Renault CEO Welcomes EU-China Deal on Hybrids as ‘Milestone’

Renault SA says the European Union reached an initial “major milestone” with its deal to slow the onslaught of hybrid cars from China that will help foster a future for Europe’s automotive industry.

The EU and China agreed Friday to drastically reduce shipments of hybrid cars to the bloc, following EU trade chief Maros Sefcovic meeting with his Chinese counterpart. Hybrid car sales by Chinese brands like BYD Co. across Europe have surged this year to account for as much as a quarter of monthly deliveries, stoking trade tensions.

“I had urged him to seek an agreement quickly,” Chief Executive Officer Francois Provost said in an interview Sunday. “Without one, we would be looking at a trade war with China, which would be a lose-lose situation for everyone.”

Read More: EU Plans Measures to Halve Imports of Chinese Hybrid Cars

Provost was among business leaders who met with Sefcovic ahead of his trip where the EU sought to address deepening trade imbalances. Ahead of meetings with Chinese Commerce Minister Wang Wentao, France and Germany called on the EU to significantly expand its retaliatory economic powers and investigate whether subsidized imports are harming sectors like chemicals and plastics.

Europe’s carmakers have come under pressure from the likes of Chery Automobile Co. while losing market share in China, where nimble competitors develop new models more efficiently. In Europe, attractive lineups including BYD’s Dolphin hatchback offer solid EV technology at affordable prices. The shift is forcing carmakers like Volkswagen AG to shrink workforces amid broad cost cuts.

Renault’s Provost has been vocal about the EU pursuing new deal with China that could limit the flow of imports while pushing Chinese manufacturers and suppliers to invest in Europe. In France, Renault itself relies already on some Chinese suppliers. Envision AESC assembles EV batteries for the top-selling R5 city car, the R4 and Alpine A290 models, at a site near Renault’s car-assembly factory in Douai, northern France.

“We need Chinese companies to invest heavily in the European value chain rather than just set up ‘screwdriver plants’,” Provost said. He also urged the EU to take swift action on so-called Made-in-Europe rules that can set up the framework for Chinese players locally.

“There is a risk that the European automotive industry will continue to collapse if Europe does not make rapid decisions now,” he said. “At least on the China front, there has been some headway thanks to to Commissioner Sefcovic.”

Read More: Europe’s Troubled Carmakers Get China Boost on Way to Paris Show

Renault has fared better than its European peers so far on meeting cut-throat competition from Chinese carmakers. The group sped up development times for new models with the help of engineers in China and France, taking just 16 months to bring out the second-generation battery-powered Dacia Spring. The car is priced from less than €18,000 ($20,160).

Moody’s Rating’s last month upgraded Renault’s long-term credit rating, citing the group’s “sustained” improvement in credit quality over recent years and a “materially stronger” balance sheet.

So far this year, “Renault management has clearly done a much better budgeting and execution job than investors expected,” Citi analyst Harald Hendrikse wrote in a note this month.

The company also stuck to electric-vehicle rollout plans while volatile demand forced the likes of VW and Stellantis NV to make costly pivots. Avoiding these disruptions, and with its main market in Europe, Renault has benefited from a boom in EV demand as gasoline and diesel prices have spiked.

“We have no reason to be ashamed of the technology in our cars, and we are ensuring that these cars are competitive against the Chinese rivals who will be manufacturing in Europe,” Provost said. “We also bet heavily on electric vehicles and we can now see that this strategic choice was the right one.”

Provost said he plans to invest another €10 billion in France in the coming five years if the political and social will supports it.