Elon Musk started a trend late last year when he slashed prices on Tesla EVs in China. Ford has followed with its own EV discounts in the country this year, but is now upping the stakes by cutting its operational costs in China in a bid to stay cost-competitive in the country’s key car market.
Ford is working to reduce costs across its Chinese operations, a decision the automaker says is “necessary for us to build a healthier and more sustainable business in China,” according to a statement to Fortune on Monday.
Ford’s sales have suffered in China’s critical auto market over the past year, and with competition at a fever pitch, the legacy carmaker is acknowledging that it will likely have to slash costs across its entire operations in China to stay in the fight.
“China remains a very important market and Ford is committed to developing our business here,” the company said. It added, however, that Ford is “aware that our costs are not competitive, and we are working internally and with our partners to reduce costs in all areas.”
China is the world’s largest market for car sales, and for the past eight years it has also dominated global electric vehicle sales. But domestic automakers have made up the bulk of China’s booming car demand, and in the last quarter of 2022, Chinese companies accounted for 52% of the country’s market share for all car sales, fueled by a surge in demand for Chinese-made electric vehicles. The rise of Chinese carmakers, propelled by domestic EV giant BYD, has left foreign manufacturers scrambling to stay competitive in China as sales in the country plummet.
Tesla’s sales fell 21% in December 2022 compared to a year earlier as its market share slipped to companies like BYD and Tesla production at the company’s Shanghai gigafactory stalled earlier in the year due to COVID-19 restrictions limiting shifts and creating a parts shortage. But legacy companies have struggled too. General Motors delivered 2.3 million vehicles to China last year, a more than 20% drop from 2021, while Ford’s China sales slowed by 11% in the third quarter of 2022 compared to a year earlier.
Ford reported a $600 million loss in China in 2022 during the company’s earnings call in February, stemming from underperforming joint ventures in the country, prompting the company to reconsider its approach in the country.
“We’re going to have to rethink what the Ford brand means in a place like China,” Ford CEO Jim Farley told reporters at a charity event in April. “It can’t be like middle of the market. It’s totally over-filled.”
In March, Ford announced discounts in China for its Mustang Mach-E electric SUV model through the end of April, following similar cuts to the model’s U.S. prices earlier this year, taking a cue from Tesla, after its price cuts in the country led to a surge in sales in January.
But staying cost-competitive in the key China market will likely require even more sacrifices for the legacy automaker, as the company is now slashing operating costs too and reportedly planning layoffs in the country.
A Ford spokesperson told Fortune that the company is working to reduce its China operating costs “in all areas,” without specifying what those cuts would look like. The company may be considering layoffs as part of the cutbacks, according to multiple outlets, who reported Monday that Ford is planning to terminate 1,300 jobs in China, citing local media that reported the news last week.
A Ford spokesperson did not comment to Fortune on the reported plans for layoffs, how many employees might be affected, and when they might begin. The spokesperson only reiterated that the company “must drive a lean and agile organization” to build a more sustainable business in China.
Any potential layoffs in China would follow workforce reduction that the company has already carried out in other markets. In February, Ford announced plans to cut 3,800 jobs in Europe, primarily in Germany and the U.K., to refocus its efforts on expanding its line of electric vehicles. Last year, the company laid off 3,000 employees across its U.S., Canada, and India markets.
Ford CEO Farley has made clear since taking on the role in 2020 his goal of turning the legacy automaker into an electric vehicle powerhouse. This year, he has doubled down on calls to streamline Ford’s operational costs while continuing its EVs efforts, including announcements this year of plans for a new electric truck manufacturing site in Tennessee, and a hiring target of over 18,000 workers in the next three years—more than half of which are expected to work on EVs and battery packs.
But the EV push will likely lead to large restructuring efforts across the company and some job losses, Farley signaled while speaking at the Wall Street Journal’s Future of Everything summit earlier this month.
“This is the hard part: I’m not sure we can upskill everyone; I don’t think they’re going to make it,” he said. “There’s a new skill set we’re going to need, and I don’t think I can teach everyone—it will take too much time. So there is going to be disruption in this transition.”