Declining Sales How Much Does Downsizing Really Help Car Companies Solve their Sales Problems?

The Relationship between Layoffs and Sales Volume

The main goal of any company when it comes to laying off employees is to control costs, because for many industries, the biggest expense is labor costs, which includes the salary, social security funds, and various expenses incurred by the company for you to work every day.

Although there are other expenses, they are not as high as labor costs in comparison. Moreover, many investments can be converted into assets, whereas most people’s salaries are simply costs that need to be offset against profit levels.

Therefore, if a company wants to make its financial situation appear better in the short term, laying off employees is a simple and direct method.

At least it can immediately reduce current expenses significantly, making it seem like the situation has eased somewhat. However, this does not directly solve the problem.

As for the relationship between layoffs and sales volume, there is not much direct correlation, especially when the company itself is declining. The most direct reason for a decline in sales volume is that the product is no longer competitive and customers do not want to buy. Whether you lay off employees, increase staff, or adopt more aggressive marketing methods, it is futile in such situations.

Many seemingly effective methods in the short term are basically just temporary solutions. For example, a certain broadband company in a certain place has recently been in the news. In order to increase sales volume, they proactively shut off users' broadband connections, then sent maintenance personnel to the users' homes, falsely claiming that the equipment was faulty and needed to be replaced with the latest model of modem. After installing the new modem, they would restore the broadband connection.

This method indeed appears to have a high success rate. Many people who do not understand broadband would fall for it, and as a result, the company’s sales volume would increase in the short term, bringing in more revenue.

However, the problem lies in the fact that such large-scale systematic operations involve a large number of people at every step, and soon the news will spread.

This is also the main reason why these temporary solutions are just temporary and do more harm than good. After users who were deceived catch on, it will inevitably lead to even more serious consequences.

However, if a company encounters some short-term operational problems and needs to improve its operation and adjust its direction through cost control, laying off employees is just one part of a series of adjustments. Through systematic changes, the company eventually returns to normal and its sales volume increases again. This does not mean that laying off employees solved the sales volume problem.

The Essence of Corporate Layoffs and Salary Reductions to Save Costs.

It is important to first clarify the real purpose of corporate layoffs.

It is not to solve the issue of declining car sales, but rather to save labor costs. For a company, talent is nothing more than salary expenses, social insurance and housing fund contributions, as well as various subsidies and benefits. In other words, the cost-effectiveness of an individual is something that companies often openly discuss.

Whether layoffs or salary reductions can solve the problem of car sales for a company is actually uncertain.

But what can be certain is that in the short term, it can help companies save some unnecessary expenses, but in the long term, it seems to have no significant benefits.

It is important to note that it is not just car companies, but many internet companies during the cold winter period also use layoffs as a gimmick. There are many cases of getting rid of old staff and hiring new ones, dismissing slackers, and terminating those with poor performance…

However, how layoffs and salary reductions are carried out is actually not directly related to sales.

For many companies with poor sales, it is either due to a lack of market insight or customers' unwillingness to make purchases. Alternatively, it could be because the company is in decline and the product itself is not well-received by users.

In such situations, companies may face various problems related to cash flow, investment risks, and even the direction of their businesses. However, looking at the core, layoffs and salary reductions are merely strategic means.

On one hand, it may be that the company has no choice but to do so, as it is truly unable to bear excessive personnel costs. This could be due to factors such as decision-making errors, blind expansion, or business setbacks.

On the other hand, companies may take advantage of poor sales as an opportunity to intentionally get rid of unreliable employees. For example, long-term employees who are not performing well or like to slack off.

Therefore, for many well-established car companies with poor sales, they should actually focus more on the problems with their products, as well as their innovation and development capabilities.

For employees, they are often in a relatively weak position. There are many reasons for companies to lay off employees, and it is common for employees to be laid off due to poor performance.

But what is more important is ensuring that one can still maintain a better career development after being laid off. It is essential to have the awareness of pre-planning in order to avoid losing career opportunities due to layoffs.

Layoff is not helpful for reducing costs, as it only accounts for 5.3% of the total loss in 2023.

Good question!

Layoffs not only fail to boost sales, but also provide little help in reducing costs.

