Cost reduction and efficiency improvement, personnel optimization

According to Asahi Shimbun, Nissan Motor has announced the closure of its passenger car plant in Changzhou, Jiangsu Province on June 21. Due to declining sales, Nissan Motor has decided to cut its production capacity in China by about 10%.

Screenshot of Asahi Shimbun report

Data shows that Nissan's total production in China is 1.6 million vehicles, of which the Changzhou plant accounts for 8% of its production. In terms of sales, Nissan has seen a year-on-year decline in China for five consecutive years. A Nissan spokesperson said, "This is to optimize production." An insider revealed that after the plant closes, most of the laid-off employees will receive at least N+1 compensation, but a small number of senior executives will go to other bases or resign.

Photo credit: Dongfeng Nissan

At this stage, "personnel optimization" is not a new topic in the automotive industry.

According to foreign media reports, as of June 17, Tesla's latest "All Hands" email list had 121,000 people, compared to 140,000 employees worldwide (including salaried employees and hourly workers) at the end of December last year, representing a 14% reduction in the company's workforce. In April this year, Tesla CEO Elon Musk announced layoffs, with a layoff ratio of over 10%. At the same time, Musk stated in an email: "Tesla will conduct a comprehensive review in the coming weeks and grant stock options to outstanding employees."

This year, whether it is traditional automakers whose sales have declined, new energy automakers at the forefront, or even upstream and downstream parts companies, layoffs have been reported one after another. Amidst increasing internal competition, cost reduction and efficiency improvement have become the industry's unanimous goal.

Cost reduction and efficiency improvement, personnel optimization

At the recent China Automotive Chongqing Forum, Zeng Qinghong, Chairman of GAC Group, said that the purpose of the enterprise is to make profits, contribute to the country and society, pay taxes, and create job opportunities. However, the current market competition is too fierce, and "rolling down is not a solution." Layoffs are common in the industry, and GAC Group is no exception.

Not long ago, GAC Honda solicited voluntary resignations among production staff, and about 1,700 people have responded, accounting for 14% of the total number of employees in the joint venture company. From January to April this year, GAC Honda sold 141,600 vehicles, a year-on-year decline of 19.01%.

It's not just GAC Group. An internal document released by the Volkswagen Group on May 30 revealed that the Volkswagen Group has set up a performance project called "KI 10" for all its companies, aiming to reduce fixed costs and personnel costs by 20% over three years. The document, issued by Bernd Osterloh, Chairman and CEO of Volkswagen Group China, among others, showed that the fierce market environment in China has brought additional pressure on the company's financial performance. Volkswagen urgently needs to focus on a more efficient organization, leveraging cross-entity and departmental synergies to achieve a 20% reduction in indirect personnel costs.

Volkswagen China stated that the project was proposed by headquarters and aims to achieve a 20% efficiency improvement over the three years from 2024 to 2026, benchmarked against 2023. This includes reducing indirect human costs such as travel and administration, but does not equate to layoffs.

Nowadays, new energy vehicles are constantly grabbing market share from traditional gasoline vehicles, and it is an indisputable fact that traditional automakers are facing declining sales and transformation issues. On the other hand, the seemingly robust new carmaking forces are constantly bouncing between "expanding scale" and "personnel optimization." When a product becomes popular, they quickly expand their scale, but when development falls short of expectations, they quickly reduce staff. Discussions among practitioners about "good benefits in new forces, hurry up and get on board" seem to have been yesterday's news, and soon, their topics have changed to "did you get a big package?" and "did you graduate?"

In 2023, Lixiang Auto became the first profitable brand among the new forces. This year, Lixiang Auto's revenue exceeded 100 billion yuan for the first time, with a net profit of over 10 billion yuan. However, recently, Lixiang Auto is also optimizing its personnel. Relevant information shows that Lixiang Auto's overall optimization ratio exceeds 18%. According to Lixiang Auto's 2023 financial report, the company has nearly 31,600 employees, a year-on-year increase of 63%. Based on the optimization ratio, this round of optimization involves over 5,600 people. However, after initiating large-scale layoffs, Lixiang Auto has recalled some laid-off employees in key positions, and some testing staff have already received recall notices.

Photo credit: Lixiang Auto

The reason for Lixiang Auto's adjustment of its staff structure is partly related to the development momentum falling short of expectations. The highly anticipated first pure electric vehicle, the Mega, did not fare well, and Lixiang Auto's pure electric vehicle development schedule was also affected. Several executives of Lixiang Auto have repeatedly claimed that the Mega will become the top-selling luxury car in the market above 500,000 yuan and an important support for Lixiang Auto's sales target of 800,000 vehicles this year. However, the reality is that after the launch of the Mega, it encountered significant public opinion, and sales did not meet expectations.

Industry reshuffle and interest restructuring

The pressure brought by the competition in the automotive industry is continuing to be released.

Since the beginning of 2023, a price war sweeping the automotive industry has continued to spread, with the industry's profit margin remaining low. From the perspective of annual sales, the price war has not driven additional growth in total market sales but has changed the distribution of sales among different brands, resulting in significant declines in profits for many automakers.

Data shows that from January to April 2024, the cumulative revenue of the automotive industry was 3.0742 trillion yuan, an increase of 8% year-on-year; costs were 2.6882 trillion yuan, an increase of 8% year-on-year; profits were 142.8 billion yuan, an increase of 29% year-on-year; and the profit margin of the automotive industry was 4.6%, at a historical low.

Cui Dongshu, Secretary-General of the China Passenger Car Association, said in an article that with the expansion of the auto market's production scale, the decline in PPI (Producer Price Index), and the reduction in upstream lithium carbonate costs, the overall profits of automakers have slightly improved, but they are still low compared to the average profit margin of overall industrial enterprises.

Cui Dongshu analyzed that while gasoline vehicles in the current automotive industry are still profitable, the market is shrinking rapidly; while the new energy vehicle market is growing rapidly, it is suffering from significant losses.

Currently, most new energy automakers have not yet achieved profitability, and the "price war" has put many automakers in a passive position. In terms of profitability, Toyota, which has been frequently questioned during its electric transformation, even exceeded the combined profits of China's top ten automakers in 2023.

At the same time, the redistribution of interests in the automotive industry is also taking place. In the era of traditional internal combustion engines, automakers such as Toyota and Volkswagen occupied an absolute voice in the automotive supply chain, but now, suppliers of parts and components such as CATL and LG Chem have emerged.

For traditional gasoline automakers that are in a critical period of transition to new energy vehicles, they need to invest a lot of money in developing new technologies and updating production lines. In this process, a large number of personnel accumulated under the original production technology conditions may find it difficult to adapt to new development needs, leading to layoffs.

It is worth noting that although sales of new energy vehicles are still growing, the growth rate is slowing down. According to data from the China Association of Automobile Manufacturers, sales of new energy vehicles increased by about 38% year-on-year in 2023. In 2021 and 2022, the growth rates of new energy vehicle sales were 157% and 93%, respectively.

Amidst the complex situation, more and more companies are emphasizing the importance of "long-termism." Zeng Qinghong said that developing new energy vehicles is for environmental protection, energy conservation, and energy security. In the long run, there should be a multi-energy structure, and the coexistence of different energy sources is essential. Zeng Qinghong believes that the automotive industry should "adhere to long-termism and focus on long-term development."

As competition in the automotive industry intensifies and profits thin out, both traditional automakers and new carmaking forces are facing inevitable internal adjustments to cope with the new development pattern. The electrification and intelligence of automobiles have also brought new opportunities and new requirements for talent. The reshuffle of the industry is not only a matter of survival of the fittest among enterprises but also a test that practitioners must face.