Automotive Exports September 2023

Crisis hits China’s auto sector as
EV price war takes toll on workers
When Shanghai suffered a heat wave in
June, the car factory where Mike Chen
worked transitioned its production to the
night shifts and reduced air conditioning.
For Chen, toiling through the early hours
in his sweat-soaked uniform 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 and Germany’s Volkswagen, is far
from alone. Millions of auto workers and
suppliers in China are feeling the heat as an
electric vehicle price war 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 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 interviews with 10 executives of
carmakers and auto parts suppliers, as
well as seven factory workers, point to a
broader industry in distress, with pennypinching
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 combustionengine
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 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 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
leaped 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
Center, adding that inadequate attention
to demand ultimately leads to inventory
overhang, 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. CEO Elon Musk has since doubled
down on his strategy with more cuts
announced.
Including factories making combustionengine
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 auto industry and its suppliers – which
employ an estimated 30 million people
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