Electric vehicle manufacturer Nio has announced an organizational optimization plan, aiming to reduce its workforce by approximately 10 percent. This strategic move, made public on November 3, has been met with positive reactions from analysts who see it as a necessary step in the company's growth journey.
According to analysts at Deutsche Bank, the job cuts are expected to result in significant cost savings for Nio, projected to range between RMB 1.5 billion ($206 million) and RMB 2 billion annually, based on average employee compensation figures from 2022. This cost-saving initiative has been well-received in light of the prevailing market conditions and demand trends.
Nio's founder, chairman, and CEO, William Li, disclosed the layoff plan in an internal letter dated November 3, with the expectation of completing the process by the end of the same month. As of December 31, 2022, Nio had a workforce of 26,763 full-time employees, as reported in the company's 2022 annual report.
In addition to the workforce reduction, Nio is also working on enhancing organizational efficiency by consolidating duplicate departments and roles, optimizing processes, and redefining role responsibilities. The company will further focus on resource efficiency and review or cut investments in projects that do not contribute to its financial performance over a three-year period, as per Li's internal letter.
While the layoffs will affect various parts of Nio's business, reports suggest that the battery and phone segments are likely to bear a more substantial impact. Nio, like many high-growth companies, has been adjusting its workforce to align with evolving business trajectories, and these adjustments are part of a broader strategic realignment.
Looking ahead, Nio's management has hinted at streamlining its third-generation core platform, NT 3.0, by focusing on a reduced number of models to maximize efficiency, with this shift anticipated to occur in 2025-2026.
Analysts at Deutsche Bank view these steps positively, expecting improved cash burn as these initiatives are executed. They acknowledge that Nio has a journey ahead to rebuild investor trust, but they see the recent organizational changes as a substantial move in the right direction.
Separately, it has been reported that Nio has secured significant price reductions from its supply chain partners. Coupled with robust delivery numbers, averaging nearly 20,000 units per month in the third quarter, this could pave the way for Nio to achieve a double-digit gross margin, according to local media outlet 36kr.
Nio's gross margin had previously dipped to 1.0 percent in the second quarter, down from 13.0 percent in the same period a year ago and 1.5 percent in the first quarter, as reported in its second-quarter earnings statement released on August 29. However, the company expressed its goal to attain a double-digit gross margin in the third quarter and 15 percent in the fourth quarter during an analyst call following the same earnings announcement.