Let’s take NIO as an example: On November 3, 2023, NIO’s founder, chairman, and CEO, Li Bin, sent a company-wide email titled “Organizational Optimization and Priorities for the Next Two Years,” stating that the company will reduce about 10% of its workforce and complete the process in November.

According to the 2022 annual report, NIO had a total of 26,763 employees, and the 10% reduction corresponds to about 2,700 employees.

So, how much is the labor cost for these 2,700 employees?

Let’s assume that all 2,700 employees are not production line workers, but white-collar workers with relatively high salaries. Based on NIO’s salary levels, the annual pre-tax salary for fresh graduates is around 200,000 RMB, and for experienced professionals it’s around 400,000 RMB. Let’s calculate based on an average pre-tax salary of 350,000 RMB, including the social security contributions and other benefits that the company needs to bear. The annual labor cost per person is about 450,000 RMB, totaling to 1.215 billion RMB for 2,700 employees.

Hmm, by laying off 2,700 employees, NIO can save 1.215 billion RMB per year. You may think that this is a huge amount of money, but does it really help NIO?

Not really. Because NIO already lost 14.44 billion RMB in just one year in 2022.

The financial situation in 2023 is even worse: NIO incurred a loss of 4.74 billion RMB in the first quarter and 6.06 billion RMB in the second quarter. Assuming that the loss remains at the same level in the third and fourth quarters, the total loss in 2023 will reach a staggering 22.9 billion RMB!

The 1.215 billion RMB saved from laying off 2,700 employees is only 5.3% of the total loss in 2023!

In other words, the cost savings from layoffs are insignificant compared to the losses caused by selling cars, battery swapping, and smartphone production.

In fact, when faced with declining performance, it has become a common practice for big companies, including NIO, to resort to layoffs. We are just using NIO as an example. This is prevalent in the entire automotive industry, or even in all industries.

Since layoffs do not significantly reduce costs, why do large companies still do it?

In fact, layoffs have always been a way for the management/founders of large companies to express their stance to investors, indicating that the management is determined to tighten their belts, cut costs, and weather the storm with the investors together.

NIO has been continuously losing money for the past 9 years. As of the second quarter of 2023, NIO’s cumulative historical loss amounted to 76.4 billion RMB, and their new businesses such as NIO phones and Firefly brand have also incurred significant losses in the previous years. How many investors are willing to continue playing along with NIO? These institutional investors also have a responsibility to their funders. Therefore, Li Bin is under immense pressure in front of the investors, and announcing layoffs is a good way to show his determination.

However, the 2,700 innocent employees will have to start sending out resumes and job hunting again~~~

This article was first published on November 21, 2023, in Shanghai, China.

Follow me to learn about car cultures in different countries, @James On Full Charge.

The Red Button of Layoffs in Automakers

Actually, employees in large companies are quite expensive. Even with a salary of 5000 yuan per month, after tax cuts, the company still needs to spend over 6000 yuan.

If the average monthly salary is 25,000 yuan, then the company needs to spend several hundred thousand yuan per employee each year, including taxes and various benefit packages. In a large company, all work needs to be handled professionally, which means that redundancy is built in for employee retention. The departure or stay of one person should not affect the normal operations of the company. In general, there is a redundancy rate of 1-2 positions for each business unit. This means that, for example, in a department where a manager is responsible for 6-8 people, there may only be 1-2 positions that are truly necessary, while the other 5-7 people are backups. They are there to cover for sick leave, special circumstances, team building, and rotating rest days. In total, it is normal for 6-8 people to do the work of 1-2 people in a large company.

Even in the previous company where I worked, a well-known car manufacturer, they couldn’t find a single person in their entire upper management who actually did specific work. The purpose of this was actually so that in the event of an emergency, everyone could jump in and focus on the emergency work. In the day-to-day operations, everyone would just report to each other, hinder each other, and cause internal conflicts. We even created interesting things just for the sake of reporting and conflicts, like the Office Lean Project. We knew that Lean Production was effective in the production department, so we applied Lean principles to white-collar work as well. The German headquarters would send a persuasive foreign expert who rotated through each department, providing every employee with 24 hours of Lean training. Most of the content actually taught employees good ways of thinking, such as organizing work systematically, how to break down tasks into completely independent components, how to flatten hierarchy, and how to make presentations. They even provided special training for PowerPoint. In short, employees were very willing to participate in these activities. But from the company’s perspective, this kind of training was conducted every year. If you look closely, everything written in it is correct, but it’s all just empty words.

