SHANGHAI听–听As Shanghai sweltered in a heatwave in June, the car factory where Mike Chen works switched production to night shifts and dialed down the air-conditioning.
For Chen, toiling through the early hours in his sweat-soaked uniform, it was the latest slap in the face after cuts in bonuses and overtime slashed his monthly pay this year to little more than a third of what he earned when he was hired in 2016.
Chen, 32, who works for a joint venture between听颁丑颈苍补’蝉听state-owned car giant SAIC and Germany’s Volkswagen, is far from alone. Millions of听补耻迟辞听飞辞谤办别谤蝉听and suppliers in China are feeling the heat as an electric vehicle听辫谤颈肠别听飞补谤听forces carmakers to shave costs anywhere they can.
“SAIC-VW used to be the best employer and I felt honored to work here,” said Chen. “Now I just feel angry and sad.”
The听辫谤颈肠别听飞补谤听triggered by Tesla聽has sucked in more than 40 brands, shifted demand away from older models and forced some听补耻迟辞makers to curb production of both EVs and combustion-engine cars, or聽听补濒迟辞驳别迟丑别谤.
Reuters interviews with 10 executives of carmakers and听补耻迟辞听parts suppliers, as well as seven factory听飞辞谤办别谤蝉, point to a broader industry in distress, with penny-pinching on everything from components to electricity bills to wages – which is in turn hitting spending elsewhere in the economy.
Asked about the SAIC-VW plant where Chen works, which makes combustion-engine cars, VW said pay at joint ventures varied based on working hours and bonuses. It said making cars at night eased the burden on power grids and that healthy, good working conditions were a high priority. SAIC did not respond.
Economists听飞补谤n that听颁丑颈苍补’蝉听补耻迟辞听sector could even become a drag on economic growth because of the听蹿补濒濒辞耻迟听from the听辫谤颈肠别听war, which would be a stark turnaround for a car industry that is by far the world’s biggest.
The problem is that while there has been huge investment in production capacity, helped by large state subsidies, domestic demand for cars has stagnated and household incomes remain under pressure, economists say.
In the first seven months of 2023, China sold 11.4 million cars at home and exported 2 million, but growth came almost entirely from abroad. Exports leapt 81% but domestic sales only crept 1.7% higher – despite the widespread听辫谤颈肠别听cuts.
“The focus on production and supply is lopsided,” said George Magnus, research associate at Oxford University’s China Centre, adding that inadequate attention to demand ultimately leads to inventory overhang,听辫谤颈肠别听cuts and financial stress.
“China really has to learn to walk on two legs.”
‘GOOD OLD DAYS HAVE GONE’
Chinese plants already were far from running at full tilt when Tesla first cut听辫谤颈肠别s in October last year and then again in January. CEO Elon Musk has since doubled-down on his strategy with聽聽announced last month.
Including factories making combustion-engine cars, China had the capacity to produce 43 million vehicles a year at the end of 2022, but the plant utilization rate was 54.5%, down from 66.6% in 2017, China Passenger Car Association (CPCA) data show.
At the same time, pay cuts and lay-offs in the听补耻迟辞听industry and its suppliers – which employ an estimated 30 million people according to Chinese state media – are hitting living standards at a time when Beijing desperately wants to lift consumer confidence from near record lows.
Cutting salaries is illegal in China, but complex pay structures offer ways around this.
SAIC-VW, for example, was able to reduce Mike Chen’s take-home pay by reducing working hours and cutting bonuses, without tinkering with his base pay, which typically covers up to half the compensation聽飞辞谤办别谤蝉听expect when they join.
叠驰顿听002594.SZ,听颁丑颈苍补’蝉听largest EV maker, advertised a position in August at its Shenzhen factory with an estimated monthly income of 5,000-7,000 yuan, but the base salary was 2,360 yuan ($324).
The average monthly wage in China was 11,300 yuan in June, according to government data.
A Reuters analysis of the estimated income included in recent job adverts from 30听补耻迟辞听firms showed hourly salaries of 14 yuan ($1.93) to 31 yuan ($4.27), with Tesla, SAIC-GM, Li Auto聽and Xpeng聽at the higher end.
础耻迟辞听worker Liu, 35, said he quit Changan听础耻迟辞mobile’s聽plant in Hefei in July after earning 4,000 yuan in both May and June, rather than the 7,000 he expected each month. Based on his past experiences, Liu was confident he would quickly find another听补耻迟辞听job, but the market had turned.
“The good old days are gone,” said Mr. Liu, speaking on condition of partial anonymity to protect his job prospects.
Changan听础耻迟辞mobile said working hours and pay varied from worker to worker.
Several听补耻迟辞makers including Mitsubishi Motors聽and聽 have laid off thousands in China after sales slumped. Others such as Tesla and battery maker CATL聽have slowed hiring as they delayed expansions.聽聽and its Chinese partner, meanwhile, are trying to sell a plant in Chongqing.
After being rejected by Li聽础耻迟辞听and Xpeng, Liu almost got a job at Chery’s plant in the eastern port of Qingdao through a labour agent, but he refused to pay him a 32,000 yuan commission to secure the position.
“Some factories exhaust you and are willing to pay you more. Some factories exhaust you, but are stingy. Some factories don’t exhaust you, but starve you as salaries are too low,” Liu said.
“Maybe I’d be better off as a security worker in some office building.”
CUT THROUGH THE MESS
It has been a similarly brutal environment for听补耻迟辞听suppliers in China as car听辫谤颈肠别s have continued to fall, with the weighted average transaction听辫谤颈肠别听of EVs and hybrids in June down 15% from January at 185,100 yuan.
SAIC-VW, for example, offered over half a billion dollars in聽聽for car buyers in March and a聽聽of just over $5,100 on its ID.3 electric hatchback for a period in July.
State-run China听础耻迟辞motive News estimates there are over 100,000听补耻迟辞听suppliers in the country. In a March survey of nearly 2,000 by听补耻迟辞听parts trading platform Gasgoo, 74% said听补耻迟辞makers had asked them to reduce costs.
More than half were asked for reductions of 5% to 10%, higher than the 3% to 5% targets of previous years. Nine out of 10 companies expected more such requests this year.
Suppliers typically negotiate听辫谤颈肠别s once a year, but many have been pressed to lower听辫谤颈肠别s on a quarterly basis in 2023, two senior executives at听补耻迟辞听suppliers said.
Before it kicked off the听辫谤颈肠别听war, Tesla sent emails to its direct suppliers, encouraging them to lower costs by 10% this year, according to a person with direct knowledge of the matter.
And in June, a group of small suppliers wrote to state-owned Changan听础耻迟辞mobile to push back against聽.
The EV battery market has also turned, with suppliers cutting听辫谤颈肠别s for听补耻迟辞makers. CATL, which counts Tesla as its biggest client, offered smaller domestic EV makers聽聽in February.
Lithium iron phosphate (LFP) batteries, the type used by Tesla in China, were 21% cheaper in August than five months ago, while nickel-cobalt batteries were 9% to 18% cheaper, RealLi Research data show.
When Chen Yudong, head of Bosch’s China operations visited one of his biggest customers in March, he received an unusual present, a chopping knife with a message engraved on its sheath: “Cut decisively through the mess.”
Three months later, he told Reuters that听辫谤颈肠别听cuts had been more aggressive in 2023 than in previous years.
“They’ve been keeping me awake at night.” – Reuters
