Unprecedented layoffs! What's next for the automotive industry?

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2024-05-28 11:22Posted in Hubei Automobile Creator

Li Auto, Guangqi Honda, and FAW-Volkswagen couldn't bear it anymore and started layoffs one after another, involving about 5,600 employees, thousands of employees, and 565 people respectively. In addition to Volkswagen, Tesla, Stellantis, Bosch, ZF, Continental, etc., the recent wave of layoffs in the automotive industry chain has been blown from abroad to China, including traditional car companies and new car manufacturers, and covering upstream and downstream parts companies and vehicle companies.

It is worth noting that Li Auto is the most profitable and currently the only new force in China, while Guangqi Honda is the first layoff since its establishment 25 years ago. Is 2024 really that tough?

01 Hundreds of thousands of people have been laid off, and the global automobile industry is in turmoil

Entering the off-season in May, Li Auto, Guangqi Honda, and FAW-Volkswagen have reported layoffs.

First of all, according to 21 financial reports, it is opening a round of personnel optimization and adjustment involving 5,600 employees, of which more than 400 people are optimized in the sales and service operation department, the intelligent driving team will be reduced to less than 1,000 people, and the recruitment department has been reduced from more than 200 people to 40-50 people, with an overall optimization ratio of more than 18%.

Guangqi has started the layoff in the form of a step-by-step notice, mainly with employees voluntarily resigning, and the company will give corresponding compensation, and the internal employee resignation procedure has been initiated, and the layoff action is expected to continue until August. As of May 15, more than 1,700 employees, or 14 percent of the company's workforce, had agreed to leave the company, according to Nikkei.

Just as May came to an end, FAW-Volkswagen's Foshan plant was also revealed to be about to optimize personnel this month. According to an internal document of the "Report on the Planned Downsizing of FAW-Volkswagen Foshan Company", due to the difficulty of continuing to arrange the positions of more than 700 surplus personnel, FAW-Volkswagen plans to select 565 employees with the lowest performance ranking from the 690 employees who joined the company in July 2019 to the expiration of the labor contract in July 2024, and will not renew the labor contract and give economic compensation.

The above three car companies are the first domestic mainstream car companies to propose layoffs this year, and they are quite representative - one is the top student of the new car-making force, and the other two are joint ventures that have always been the group's "profit cows", and they have joined the layoff team, which is somewhat surprising.

In fact, this is not the most surprising layoff in the global automotive industry in 2024, just last month, Tesla announced a 10% global layoff, with a total of 14,000 employees laid off. There is news that Tesla CEO Elon Musk wants to be able to lay off 20% of his workforce due to a 20% drop in the company's quarterly deliveries.

In addition to Tesla, Rivian Automotive, another electric vehicle manufacturer in the United States, also started large-scale layoffs this year, carrying out two rounds of layoffs in just two months, with the cumulative number of layoffs accounting for 11% of the company's total employees.

At the same time, after announcing the financial report of a sharp decline in profits in the first quarter of this year, the Volkswagen Group also announced plans to improve its full-year performance in 2024 by reducing the size of its executive staff in Germany, and the group will provide a huge severance bonus of 900 million euros to employees who choose to leave early, and the human resources director of the Volkswagen Group has previously said that the group needs to reduce personnel costs by 20% to achieve its annual financial target for 2024. Stellantis, another traditional automotive giant, announced 400 layoffs two months ago in response to the unprecedented uncertainty and global competitive pressures facing the automotive industry.

In addition to vehicle companies, a number of auto parts giants, including Bosch, Continental, and ZF, have recently announced layoff plans, including ZF's large-scale layoffs of 12,000 people, Continental and Bosch Group layoffs of 7,000 and 1,200 respectively, and Valeo has also laid off 1,150 employees. CARIAD, a software company of the Volkswagen Group, which employs 6,000 people, has laid off a third of its workforce, a total of 2,000 employees.