I’ve worked for this brand for five years. Allow me to boast a bit: I was often transferred to do specific tasks because there were some tasks that only I could do and others couldn’t. So I often only attended half of these kinds of trainings. But what about the others? The others really just attended trainings day in and day out, without any specific output. At least internet companies would organize brainstorming sessions. But these people really didn’t do anything, just training. From one reporting quarter to the next, they would have trainings all the time. During this period, they would have to create PPT presentations in their reports… At that time, there were many projects that I participated in, and many people tried every means to be included in the projects I led, because the Germans would challenge us individually, and we had to come up with specific responses. For example, while adjusting the millimeter wave radar, I found a problem with signal distortion. The foreigners would ask, “Is this within your purview? Is it your responsibility to make this adjustment?” Some executives would even mix English and Chinese when asking: “[To what extent should the adjustment be considered to have exceeded the Recall boundary?]” The Germans and the Chinese examiners who spoke broken English mixed with Chinese would challenge you one after another.

What does all this mean? It tells you that even though everyone in a large company seems busy, attending training today, working on projects tomorrow, reporting the day after tomorrow, and giving reports the day after that, the higher level of the company knows that the company can’t afford idle employees, so they create various reasons to make everyone move. The purpose is to ensure that everyone can cover all the needs in handling emergencies. That’s why everyone must be kept busy on a daily basis.

Of course, all this is only true when the company is doing well. When everyone is doing well and the set goals are achieved, at the end of the year, there will be gatherings and celebrations. We’ll have drinks and enjoy the radiant years with toasts and laughter. But when the company is not doing well, sorry, why should one department support eight people? What about your output? What is your purpose as a leader? How much value do you provide to the company each year? If you calculate the salary and benefits of an 6-8 person department annually, it would cost 10 million yuan. If the department is not customer-facing and lacks agility in internal reporting, it is very likely that it will be completely cut from the high-level managers downward.

Therefore, as long as a large company finds around ten middle-level departments like this, it can easily reduce the annual cost of human resources by hundreds of millions. This is especially true in multinational companies, where it’s a relatively easy thing to do. Some multinational companies have several thousand employees, but only a few dozen are actually doing the work. It’s easy to lay off a thousand people in the short term and suffer some losses, but after a year, the productivity can double. This is especially true for car manufacturers, where most positions are for building and expanding, and once that’s done, there is no longer a need for so many people. The work that used to require 10 people during the initial stage can be completed by just one person once everything is stabilized. By reducing staff through layoffs, it is certain that efficiency can be significantly improved.

However, here’s the thing: so far, what I’ve been talking about is purely theoretical. There is still a huge gap between theory and practice, which is the issue of distributing benefits. Some people might say, what’s the benefit of layoffs and how is it distributed? That’s right, even layoffs come with benefits distribution. It’s because those who are busy doing specific work have a deep disdain for those who are constantly reporting, but these busy people lack the higher-level reporting skills of +2 and +3. So when it comes time for layoffs, the +1 who holds a grudge will take advantage of this reporting deficiency and say all sorts of negative things to the +2 and +3, eventually leading to the dismissal of the person being targeted. And those people who understand reporting but don’t understand the work will stay. In the end, the company’s layoffs are ineffective. Don’t think that what I’m saying is sensational. Almost all companies that carry out layoffs, cannot lay off the most reasonable employees. The castrated allies and the bootlickers always manage to stay. We call this the “Dead Sea Effect”. Just like how high temperatures evaporate water molecules but leave salt behind, ultimately causing the sea to become lifeless.

Therefore, in principle, car companies generally don’t press the red button of layoffs, because everyone knows about the effects that I mentioned earlier. Many people have also experienced this. It is the best way to quench one’s thirst, even if the drink is tainted. But sometimes, even though it’s poisonous, it’s still better than dying of thirst on the spot, right? This may be why many companies are aware that layoffs will not work but still choose to go down that path.

Lastly, allow me to leave you with a profound yet cryptic saying. In a little while, you will understand its meaning:

“Look up, look at the industry. Look down, look at human resources. No one can live in the present; we all need to have a judgment of the future.”

I am Lao Wang. See you next time.

The root of the problem: Misalignment in marketing strategy and target audience.

