Li Auto, the first Chinese electric vehicle startup to make a profit, has launched large-scale layoffs along with price cuts and slashed sales targets after the failure of its first pure electric model Li Mega multi-purpose vehicle, employees from different divisions told Yicai.
The Beijing-based company began downsizing in mid-May and recruiters are mostly affected, workers said. The firm has not internally shared how many people must go but workers estimated that several departments are letting go employees and the share is not small.
Earlier, a local media outlet claimed that around 18 percent of Li Auto’s employees, which equals 5,600 people, would be laid off but some sources said that the number could even amount to 10,000. The brand did not respond to such reports.
One worker said that Li Auto started planning to optimize its structure already around April but the implementation began in mid-May. Frontline workers who do not directly impact earnings or who are not involved in mass production are included in the list, the person added.
Another report said that Li Auto is very likely to start a second round of layoffs in September if its third-quarter sales performance is still not satisfactory. There are no specified criteria and department heads have the power to make the call to some degree, employees said, adding that the opaque method adds to existing workers' worries.
The pressures mark a change of direction for the poster child of China's EV industry. The maker of Li L7, L8, and L9 sport utility vehicles reported milestone earnings for last year, beating rivals Nio and Xpeng, as its revenue exceeded CNY100 billion (USD13.8 billion) for the first time and net profit surpassed CNY10 billion (USD1.4 billion).
But a misguided product launch is hurting the startup this year. Sales of Li Mega, released in March with a minimum price tag of CNY559,800 (USD77,250), turned out to be far below expectations. Multiple senior executives had previously said that the MPV was to become a bestseller in the luxury segment, supporting the firm's 2024 sales goal of 800,000 units.
Due to the product flop, Li Auto recorded poor performance in the first quarter. Its operating loss totaled CNY580 million (USD80 million) with a negative operating profit margin of 2.3 percent.
From Great Expansion to Deep Contraction
"Since this March, we have noticed an issue, which is the excessively optimistic forecast of the market this year," Liu Jie, vice president in charge of production lines, said to Yicai in April.
During the first-quarter earnings call, Li Auto reduced its sales target for this year to a range of 560,000 to 640,000 units, down from 800,000 units. Moreover, it postponed the launch of a new pure electric model from the second half to next year. Market changes and adjusted sales goals have resulted in redundancies in offices and new stores.
The firm had planned to increase the number of stores to 800 from last year's nearly 450 to reach its ambitious sales goal this year, representing about one new opening per day. But now building and decoration work has been paused in some locations while some workers who already signed contracts are suspended, employees in sales outlets in several cities said.
The changes are profound. For example, online customer service teams have undergone three rounds of organizational refashioning since May 2022, adopting a model of semi-outsourced work. Moreover, cost-cutting is extensive as for instance, the company’s gyms are no longer free to use.
New products need to be well-advised as the latest examples prove. In April, the firm launched Li L6, a compact crossover SUV which is Li Auto's first model priced below CNY300,000. Initial sales were not bad, salespersons from multiple stores said to Yicai. However, the new model seems to have cannibalized sales of other models Li L7 and L8, they added.
Last month, Li Auto delivered 35,000 units, marking the highest number this year and a boost from April's 25,800 units. However, the figure is still far below the 50,000 units delivered late last year.