Up to now, the wave of layoffs in the automotive industry that has spread around the world involves not only parts companies and software companies in the upstream of the industrial chain, but also vehicle manufacturers in the downstream, including traditional auto giants and leaders of new car-making forces, with more than a dozen companies laying off more than 52,000 employees within half a year, which is rare in scope and deep in impact.

02 The crazy involuted car market, the tragic price war

The large-scale layoffs in the global automotive industry show that the current situation of car companies and auto parts companies is extremely unoptimistic, and it can even be said to be very difficult, which can be seen from the 2023 financial reports of domestic and foreign car companies.

In terms of vehicle sales, among the world's nine major countries/regions, except for ASEAN, which fell slightly by 2%, the remaining eight countries/regions all showed positive growth, of which six markets achieved double-digit growth, and China, the United States, and Europe, the world's three largest single auto markets, all grew by more than 10%.

This was also reflected in the revenue of domestic and foreign car companies last year, with the vast majority of mainstream automakers achieving revenue growth, however, from the perspective of net profit, many manufacturers experienced negative growth.

Among multinational groups, BMW and Honda's net profit fell by 34.5% and 23.6% year-on-year respectively last year; Among the domestic car companies, including SAIC, GAC, Great Wall, Dongfeng Motor, Weilai, Xiaopeng, and many other mainstream manufacturers, the net profit has declined, and the decline has exceeded 10%, among them, Dongfeng Motor has fallen nearly 139%, the first loss in nearly ten years.

Entering 2024, the situation of car companies is even more difficult. Tesla's net profit increased by nearly 20% year-on-year to $15 billion last year, and its revenue fell by 9% year-on-year in the first quarter of this year, and its net profit was nearly halved. Among the domestic car companies, SAIC and GAC's revenue both declined, and the net profit also narrowed year-on-year, and the net profit of the only ideal car among the new domestic car-making forces to achieve profitability also fell sharply by 36.7%.

Why do so many car manufacturers charge less than three or five buckets of rice? This is directly related to the crazy involution of the new energy market.

In February 2023, the BYD Qin PLUS Champion Edition lowered the price to less than 100,000 yuan for the first time, triggering a vigorous price war and dragging other manufacturers into the water: first of all, the tram followed the trend to reduce the price, and then, the oil cars whose market space was squeezed were also forced to reduce the price, and the terminal prices of Lavida and Sylphy once dropped to more than 60,000 yuan.

In the market to start a tragic price war at the same time, there are a large number of new brands and new models crazy influx into the market, only in the past two years, there have been a number of new electric vehicle brands in China, such as Yangwang, Equation Leopard, Haobo, iCAR, Xiaomi, Ledao, etc. Although the new energy vehicle market in mainland China has continued to grow, the growth rate has begun to slow down. According to data from the China Association of Automobile Manufacturers, the sales of new energy vehicles in 2023 will increase by about 38% year-on-year, as a comparison, the sales growth rate of new energy vehicles in 2021 and 2022 will be 157% and 93% respectively, and the growth trend will slow down significantly.

As a result, this fierce price war did not lead to additional growth in market sales, and the end result only changed the distribution of sales between different brands, and many car companies saw their profits fall sharply.

On the other hand, as the transformation of vehicle electrification continues to advance, the penetration rate of new energy vehicles in the domestic market has gradually become equal to that of traditional fuel vehicles, and the survival space of traditional automobile manufacturers with relatively slow electrification transformation has been greatly squeezed, the sales of fuel vehicles have decreased, and the new energy business has not improved significantly. It is worth mentioning that the direct cause of the layoffs at FAW-Volkswagen's Foshan plant is the decline in sales.

The transformation of vehicle electrification not only puts pressure on traditional auto giants, but also has an impact on auto parts companies. In the transformation of the automotive industry brought about by autonomous driving and Internet of Vehicles, auto parts companies are the first to feel the pressure. For example, Bosch, the world's largest parts giant, has an EBIT margin of 5.3 percent in fiscal 2023, which is still below its long-term profit margin target of at least 7 percent, even though it is 1% year-on-year from fiscal 2022.