To be honest, this can only solve the problem for a period of time and cannot solve the root cause.

The situation we often see is that when performance is poor, it is assumed to be the problem of the sales team. To overcome the performance bottleneck, fresh blood is needed, layoffs are made, and new people are hired.

This kind of thinking is common among many bosses now. If performance is poor, it must be the problem of the sales team.

However, you will find that even if a new group of people is brought in, the problem still cannot be truly solved.

Poor performance is just the surface issue. The real problem is always hidden beneath the iceberg.

Let’s take our company as an example. The sales team has been replaced several times, but the performance is still poor. Some people even had good performance in other companies, but not here. This is not a problem with the sales team, but rather an issue with our product positioning and marketing strategy.

If the marketing strategy simply imitates others, doing the same things others do, offering higher rebates and giving away phones and cars beyond the rebate percentages.

Are the profits given to distributors high enough? But it still doesn’t drive the business.

Why? Because the target customer group is wrong, so the target customer’s target customers are also wrong. In other words, the traffic is not right.

In this case, customers cannot be converted. Even if they buy our products, they become a burden, occupying warehouse space and unable to be monetized.

If customers cannot be monetized, there will be no repeat purchases.

This applies to both B2B and B2C.

Is the problem of declining sales volume caused by the sales team? Can layoffs solve it? See the essence through the phenomenon.

Policies, the economy, and changes in the concept of car usage are all reasons.

Layoffs can only solve temporary problems. To truly get out of trouble, one must look for the real reasons from the market, operations, and even consumer perspectives.

That’s all~

The Root Causes of NIO Layoffs: Strategic Errors and Lack of Product Competitiveness

Layoffs in the automotive industry cannot solve the problem of declining sales; they can only slow down the loss of cash flow and buy time for the company to find a solution to its predicament.

Once news of layoffs is announced, it basically indicates that the top management of the company has long been scrambling for opportunities.

However, in this cold and cruel world, when you are successful, people call you “brother,” but when you are down and out, even a humble chicken is better than you, as people avoid you like the plague. After numerous failed financing attempts, the only option left is to reluctantly announce layoffs.

Let’s take the recent layoffs at NIO as an example:

The fundamental reasons for NIO’s lack of cash flow and declining sales are strategic errors by the top management and a lack of product competitiveness in the overcrowded automobile market.

1. Strategic errors by the top management:

NIO planned to add 1,000 charging stations this year, focusing on third and fourth-tier cities and counties. The cost of building one charging station is 2 million RMB, so NIO’s total expenditure on land acquisition and construction of charging stations this year is 2 billion RMB.

This is just the cost of land acquisition and construction of charging stations. The later establishment of personnel, labor costs, and fixed marketing expenses will further deplete NIO’s cash flow. With continuous losses in the automotive business, NIO is also spending billions on its smartphone business.

However, with only 400,000 cars sold so far, NIO’s user base is relatively small (not even qualified to shine the shoes of mainstream smartphone companies). If we consider the research and development and tooling costs alone, it is clear that this business is destined to lose money.

A niche market like this cannot achieve economies of scale, and NIO’s smartphone venture cannot secure bargaining power in the upstream and downstream supply chain of the mobile industry.

The top management at NIO lacks strategic thinking; they act aimlessly, without considering priorities or urgency. They recklessly deplete the limited funds they have, leading to their inevitable demise and layoffs.

2. Lack of product competitiveness:

Changes in NIO’s user base and ideology: Fragmentation of user groups

In the early stages, NIO’s user base formed a niche subculture, a group of like-minded elite individuals.

These car buyers were mostly wealthy individuals.

Combined with NIO’s reputation for excellent service and elite community events, owning a NIO was seen as a ticket to enter a high-quality social circle.

However, relying solely on the elite is not sustainable for NIO. After all, 90% of wealth is concentrated in the hands of 1% of the population, and these high-net-worth individuals are also being targeted by other luxury brands like BBA.

For NIO to achieve profitable growth, it needs to expand its customer base and attract a more diverse group of people. This necessitates a brand extension and reaching out to a wider audience.

As NIO’s brand ideology and values gradually lose their appeal, the customer base that sees NIO as an automaker is growing.

In 2021, an NIO owner posted a declaration titled “Joint Statement by 400 NIO Owners,” revealing the division among NIO owners and their values.

