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Renault CEO: "What’s the point in refusing progress?”

issigonistrophy2024
issigonistrophy2024

Not often do you find yourself, twice in a few months, talking at length and one-to-one with a man as serially busy as Renault Group CEO Luca de Meo.

This is a man with no spare time at all, someone who powwows with the French prime minister and leaders of Europe. His diary fills at a year’s notice.

Yet the reason for this meeting is special. We are seeking time with de Meo to offer him our highest accolade, the 2024 Issigonis Trophy, largely on the strength of the series of dazzling achievements including record profits in his company’s 126-year history, posted less than three years after sustaining ruinous losses running at €140 million a day.

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It has been one of the greatest recoveries in corporate history, not just automotive, accompanied by an expanding and highly credible brand and model strategy topped by the traffic-stopping launch of a brand-new Renault 5 electric supermini later this year.  Demand for the car is already surging, six months ahead of delivery.

Despite all this, the portents of our latest meeting aren’t good.

De Meo has spent most of his day at Renault’s annual shareholders’ meeting, where reams of data is traditionally transmitted at pace to a hard-to-impress audience, where small stakeholders traditionally ask unanswerable questions, where dozens of resolutions must be put to a vote and where even the CEO’s salary (although considerably less than that of a Stellantis or Volkswagen chief) gets enviously discussed by folk whose stake in the company may not reach four figures. Who would want to do a press interview after that?

Yet de Meo smiles broadly as he arrives in our bare meeting room behind the vast auditorium used today to house the shareholder body.

He is well known for normality; after greetings we immediately start discussing the effects of his recent, highly unusual ‘Letter to Europe’, the self-styled assemblage of unbiased facts, data and suggestions covering the automotive industry and its competitive situation, recently circulated in 13 languages to experts, industry leaders and politicians ahead of the European elections, in an effort to help frame better regulations for tomorrow.

De Meo is greatly concerned that Europe (and thus the UK) lacks a cohesive industrial strategy and would love to be involved – with academics, union leaders, regulators and other OEM chiefs – in helping frame one for the motor industry. “

About 10 years ago our industry struck some serious troubles that backed us into a corner,” he says, referring to the diesel emissions scandal.

“It damaged the whole industry. We need to get out of that place and play our part in Europe’s industrial progress. The issues are complex, but I’m convinced they can be solved. Automotive represents between 8% and 9% of all European industry; it deserves a far higher priority than it currently gets.”

De Meo especially wants his report’s readers to perceive the stark difference between strategy and regulation, and he believes legislators are far too heavy on the latter.

He says: “Today’s European regulators think all they have to do is set a target, let’s say to have us all sell 100% EVs by 2035. ‘Here’s the target,’ they say, ‘and if you don’t get there we’re going to fine you billions. Goodbye and good luck.’

“Strategy is very different. You agree a plan with the relevant experts. You raise money, distribute responsibility, decide timing and include a mechanism of correction, because common sense tells you complicated plans rarely last many years without alteration. You also need patience: some big issues need 10 years to build or fix, which is where public authorities should come in. Their job should be to back risk takers until we reach their targets. In China they do it just like this.”

De Meo says his letter “went everywhere”, including into the heart of the G7 and the European Parliament. He’s had lots of calls on it both from automotive colleagues and unfamiliar contacts in industries outside, all of whom see a need for better industrial leadership.

“There was a generally good reaction from colleagues,” de Meo says, “although some thought it probably could have come from ACEA [the manufacturers’ trade body de Meo chairs].” But in the end the Renault chief decided to make the letter more direct and personal, because officially agreed communications are inclined “to mix water with the wine”.

De Meo puts the current, much-discussed slowdown in EV sales growth partly down to lingering after-effects of the emissions scandal. “When there was a crisis in our sector, the legislators felt it necessary to change everything,” he explains. “It was widely accepted, but there wasn’t any kind of impact analysis.

“I said at the time, and the French government agreed, that the cut-off date of 2035 for a complete implementation of EVs was too early: it needed to be 2040. But when the authorities went for 2035 anyway, our job became finding a way to make that happen. They told us to take care of the gigafactories and they would handle charging infrastructure. But what happened on their side? Not enough.”

De Meo believes there’s now a serious risk of a strong pendulum swing away from EV sales, brought on by current difficulties with EV pricing and infrastructure. Some in the industry believe the current obligation to move fully to EVs by 2035 won’t now happen – and seem pleased with that. But de Meo sees taking pleasure in the slippage of an agreed timetable as “a big mistake”.

