Tavares will join the management board on Jan. 1 and take over as CEO later in the year, PSA said, without specifying the date.
"He's a very ambitious man," said Christian Lafaye, FO union leader at PSA. "I guess that if he wants to come to Peugeot, he will want to show that he's able to turn around the company. This could be a good thing."
Tavares, who left his position as Renault's COO three months ago, will need to return PSA to profit, stop cash consumption and expand outside Europe.
As the third CEO to lead the automaker in the seven years, he will also be charged with bringing stability to the automaker in an industry where strategic plans take years to unfold.
"This regular changing of CEOs and the overall instability of the management board over the last few years is more proof of the lack of clarity," Florent Couvreur, an analyst at CM-CIC Securities, said Monday. "Peugeot is a enormous mammoth that will require time to evolve."
Tavares left Renault at the end of August, two weeks after Bloomberg published an interview with him saying that he would like to run another automaker because CEO Carlos Ghosn, 59, planned to stay for the foreseeable future.
Tavares spent more than three decades at Renault and affiliate Nissan Motor Co., rising through the ranks to eventually take over as Ghosn's No. 2 at the French automaker. Tavares, who races cars himself, was working to add a sports-car brand and luxury marque at the Renault group.
A key challenge for the new chief will be returning the French manufacturer, which reported a first-half operating loss of 510 million euros in its automotive unit, to profit. The carmaker is also working to reduce cash consumption by 50 percent this year to 1.5 billion euros.
Under Tavares, Renault reported unexpected growth in first-half profit as labor-cost reductions and higher vehicle prices more than offset an industrywide slump in European deliveries. When Tavares oversaw North America for Nissan, 43 percent owned by Renault, he helped the company earn 209 billion yen ($2.05 billion) in the region in the year ended March 2010, versus a 46.7 billion yen loss in 2009.