Especially in the highly competitive automotive industry this year, as NIO loses the protection of its niche customer base, it is back to competing with traditional car companies solely based on product competitiveness, and various problems have started to surface.

More and more users are becoming rational, treating electric cars as ordinary tools, no longer willing to overlook product flaws like the early adopters.

For example, many users have complained about the seat design in the ET5, stating that it causes back pain and discomfort after sitting for a while. The human-machine interface is poorly designed.

Furthermore, there have been complaints about the road noise in the ET5. Users expect better sound insulation in a car that costs around 300,000 RMB, even a double-layered soundproof glass.

In comparison, when the first-generation ES8 was launched in 2018, it had various minor issues, but its innovative features received praise from users at that time.

This was because when NIO first entered the market, people did not fully understand the three-electric system, smart cabin, and autonomous driving. At that time, competitors were limited, and NIO only needed to answer a few questions to receive a perfect score.

Now let’s look at the latest offerings from traditional car companies like Xpeng P7 and Li ONE LS6.

The Xpeng P7 mid-size sedan has a starting price of 224,900 RMB after user discounts and features an 800V high-voltage fast-charging platform as standard. All models come with SiC silicon carbide electric motors. Coupled with the 4C-level Kirin battery pack, the performance and cost-effectiveness are outstanding.

The front motor of the car uses an induction asynchronous motor and a traditional IGBT point motor controller, while the rear motor uses a SiC motor that can withstand higher voltage, temperature, and has higher conductivity and lower energy consumption.

The Li ONE LS6 has a similar length of around 4.9 meters and a starting price of 217,900 RMB. It is equipped with a 400V and 800V fast-charging lithium battery.

In terms of configuration, they have advanced intelligent driving software and hardware, with standard features including a LiDAR and NVIDIA Orin X supercomputer, and free software services.

This is quite appealing, especially compared to some car companies that provide LiDAR hardware but charge an additional 20,000 to 40,000 RMB for software services to utilize those features.

Standard LiDAR and free software services will likely set the foundation for next year’s car models. If a new car model launched next year does not have 800V fast charging, autonomous driving capabilities, and a smart cabin, it may face significant pressure in terms of cost-effectiveness.

When NIO announced its smartphone venture, I was not optimistic about its prospects. By diverting funds to a new business while the existing vehicles suffer from major product issues, NIO’s path to layoffs was already predetermined.

Even this round of layoffs cannot solve NIO’s lack of strategic thinking and inefficient departmental operations. It only shifts the problems to another form, and the underlying issues remain unresolved (today, Chang’an is giving you a helping hand, but who will support you tomorrow?).

Cost Optimization and Business Shrinking

The decrease in sales implies a decrease in revenue, but it does not necessarily mean a decrease in profit. Therefore, a decrease in sales does not necessarily lead to layoffs. Layoffs imply that the company is facing cost pressures and a contraction in business.

If we consider the cost structure of a company, it includes material costs, manufacturing costs, operating costs, sales costs, etc. The optimization of material costs and manufacturing costs falls within the scope of engineering, procurement, and manufacturing, which every automotive manufacturer does every day. As for operating costs, the cost of human resources is a structural fixed component and accounts for a relatively high proportion.

• Considering the characteristics of human resource costs, the effects of layoffs and optimization are immediate.
• Considering that human resource costs are directly related to labor and employment, they will be widely disseminated immediately due to their social impact.
• The optimization of human resource costs does not have a strong correlation with the actual sales problem.
• Depending on the departments involved in layoffs, there will be an impact on the future development of business, with long tail effects.
• The potential impact on business can be temporarily solved by overtime work and contract workers.

Having gone through four rounds of layoffs in companies, or what is called human resource optimization, layoffs are the final option for optimizing human resources.

To understand the different situations that companies generally face when laying off employees, we need to understand the differences in the objects and approaches of layoffs or optimization.

• First situation: Project cancellation, employee relocation or layoffs

For automotive companies, project cancellations are very common. The question is whether the company can provide other projects or positions to place the idle employees after the cancellation of the project. In this case, many employees may be transferred to other projects or positions. During the placement process, some people may voluntarily resign. For those who cannot be placed, they may be the targets of future layoffs.

