China auto workers bear the brunt of price war

The price war triggered by Tesla has sucked in more than 40 brands, shifted demand away from older models, and forced some automakers to curb production of both EVs and combustion-engine cars or shut factories altogether. — Reuters

SHANGHAI: As Shanghai sweltered in a heatwave in June, the car factory where Mike Chen works switched production to night shifts and dialled 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 China’s state-owned car giant SAIC Motor Corp and Germany’s Volkswagen (VW), is far from alone. Millions of auto workers and suppliers in China are feeling the heat as the electric vehicle (EV) price war forces carmakers to shave costs anywhere they can.

“SAIC-VW used to be the best employer, and I felt honoured to work here,” said Chen. “Now I just feel angry and sad.”

The price war triggered by Tesla has sucked in more than 40 brands, shifted demand away from older models, and forced some automakers to curb production of both EVs and combustion-engine cars or shut factories altogether.

Interviews with 10 executives of carmakers and auto parts suppliers by Reuters, as well as seven factory workers, 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 and good working conditions were a high priority. SAIC did not respond.

Economists warn that China’s auto sector could even become a drag on economic growth because of the fallout from the price 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 said.

In the first seven months of 2023, China sold 11.4 million cars at home and exported two million, but growth came almost entirely from abroad. Exports leapt 81%, but domestic sales only crept 1.7% higher, despite the widespread price 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 overhangs, price cuts and financial stress.

“China really has to learn to walk on two legs.”

Chinese plants were already far from running at full tilt when Tesla first cut prices in October last year and then again in January.

Chief executive officer Elon Musk has since doubled down on his strategy, with more cuts 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 utilisation rate was 54.5%, down from 66.6% in 2017, China Passenger Car Association (CPCA) data showed.

At the same time, pay cuts and layoffs in the auto 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 workers expect when they join.

BYD, China’s largest EV maker, advertised a position in August at its Shenzhen factory with an estimated monthly income of 5,000 to 7,000 yuan, but the base salary was 2,360 yuan (US$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 advertisements from 30 auto firms showed hourly salaries of 14 yuan (US$1.93) to 31 yuan (US$4.27), with Tesla, SAIC-GM, Li Auto and Xpeng at the higher end.

Auto worker Liu, 35, said he quit Changan Automobile’s 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 auto job, but the market had turned.

“The good old days are gone,” said Liu, speaking on condition of partial anonymity to protect his job prospects.

Changan Automobile said working hours and pay varied from worker to worker.

Several automakers, including Mitsubishi Motors and Toyota, have laid off thousands in China after sales slumped.

Others, such as Tesla and battery maker CATL, have slowed hiring as they delayed expansions. Hyundai and its Chinese partner, meanwhile, are trying to sell a plant in Chongqing.

After being rejected by Li Auto 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.” — Reuters

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