Slowing down means letting rivals invent necessary new technology, he argues. Innovation happens elsewhere. “What’s the point in refusing progress?” he asks. “No society in history that refused progress – and you can go back to Greek and Roman times to see this – ever scored an advantage.”

In any case, de Meo is convinced electric cars will be the dominant part of future road transportation.

“Sure, we need to leave room for a portfolio of other new technologies,” he says, “but new EV powertrains bring intelligent architecture and better software with them. And different car designs. This is an entirely new generation of products, a much better experience. Besides, our research shows, cradle to grave, that in most cases EVs are conclusively easier on the environment.”

That ‘in most cases’ is important: de Meo believes that’s why the Chinese, for all their dedication to EVs, reckon that when it matures, their car market will run at 60-65% EVs. The rest will be low-carbon models like PHEVs or range-extenders, because in some circumstances they’re better. The key lesson is that black and white solutions don’t work.

“In China, they reward the virtuous ones and punish the vicious ones,” he says. “We don’t do that. We punish everyone. Those that don’t comply are fined; those that do get no reward.”

De Meo has always been more sanguine than most about the Chinese automotive threat, pointing out that Europe dealt well enough with the Americans in the 1950s and 1960s, the Japanese from the 1970s to the 1990s and the Koreans more recently. European car sales from all three importing nations amount to about 25% today, and on that evidence he predicts Europe will survive the Chinese arrival as well.

The Renault chief recently studied the situation more closely, taking a nine-day tour of Chinese factories, driving cars and meeting some of the biggest players. He returned profoundly impressed and with the impression that in some areas the Renault Group could do more business with China, not less.

“If you are a keen car person and look into European car progress, you will soon see that from the 1930s on, there were many surprises in car design: lots of unusual designs and sparks of genius,” says de Meo. “Lately we have become more predictable, without much room for genius. Our cars are built mainly around reassuring the customers.

“In China, creative genius exists. Some cars are useless, but some are amazing. I met a guy whose company had just built his first car, a Porsche Taycan rival. He admitted he started the project with no passion for cars; he’d been making mobile phones. But he tested more than 70 cars to get his product right. I tried it and couldn’t find one mistake. He was getting ready to sell it for €35,000! What do you say to a guy like that? Do you tell him not to sell it? Of course not. I say well done, or ‘chapeau’ as the French say.”

De Meo avoids minimising Chinese achievements just because their system, and the government’s role, is different.

“It’s clear they have advantages,” he admits, “and they don’t have all the obligations we do. But I don’t want to talk about subsidies – that’s not my cup of tea. They have a system I’d describe as ‘administrative Darwinism’. The financial institutions and government take a financial risk, and businesses take the commercial risk.

To participate, start-ups have to jump into a piranha pool with 20 others, and they all eat one another. Out of 20 players the authorities want five, and competition is brutal. Most won’t survive, but they make a lot of progress and use a lot of technology along the way.”

So what does de Meo see as the way to counter China’s expansion? Stop complaining and work harder seems to be the gist, but he’s too diplomatic to put it so baldly. The first move is obvious, he believes: Europeans must look at how the Chinese work, then roll up their sleeves and do the same.

Renault is on the way: the new baby Twingo will be built on a two-year cycle, the time-saving coming from new methods of production engineering and component sourcing, courtesy of a consultative collaboration with an unnamed Chinese firm.

The Chinese are humble, admits de Meo, and learn fast. So what are Europe’s enduring advantages?

“It may sound soft,” says de Meo, “but our manufacturers can create cars which are by nature better adapted to our market conditions. We have a European style, and many customers inside and outside Europe have always preferred that. But we need to keep progressing.”

Brand management is another European advantage. “I’m not saying it’s good or bad,” he says, “but building a brand the way we do it isn’t something the Chinese do.

For new things they often use a new brand, which is why so many bigger manufacturers have sub-brands. In China, they think tomorrow is better than yesterday. Here, we think yesterday was better than tomorrow – and maybe the UK is an extreme case…”

Despite all, de Meo is convincingly optimistic about the future health of Europe’s industry, helped no doubt by the reception for his new Renault 5, which has no Chinese equivalent.

“We will use the 5 to reconnect Renault with good times,” he says. “It will be one of those cars that makes EVs seem more possible for Europeans. Lots of people are telling us they have to own one. Creating this kind of desire is Europe’s speciality, and it can keep us healthy.”

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