• Second situation: Company strategic adjustment, departmental downsizing

For an automotive company, if it used to focus on research and development but needs to bring research and development back to headquarters due to a strategic adjustment, and change the company’s strategy to a purchasing center, the personnel from the research and development department will be placed as a unit. They may be reassigned to other companies or be laid off by the company.

• Third situation: Regular human resource renewal in the company

This situation mostly occurs due to market demands and competition that dynamically change. It requires the elimination of employees who do not adapt well, such as older employees. In this case, employee turnover is seen as a positive thing for car manufacturers. Before laying off employees, strict performance and ability assessments are conducted to determine the employees to be eliminated.

Therefore, for car manufacturers, as well as other companies, when optimizing human resources or conducting layoffs, the first consideration is the stability of company strategy. Secondly, it is about the approval and development status of projects, especially whether there have been changes and updates in future departments and product planning. Then, based on the performance and ability assessment of human resources, targets for layoffs are chosen to achieve the optimal cost.

Compared to a decrease in sales, layoffs do not directly help. However, from the perspective of a company’s operating costs, they improve its operating profit and offset the negative effects brought by a contraction in business.

For gossip and serious information about the automotive industry, please follow @四方樵.

The Last Resort for Enterprise Development Is Not Layoffs

Layoffs are the last resort for companies' development, not a means to solve sales.

At present, the development of car companies has been affected by the trend of new energy vehicles, entering a phase of intense competition. The direct result of this competition is that some companies cannot sustain themselves, leading to bankruptcy and unemployment.

In order to cope with the harsh market competition, companies have implemented various cost reduction and efficiency improvement measures, such as strengthening attendance systems, subsidizing and reducing measures, reducing wages and incentives, decreasing business volume, and cutting third-party expenses. These are all direct measures taken by companies internally in terms of management systems and implementation. Considering the financial constraints for long-term development, layoffs are the most direct means to minimize burdens.

During the earlier stage of rapid development in the Internet era, the biggest cost for companies came from human resources. Due to low investment in fixed capital, the biggest capital investment was in personnel. As a result, when internet companies encountered economic crises, their first thought was to reduce peripheral personnel and retain core employees, thus ensuring the company’s sustainable development. After the crisis, they could recruit new employees. This idea received support and imitation from many internet companies and has become a recognized effective measure for internet companies after several years of development.

Now, with the rapid development of new energy vehicles, many internet companies, after going through their peak periods, are transforming and entering the automotive industry. The development of new forces partly stems from practices in the internet era, leading to accelerated development and iterative updates in the entire automotive market. When companies face the threat of life and death, they will take all measures to maintain their business, and layoffs become the last resort.

The direct consequence of layoffs is the immediate reduction in labor costs, but the impact is also significant. First, it enables companies to continue their development; second, it affects the remaining personnel. Moreover, it cannot guarantee that the employees who are laid off are truly of no value to the company. From this perspective, it will take a long time for the company to recover and regain momentum for sustainable development.

If we talk about sales, layoffs do not have a direct relationship with improving sales. Even if sales personnel are laid off, the impact on sales improvement may not be evident. The shift from everyone working in self-preservation mode to being excessively concerned can pose significant challenges to the smooth operation of the company.

Development is the most important thing, so the focus should be on how to develop.

Product and Structural Optimization

Reducing costs and increasing efficiency is something that every enterprise needs to do.

On Product

For example, in terms of product, it is ideal to adopt a homogenized car design, which can save a large number of production lines. Only one or two lines are needed to complete all the necessary things for car production.

According to the third-quarter performance report released by Ideal Motors in 2023, its total revenue in the third quarter was CNY 34.68 billion, a year-on-year increase of 271.2%. Among them, vehicle sales revenue was CNY 33.62 billion, a year-on-year increase of 271.6%. In terms of profit, it has turned losses into gains, with a net profit of CNY 2.81 billion in the third quarter. This is the fourth consecutive quarter of profitability for Ideal Motors since it achieved profitability for the first time in the fourth quarter of last year.

Li Xiang, the CEO of Ideal Motors, wrote on a social media platform, “Continuing to maintain the maximum production volume equals delivery volume. This week, the sales volume of Ideal L7/L8/L9 models has almost caught up with Mercedes-Benz and Audi. The weekly revenue has surpassed Audi.”

