Drive I/O | Chinese EV makers downsize while battery makers expand production

US-listed Chinese electric vehicle makers Xpeng Motors, Li Auto, and Nio are undergoing significant restructuring as rising costs of raw materials and supply chain disruptions cut into profit margins. Meanwhile, EV battery makers are upping their investment to increase production capacities as China continues an accelerated shift to EVs.

Chinese EV makers are restructuring their businesses as challenges grow

Having enjoyed exponential growth over the past two years, Chinese electric vehicle startups are showing signs of contraction as supply chain constraints and rising raw material costs (partly worsened by the Covid-19 pandemic) continue to weigh on the industry. 

Facing a serious slowdown in economic growth and a resurgence of Covid-19 outbreaks, the US-listed Chinese EV trio of Nio, Li Auto, and Xpeng Motors are undertaking thorough reorganizations, laying off workers, and shifting away from non-core projects to meet their growth targets. The companies have been handling these challenges relatively well, but the outlook going forward is a bit unclear.

Xpeng Motors: Xpeng is facing a significant setback in its global ambition. Several senior executives, including vice president of overseas sales He Liyang, recently left the Guangzhou-based automaker amid a comprehensive restructuring across the company meant to streamline operations and save expenses, Chinese media LatePost reported on May 26, citing people familiar with the matter. The departures come after the EV upstart experienced lackluster sales of merely 438 vehicles in Norway in 2021, while leader Tesla took a nearly 20% market share in the country as it delivered more than 20,000 EVs over the same period, according to official figures.

In an effort to pare back losses, the Alibaba-backed EV maker is trimming its sizable staff in several major divisions, including a software team developing intelligent cockpit solutions and its data management department. As part of the change, Zhao Hengyi, a tech lead on Xpeng’s in-car voice assistant, left his position in March. The company also cut some of its plans of cultivating some fresh graduates, with dozens of them recently having their job offers rescinded.

Xpeng has been known to spend cash more quickly compared with peers. It posted a record loss of RMB 1.7 billion ($268.3 million) in the first quarter of 2022, widening from RMB 1.29 billion in the previous quarter. Analysts had warned of more losses to come from April to June due to high material costs and recent Covid lockdowns in China. The company earned a gross margin of only 12.2% during the first three months of this year, far lower than the 22.6% and 14.6% posted by rivals Li Auto and Nio, respectively.

Li Auto: A relative latecomer in a competitive industry, Li Auto is also facing a critical juncture and has scaled down some of its recruitment plans as it anticipates tough times ahead, the LatePost report said. Eight-year-old Li Auto recently lowered its delivery target for this year by 15% to 170,000 vehicles and planned to recruit 2,000 fewer people than it had initially planned, as the company worried about sales performance in the face of an economic downturn.

In anticipation of it becoming harder to get capital as investor sentiment worsens, Li Auto is also downsizing. Since March, the company has cut 20% of its full-time employees in its enterprise system development team after a large hiring spree, while dismissing some workers in its camera research and development team, formerly set up by then technology chief Wang Kai, LatePost reported.

The Meituan-backed EV maker was hit harder than rivals by the recent wave of Covid-19 lockdowns in the country, seeing its April deliveries down  62% and its second production model delayed amid the current supply chain disruption. The cuts could help the automaker reduce costs and survive a looming recession, yet investors were disappointed when the automaker forecast an even lower revenue target and warned of a worse margin for the second quarter of 2022.

Nio: Once the front-runner in the field of Chinese EV startups, Nio is making a pivot to battery-making, with plans to develop and potentially manufacture its own battery packs. The move marks a revamp of company strategy that comes as soaring material costs and supply chain bottlenecks slowing its factory output. Speaking to analysts during an earnings call on June 9, chief executive William Li said that the company now operates a team of over 400 employees on battery technologies and plans to launch an 800-volt battery pack for fast charging in 2024.

A new $32.8 million research facility is also slated for construction near its Shanghai headquarters this summer, aimed at developing lithium-ion battery cells and packs. This is in line with the EV maker’s battery strategy of both in-house development and outsourcing, a move that Li believes will benefit Nio’s overall competitiveness and profit-making capability in the long term. The company has warned that battery price hikes will continue to weigh on its margins in the second quarter.

Meanwhile, the company is reorganizing its autonomous driving team, which is at the core of its long-term ambition to become China’s top luxury car brand, following the departure of a long-time vice president of engineering in April. A team of more than 400 engineers, who work on diverse technology domains including sensors, algorithms, and system integration, has been reassigned to other departments to flatten the management structure for communication and combine functions where appropriate, Chinese media 36Kr reported.

Battery makers racing to expand capacity

Despite automakers’ short-term adjustments, the long-term prospects for China’s EV market remain robust with strong consumer demand. In response, major battery makers have kicked off a fierce expansion race in the hope of scaling up supply to meet the demand and take a larger market share. Government-backed industry group the China Passenger Car Association (CPCA) has maintained its forecast of 5.5 million passenger electric vehicle sales for this year in China despite the ongoing Covid-19 outbreaks across the country. 

Here are some of the major players’ expansion plans:

CATL is moving to become more directly involved in lithium mining in order to make its own supply of the EV battery material, thanks to soaring prices. The Chinese battery giant recently won approval to build a new lithium plant with a mining claim on nearly 1,600 acres in the central province of Jiangxi, state media CLS reported on June 1, citing government documents. The new RMB 2 billion ($297 million) facility would be capable of producing 30,000 tons of battery-grade lithium carbonate annually and is scheduled to be in production in  2023.

BYD is making a similar move and is said to be on the verge of closing deals to acquire six lithium mines in Africa, which experts estimate could allow the company to produce about 1 million tons of lithium carbonate, which translates into at least 27.78 million EVs. A BYD executive confirmed that it will supply lithium-ion batteries to Tesla “very soon” earlier this month. There has also been speculation that Nio and Xiaomi are looking at sourcing batteries from the company as well.

Gotion High-Tech is the latest Chinese battery maker to expand its local production by partnering with prominent players like Volkswagen and Great Wall Motor. The battery supplier announced (in Chinese) on May 31 that two new facilities have been put into production with a combined capacity of 30 gigawatt-hours (GWh) each year. The company is on track to double its total capacity to 100 GWh by this year and expand that number to 300 GWh in 2025.