According to reports, Chinese electric car manufacturer Ideal Auto has launched a new round of layoffs, with a layoff rate of up to 18%. Based on the company’s financial report from last year, the number of employees being laid off will exceed 5600.
On May 16, “21st Century Economic Report” learned from multiple independent sources that Ideal Auto is undergoing a new round of company-wide staff reductions, with an overall layoff rate exceeding 18%. According to the 2023 financial report, Ideal Auto has nearly 31,600 employees, and based on the layoff rate, this round of layoffs will affect more than 5600 people.
The departments with the most layoffs this time include the recruitment department, sales service operations department, and intelligent driving department. Specifically, the sales service operations department will see more than 400 people laid off, the recruitment department will be reduced from over 200 people to 40-50 people, and the intelligent driving team will be reduced to less than 1000 people.
Insiders stated that at the end of April, Ideal’s management approved the final list of layoffs. This round of layoffs officially started in the first week of May, with most expected to end by the end of May. Employees being laid off will receive N+1 compensation. Ideal Auto hopes to complete most of the plan before the June 15 stock unlocking for employees, in order to save some of the costs for employees to cash in stocks.
Reports indicate that Ideal Auto is currently the best-performing emerging electric car manufacturer in China, delivering a total of 376,000 vehicles last year, with a net profit exceeding 11.8 billion yuan. In the first quarter of the new energy vehicle market with prices exceeding 300,000 yuan, Ideal’s sales growth reached 52.9%.
While Ideal Auto’s market share is performing as expected, in early March, sales of the new MPV model MEGA fell below expectations. By the end of March, Ideal revised its sales expectations for the year from 650,000-800,000 vehicles to 560,000-640,000 vehicles.
After lowering sales expectations, corresponding staff reductions needed to be made. At the same time, Ideal also announced price cuts across its lineup. Price reductions will impact gross profit, and layoffs are a crucial step for Ideal.
Even with Ideal Auto being the best-performing among China’s electric car manufacturers, the intense competition in the electric car market is evident.
In April of this year, Tesla, Ideal Auto, and many other car companies started an unprecedented round of price cuts. With over 200 electric vehicle manufacturers in China grappling with massive overcapacity issues, experts predict that many smaller companies may struggle to survive in the fierce competitive environment.
In April, Tesla once again lowered the starting prices of four models sold in China by 14,000 yuan, with Xiaopeng Motors and Ideal Auto following suit by offering significant discounts or subsidies to attract buyers.
Price reductions are squeezing the profitability of car dealers. According to data from the China Association of Automobile Manufacturers, in 2023, the average profit margin in the Chinese auto industry dropped to 5%, the lowest level in a decade.
In 2023, only three electric vehicle manufacturers in China were profitable, namely Tesla, BYD, and Ideal Auto. The gross profit margins of the latter two companies were 20% and 22.2%, respectively, while Tesla’s global gross profit margin was 18.2%.
Nomura Securities analyst Joel Ying stated last month that the competitive situation could continue for another two to three years, after which the market may enter a new stable phase, with a significantly reduced number of competitors remaining in the market.
The International Energy Agency (IEA) estimates that 60% of electric vehicles sold in China are already cheaper than fuel cars. Other countries are expected to achieve price parity between new energy vehicles and traditional fuel vehicles around 2030.
The China Association of Automobile Manufacturers predicts that China’s total passenger car sales in 2024 will be around 26.8 million. However, the total sales targets of major manufacturers are already approaching 30 million.
Overcapacity means that enterprises need to accelerate sales, including increasing exports – which could escalate tensions with Beijing’s major trading partners. However, failure to do so could lead to cash flow issues and put manufacturers in crisis.