Some analysts believe that Ideal Motors is likely to achieve overall profitability this year and become the first domestic new energy automobile company to surpass the annual breakeven point. It is understood that Ideal Motors is the first new energy automobile company to achieve quarterly profitability among all the new car-making enterprises. So far, Ideal Motors is still the only profitable new car-making company.

Ma Donghui, the President of Ideal Motors, said: In the short term, cost reduction in business is the priority, while in the medium and long term, we will achieve platformization through project management, which includes procurement aggregation and cost accounting, to bring the procurement prices back to a reasonable level.

On Structure

Structure is the second method for reducing costs and increasing efficiency. Taking Shanghai as an example, let’s assume a person’s salary is CNY 5,000. According to the minimum social security tax, the company needs to pay around CNY 2,700 in social security fees.

That is to say, for a single employee, the annual salary and benefits cost is approximately CNY 100,000. If the employees' level is higher, the cost will be even higher.

For expanding enterprises, there will be a lot of redundant positions. These numbers may seem small individually, but when accumulated, they become a significant amount of data.

For example, a recent internal memo from NIO mentioned the need to lay off 10% of its employees. By the end of 2022, NIO had a total of 26,763 employees, so 10% would be more than 2,600 people. Even if calculated at the minimum wage standard, it would save around CNY 260 million in annual salaries. Not to mention additional employee benefits, rental costs, etc. The same situation applies to salary reductions.

Does this help with sales? It certainly does, but it is not a direct help, rather an indirect one. It may not immediately reflect. Massive layoffs are just superficial, while the deep reason is that the company’s structure has encountered problems and needs major adjustments.

Xiaopeng Motors is the best example. After large-scale layoffs and internal adjustments, product pricing and configurations returned to normal, and sales continued to grow steadily.

Of course, as I mentioned, this cannot be immediately reflected. It depends on the subsequent actions of the enterprise to gradually manifest.

Job Cuts Cannot Solve Sales Decline

In recent years, I have been in contact with many companies, and there is a term that frequently appears in the mouths of their executives.

The term is―“reduce costs and improve efficiency.”

So, what does “reduce costs and improve efficiency” mean?

Obviously, it means compressing operational costs and enhancing corporate efficiency.

To put it plainly:

If you need to lay off employees, you have to lay them off. And don’t slack off if you are not laid off. Take on the workload of the laid-off person by yourself.

If you cannot generate revenue, you must cut expenses. These are two things that every business owner calculates in their mind.

When a company is in the growth phase, hiring a few more people is no big deal. After all, if the company is profitable, everyone can make money.

But once the company enters a phase of declining profits, the boss’s thinking is definitely focused on cost-cutting.

In the past, I had encountered a business owner whose company was in a rather awkward stage.

He managed to secure financing, but the company’s business never took off and remained lukewarm.

His catchphrase was:

“Running such a business is not easy at all!”

Every industry has its own cycle. Has the automotive industry been doing well these years?

Perhaps the new energy vehicles are relatively better, but many traditional car companies are really struggling.

When car sales are not picking up, there was news about some automobile brands in Hubei Province heavily promoting discounts. The enthusiasm for these promotions hasn’t even cooled down yet.

If cars don’t sell well, car companies may have to find a way to cut operational costs and play the game of “reduce costs and improve efficiency”.

But will car sales improve after layoffs? There is really no correlation at all.

Layoffs are not a magic cure and cannot solve the fundamental reasons for the decline in sales.

The decline in sales is most likely due to either the company’s brand losing its competitiveness. For example, a certain luxury car brand that used to compete with BBA has now become a salt brand in a bathhouse.

Or the market positioning is inaccurate and the company fails to understand the consumers' preferences. For example, a certain brand’s long-term overpricing leads to poor sales, and they start offering substantial discounts.

Or the competition intensifies, such as new energy vehicles dominating the market over the past few years and taking up a significant share of the traditional gasoline car market.

Layoffs can only alleviate the short-term economic pressure on these companies and do not provide substantial help to sales.

On the contrary, they may have a negative impact on the company’s reputation and image, further affecting people’s willingness to purchase their products.

Internally, after the boss sets an example by laying off employees, can he expect the remaining employees to work more diligently?

The more likely result is that everyone becomes anxious, loses motivation, and starts looking for alternative paths for themselves.