SAIC Motor job cuts: SAIC Motor, China's state-owned automotive giant, is making significant workforce reductions this year across its joint ventures with General Motors (GM) and Volkswagen (VW), as well as its electric vehicle (EV) subsidiary, news agency Reuters reported, quoting sources familiar with the matter.

Background: Growing pressure amidst EV surge

These cuts, unusual for state-owned enterprises in China, coincide with intense competition in the automotive sector amid economic challenges in the nation, as per the report. SAIC and its foreign partners have been grappling with the surge of electric vehicles, ceding market share to competitors like Tesla and domestic players such as BYD.

In recent years, SAIC and its foreign partners have seen steep drops in sales as BYD and Tesla have surged far ahead in the race to capture EV market share. EV sales have risen sharply and now account for 23 per cent of China's car sales, with BYD and Tesla capturing by far the biggest shares of the electric sector.

Government policies

The Chinese government granted Tesla a rare exception to its longstanding practice of making foreign automakers form joint ventures with state-owned enterprises. Tesla set up a wholly owned entity in 2018 to manufacture vehicles at its Shanghai factory - its biggest globally by output - as part of a government strategy to supercharge the development of China's EV supply chains and challenge domestic automakers to compete.

Following this, BYD's EV sales in China have rocketed from about 130,000 in 2020 to more than 1.5 million last year and its global EV sales surpassed Tesla late last year. Last week, BYD Chairman Wang Chuanfu predicted foreign brands would see their China market share plummet from 40 per cent to 10 per cent in the next three to five years, the Reuters report said.

Implications for SAIC and foreign partners

These workforce adjustments underscore broader challenges faced by state-owned automakers and their international partners in navigating China's rapidly evolving automotive landscape. Established decades ago, SAIC's joint ventures with GM and VW now confront the imperative of adapting to new market dynamics driven by electric mobility and shifting consumer preferences.

As the industry’s electrification accelerates, the Chinese government has urged state-owned entities to be more efficient and less dependent on foreign partners. But SAIC still relies on its VW and GM partnerships for a large proportion of its sales and profits.

SAIC's workforce reduction

SAIC's sales declined by 16 per cent in the first two months of 2024 compared to the previous year, according to the company's filing. With a workforce of 207,000 employees across its subsidiaries, SAIC faces the challenge of aligning its operations with market demands and performance standards.

The reduction strategy reportedly involves offering payouts to underperforming employees, with SAIC-VW particularly targeting white-collar professionals. Performance-based evaluations, including rating employees from A to D, are central to the process, with lower-rated employees being encouraged to resign through various means.

Rising Auto, SAIC's EV unit, is also implementing similar measures, combining payouts with contract non-renewals and dismissals for low-performing staff.

(With Reuters inputs.)