Insight: China’s auto workers bear the brunt of price war as fallout widens

SHANGHAI, Sept 5 (Reuters) – As Shanghai sweltered in a heatwave in June, the automobile manufacturing unit the place Mike Chen works switched manufacturing to nighttime shifts and dialled down the air-conditioning.

For Chen, toiling by the early hours in his sweat-soaked uniform, it was the newest slap within the face after cuts in bonuses and time beyond regulation slashed his month-to-month pay this 12 months to little greater than a 3rd of what he earned when he was employed in 2016.

Chen, 32, who works for a three way partnership between China’s state-owned automobile big SAIC (600104.SS) and Germany’s Volkswagen (VOWG_p.DE), is much from alone. Hundreds of thousands of auto staff and suppliers in China are feeling the warmth as an electrical car worth conflict forces carmakers to shave prices anyplace they’ll.

“SAIC-VW was the very best employer and I felt honoured to work right here,” mentioned Chen. “Now I simply really feel indignant and unhappy.”

The worth conflict triggered by Tesla (TSLA.O) has sucked in additional than 40 manufacturers, shifted demand away from older fashions and compelled some automakers to curb manufacturing of each EVs and combustion-engine automobiles, or shut factories altogether.

Reuters interviews with 10 executives of carmakers and auto elements suppliers, in addition to seven manufacturing unit staff, level to a broader business in misery, with penny-pinching on all the things from parts to electrical energy payments to wages – which is in flip hitting spending elsewhere within the economic system.

Requested concerning the SAIC-VW plant the place Chen works, which makes combustion-engine automobiles, VW mentioned pay at joint ventures assorted primarily based on working hours and bonuses. It mentioned making automobiles at night time eased the burden on energy grids and that wholesome, good working situations have been a excessive precedence. SAIC didn’t reply.

Economists warn that China’s auto sector might even change into a drag on financial development due to the fallout from the value conflict, which might be a stark turnaround for a automobile business that’s by far the world’s largest.

The issue is that whereas there was large funding in manufacturing capability, helped by giant state subsidies, home demand for automobiles has stagnated and family incomes stay below stress, economists say.

Within the first seven months of 2023, China bought 11.4 million automobiles at dwelling and exported 2 million, however development got here nearly solely from overseas. Exports leapt 81% however home gross sales solely crept 1.7% greater – regardless of the widespread worth cuts.

“The concentrate on manufacturing and provide is lopsided,” mentioned George Magnus, analysis affiliate at Oxford College’s China Centre, including that insufficient consideration to demand in the end results in stock overhang, worth cuts and monetary stress.

“China actually has to study to stroll on two legs.”

‘GOOD OLD DAYS HAVE GONE’

Chinese language crops already have been removed from operating at full tilt when Tesla first minimize costs in October final 12 months after which once more in January. CEO Elon Musk has since doubled-down on his technique with extra cuts introduced final month.

Together with factories making combustion-engine automobiles, China had the capability to provide 43 million autos a 12 months on the finish of 2022, however the plant utilisation fee was 54.5%, down from 66.6% in 2017, China Passenger Automobile Affiliation (CPCA) knowledge present.

On the identical time, pay cuts and lay-offs within the auto business and its suppliers – which make use of an estimated 30 million folks in accordance with Chinese language state media – are hitting residing requirements at a time when Beijing desperately desires to elevate client confidence from close to document lows.

Chopping salaries is unlawful in China, however advanced pay constructions provide methods round this.

SAIC-VW, for instance, was in a position to scale back Mike Chen’s take-home pay by lowering working hours and slicing bonuses, with out tinkering along with his base pay, which usually covers as much as half the compensation staff anticipate once they be a part of.

BYD (002594.SZ), China’s largest EV maker, marketed a place in August at its Shenzhen manufacturing unit with an estimated month-to-month revenue of 5,000-7,000 yuan, however the base wage was 2,360 yuan ($324).

The common month-to-month wage in China was 11,300 yuan in June, in accordance with authorities knowledge.

A Reuters evaluation of the estimated revenue included in latest job adverts from 30 auto companies confirmed hourly salaries of 14 yuan ($1.93) to 31 yuan ($4.27), with Tesla, SAIC-GM, Li Auto (2015.HK) and Xpeng (9868.HK) on the greater finish.

Auto employee Liu, 35, mentioned he stop Changan Car’s (000625.SZ) plant in Hefei in July after incomes 4,000 yuan in each Might and June, fairly than the 7,000 he anticipated every month. Primarily based on his previous experiences, Liu was assured he would shortly discover one other auto job, however the market had turned.

“The great previous days are gone,” mentioned Liu, talking on situation of partial anonymity to guard his job prospects.

Changan Car mentioned working hours and pay assorted from employee to employee.

A number of automakers together with Mitsubishi Motors (7211.T) and Toyota (7203.T) have laid off hundreds in China after gross sales slumped. Others similar to Tesla and battery maker CATL (300750.SZ) have slowed hiring as they delayed expansions. Hyundai (005380.KS) and its Chinese language accomplice, in the meantime, are attempting to promote a plant in Chongqing.

After being rejected by Li Auto and Xpeng, Liu nearly received a job at Chery’s plant within the japanese port of Qingdao by a labour agent, however he refused to pay him a 32,000 yuan fee to safe the place.

“Some factories exhaust you and are keen to pay you extra. Some factories exhaust you, however are stingy. Some factories do not exhaust you, however starve you as salaries are too low,” Liu mentioned.

“Possibly I would be higher off as a safety employee in some workplace constructing.”

CUT THROUGH THE MESS

It has been a equally brutal surroundings for auto suppliers in China as automobile costs have continued to fall, with the weighted common transaction worth of EVs and hybrids in June down 15% from January at 185,100 yuan.

SAIC-VW, for instance, provided over half a billion {dollars} in money subsidies for automobile patrons in March and a reduction of simply over $5,100 on its ID.3 electrical hatchback for a interval in July.

State-run China Automotive Information estimates there are over 100,000 auto suppliers within the nation. In a March survey of practically 2,000 by auto elements buying and selling platform Gasgoo, 74% mentioned automakers had requested them to cut back prices.

Greater than half have been requested for reductions of 5% to 10%, greater than the three% to five% targets of earlier years. 9 out of 10 corporations anticipated extra such requests this 12 months.

Suppliers usually negotiate costs annually, however many have been pressed to decrease costs on a quarterly foundation in 2023, two senior executives at auto suppliers mentioned.

Earlier than it kicked off the value conflict, Tesla despatched emails to its direct suppliers, encouraging them to decrease prices by 10% this 12 months, in accordance with an individual with direct information of the matter.

And in June, a bunch of small suppliers wrote to state-owned Changan Car to push again towards 10% worth reductions.

The EV battery market has additionally turned, with suppliers slicing costs for automakers. CATL, which counts Tesla as its largest shopper, provided smaller home EV makers discounted batteries in February.

Lithium iron phosphate (LFP) batteries, the sort utilized by Tesla in China, have been 21% cheaper in August than 5 months in the past, whereas nickel-cobalt batteries have been 9% to 18% cheaper, RealLi Analysis knowledge present.

When Chen Yudong, head of Bosch’s China operations visited certainly one of his largest prospects in March, he obtained an uncommon current, a chopping knife with a message engraved on its sheath: “Minimize decisively by the mess.”

Three months later, he instructed Reuters that worth cuts had been extra aggressive in 2023 than in earlier years.

“They have been retaining me awake at night time.”

($1 = 7.2951 Chinese language yuan renminbi)

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