.
While it took the US 10 years to respond to China’s pro EV policies with the IRA passing in mid-2022, the US is now pumping hundreds of billions of dollars into the sector in what can only be described and a clean tech arms race between the world’s two largest economies.
“The purpose of the IRA programme 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.”
De Meo says the IRA is supercharging investment into gigafactories in the US.
“The capacity of the battery gigafactories to be completed by 2030 has risen from 700 gigawatt hours in July 2022 to 1.2 Terawatt hours in July 2023.”
“Before the IRA, one gigawatt/hour required an investment of US$ 90 million. That figure has now fallen to US$ 60 million. This places the US on a par with China, while the cost in Europe remains far higher: US$ 80 million per gigawatt/hour.”
While the US and China pump hundreds of billions into electrifying their auto industries, Europe has focussed on regulation to force automakers to produce cleaner cars.
“Europe is in the process of drafting a whole new array of standards and regulations. On average, between eight and ten new regulations will be introduced every year by the various European Commission directorates between now and 2030,” says de Meo.
“The purpose of this regulatory burden is to make Europe a champion of environmental protection, in the hope that this will contribute to social progress at a global level.
“As a result, Europe is facing a complicated equation. It should be protecting 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 in 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).
“Relations with China will need to be managed. Completely closing the door to them would be the worst possible response.”
Recommendations for Europe
De Meo says the European automotive industry is mobilised but urgently needs the EU to put in place the conditions necessary for the emergence of a genuine ecosystem for low-carbon mobility. He makes seven recommendations:
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Develop an industrial strategy for Europe.
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Bring all the stakeholders together around the table.
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Put an end to the current system, with the continuous rollout of new standards, fixed deadlines and threat of fines for non-application.
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Adopt an approach that is horizontal rather than just vertical.
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Rebuild supply capacity in raw materials and electronic components, develop our software expertise and establish a European sovereignty in the cloud.
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With China ruling and the United States stimulating, Europe needs to invent a hybrid model.
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The automotive industry is not challenging the Green Deal.
“We are aware that this will require a paradigm shift.” says de Meo.
“The prosperity of Europe is at stake.”
Daniel Bleakley is a clean technology researcher and advocate with a background in engineering and business. He has a strong interest in electric vehicles, renewable energy, manufacturing and public policy.