Why car companies are cutting thousands of jobs

• Automakers around the world have announced layoffs and factory closings in recent weeks.

• Ford, GM, Stellantis, and Volkswagen Group all plan to lay off workers in the coming months.

• This is due to ineffective EV investment, the loss of the Chinese market, and other domestic competition.

Automakers around the world have announced a round of layoffs and factory closings in recent weeks as they struggle to turn a profit on EVs and face an onslaught of cheaper competition.

Ford, General Motors, and Stellantis plan to lay off thousands of their workers in the coming months. Volkswagen has announced plans to close three of its factories in Germany, which could bring huge losses.

Unfortunately for the world’s car manufacturers, they are not facing a single issue but a combination of several problems linked at once. Add to that a competitive business with high overhead costs and low profits, and things quickly get complicated.

If market forces, regulatory requirements, and the cost of capital change significantly in a short period of time, the results can be negative. That’s what we’re seeing play out.

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A large and expensive pivot to EVs has failed to turn a profit

The auto industry has invested or announced plans to invest more than $300 billion in US EV and battery manufacturing since 2016, the NRDC estimates. That leads to a slew of new brands on the market and (relatively) cheaper prices for consumers.

But despite this growth — and with EVs accounting for nearly 10 percent of US vehicle sales — companies not named Tesla have struggled to make their EV businesses profitable.

GM, for example, has invested $35 billion in its EV and autonomous driving businesses, which have led to new electric models like the Hummer EV and Cadillac Lyriq. Despite the lukewarm reception from the public, the company’s profits this year have been driven by strong sales of its hot hatch trucks and SUVs.

GM has said it expects its EVs to be profitable sometime before the end of the year.

It’s the same story at Ford.

The company’s Model e EV division lost nearly $3.7 billion during the first nine months of this year, including $1.2 billion in the last quarter alone.

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The rapid transformation of the Chinese market

The rapid growth in China’s auto demand over the past two decades has made it a steady source of profit for global automakers such as VW Group and GM. From 2014 to 2018, GM took in an average of $2 billion a year from its Chinese partnerships.

But in recent years, Chinese buyers have increasingly turned to domestic car rivals such as BYD and Geely Group, whose brands have sold 1.6 million vehicles on the market so far this year.

The GM market in the country rose to 15% in the middle of the last decade and decreased to 6.5% in the current quarter.

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So far this year, Volkswagen Group’s sales in China, its biggest market, are down 10% from last year, and the company predicts that the situation is likely to worsen.

In response to potential competition, European leaders have adjusted tariffs on cars imported from China. VW has warned that potential retaliatory tariffs on European and Chinese cars could make matters worse.

The domestic market is becoming increasingly competitive

Competition for automakers in their home markets is fierce.

In the US, Stellantis saw its sales decline 17% this year due to slower sales of Jeep-branded SUVs and Ram pickup trunks.

Price seems to be a big factor. The average price of a Stellantis car is $56,000, above the industry average of $48,000.

The company had to offer aggressive incentives (on top of low production) during the third quarter to help dealers clear the backlog of unsold cars from their lots. Analysts say quality standards are improving at Stellantis and industry-wide as automakers deal with a slower sales environment.

But uncertainty has grown as President Donald Trump threatens tariffs on all goods imported into the United States and eyes ending tax credits for electric vehicles, which could be another windfall for sales, industry experts say.

Read the first article on Business Insider