03 The cold winter has arrived, and the elimination of the automobile industry has accelerated

For car companies and auto parts companies, layoffs are not only to cut costs and improve production efficiency, but also to prevent cold waves in advance. Most convincingly, the only two profitable automakers in the new automakers have wielded the stick of layoffs, which is a wake-up call for the entire industry: the future of the global economy and the electric vehicle market is full of uncertainties, and all practitioners should tighten their belts and prepare for the cold winter that may come at any time.

The price war in the automotive industry triggered by BYD, from the short-term impact, caused car companies to sell cars at a loss, profits declined, and then chose to lay off employees, and in the long run, in fact, the entire market fell into an unhealthy state. New energy vehicles have exchanged price wars and large losses for ultra-high market penetration, but they have pulled all manufacturers, including traditional brands, into the water, resulting in the whole industry falling into the brink of loss, and the price can be described as very painful.

In the past month or so, the penetration rate of new energy vehicles has exceeded 50% twice (the retail penetration rate of new energy vehicles exceeded 50% in the first two weeks of April, and the penetration rate of new energy vehicles in the third week of May also exceeded 50%), but in fact, such a high penetration rate is achieved through the crazy price war of trams. At the same time, the penetration rate of electric vehicles exceeding 50% is a watershed, which means that the electric vehicle industry has begun to enter a mature period, and it is difficult to have explosive growth like the initial stage of development in the future.

At the same time, this year's electric vehicle market has added two new brands, Xiaomi, Ledao, next month Xiaopeng will bring a sub-brand "MONA", and Weilai will launch a third brand in the second half of the year, these new faces will intensify the competition in the electric vehicle market, making the market involution more serious.

In the case that the whole industry is on the verge of loss, many car companies are still facing the problem of overcapacity.

According to incomplete statistics, the overall production capacity of passenger cars in mainland China is about 55 million, while the annual production capacity is about 25 million, and the capacity utilization rate is less than half of it. On the one hand, in the period of rapid expansion of electric vehicles, electric vehicle companies have laid out a large number of new energy vehicle production lines, which are seriously oversupplied, including many backward production lines with backward facilities and lack of technology, and the problem of structural and local overcapacity has begun to become prominent. On the other hand, under the gradual encroachment of electric vehicles, the overcapacity of fuel vehicles has become a foregone conclusion. How to solve these excess production capacity and improve production efficiency has also become a must-answer question in front of many OEMs.

In the context of the slowdown in the growth of the electric vehicle market and the intensification of competition, reducing costs and increasing efficiency is the only choice for many car companies, and it is expected that more car companies will report layoffs in the future.

In addition to reducing costs and reducing expenditures, it will also become a trend for enterprises to join forces and share cost pressures and market risks. In particular, cross-border cooperation and alliance between enterprises in different industries and fields to form complementary advantages and value superposition have gradually become a common phenomenon. The most classic cases are AVATAR, which was jointly built by Changan, Huawei, and CATL, and AITO, which was jointly built by Cialis and Huawei, and in the future, there will be more and more such cross-border cooperation to build cars.

It is worth noting that automobiles are an asset-heavy industry with a long return cycle, and some brands have not improved their performance and finances after implementing management methods such as layoffs and salary cuts to reduce costs, so they should consider withdrawing from the market.

In the past few years, the transformation of consumption structure and the trend of electrification, intelligence and digitalization have made China's auto market experience a major transformation, and the industry knockout competition has been escalating, not only Zhonghua, Borgward, Qoros, Zhidou, Luxgen, Lifan, Qiantu and many other local independent brands can not avoid the fate of discontinuation, even Suzuki, Renault, JEEP, Fiat, Acura, Mitsubishi, DS and other well-known foreign brands have to leave the Chinese market, which are the results of the survival of the fittest in the market. With the continuous fermentation of the industry, the market knockout competition will inevitably continue to be staged, such as Skoda, Peugeot, Citroen, Kia, Mazda, Infiniti and other joint venture brands that were once famous but are now in danger.

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