BEIJING Chinese automaker Qoros, founded 10 years ago, has cut jobs and is shifting its focus to faster-growth electric cars in response to increased competition in the world's largest car market.
In previously unreported cuts, Qoros, which is backed by nearly $1 billion each from Chery Automobile and Israeli-funded Kenon Holdings (KEN.N), has shed more than a fifth of its workforce - down to 1,910 from 2,450 two years ago, a spokesman said.
Four former Qoros employees said the cuts included the recent loss of around 80 engineering contractors and workers, mostly more expensive non-Chinese hires and senior staff.
Qoros has won quality plaudits for its petrol cars, including its Qoros 5 sport-utility vehicle launched last year, but it now highlights some of the risks that auto start-ups face as competition intensifies and a slowing Chinese economy weighs on car sales.
"You tend to drink your own Kool-Aid and believe whatever forecast you had. Then you grow and grow and grow, and before you know it, you have a monster," Dan Cohen, vice chairman, said in an interview. "I see this happening now in some other (start-up) companies."
There's tougher competition all around.
Established Chinese automakers such as Geely Automobile Holdings (0175.HK) and Great Wall Motor (601633.SS) are catching up with global rivals in quality; those global automakers are increasingly competing with cheaper models; and dozens of local electric car start-ups crowd a 'new energy' market aggressively promoted by the government.
Shanghai-based Qoros has lost around 9.5 billion yuan ($1.4 billion) since it was founded, and has missed sales targets by some margin.
It has recently held talks with Chery on how to reduce costs, said one recently laid-off employee, who didn't want to be named as he seeks new employment.
Qoros is leveraging Chery's larger scale to seek better deals in buying parts, and the two companies are considering launching "additional platforms" that can rapidly be put into mass production, Cohen said.
Chery shares resources with all its partners, which include a joint venture with Jaguar Land Rover, in research, production, manufacturing and personnel related to parts, a spokeswoman told Reuters, adding: "Both shareholders of Qoros will continue as before to support its development."
Cohen said Qoros must more aggressively pursue advances in battery electric and plug-in hybrid cars as well as autonomous driving to stay competitive.
"Qoros eventually will be an NEV (new energy vehicle) company, that's 100 percent sure," he said.
Electric vehicles are simpler to build - a manufacturer can easily order a battery and electric motor from a third-party and put it in a standard car frame. But if it's that simple, rivals can do the same, increasing the competitive pressure, said Yale Zhang, managing director of consultancy Automotive Foresight.
China's government is pushing battery and plug-in hybrid cars to reduce pollution and boost local automotive technology. Sales in this segment have grown more than sixfold since 2014.
In terms of survival, Qoros may have a funding advantage over other electric car start-ups, which are mainly backed by venture capitalists who will be quicker to pull the plug if sales targets are missed, Zhang said.
"The Qoros investors are different. The Israeli investor looks very generous and the local investor is a state-owned enterprise," he noted.
Idan Ofer, an Israeli businessman who is the principal shareholder of Kenon, inherited half of his father's business empire and has shown an appetite for risk - investing in an electric car charging station venture called Better Place that went bankrupt in 2013, and specialist deep-water driller Pacific Drilling SA (PACD.N), whose U.S. market value has slumped with the price of oil.
Ofer's net worth has more than halved since 2013 to $3 billion, according to Forbes.
A third-party representative for Kenon declined to comment.
Cohen, who worked for Ofer prior to joining Qoros, said Kenon remains committed to the automaker despite stock exchange filings that say Kenon is looking to reduce its exposure to Qoros.
For now, Cohen says Qoros will continue to upgrade its petrol vehicles, and expects sales to increase by more than 50 percent this year to at least 37,000 vehicles, but future products will mostly be NEVs. It has previously said it had hoped to be selling 150,000 cars a year by 2015 or 2016.
Qoros hopes to almost double its dealerships this year, to 200, the spokesman said, with Cohen acknowledging its current network has been too small and often in the wrong locations.
Cohen said he expects Qoros to be profitable by 2018.
($1 = 6.8791 Chinese yuan renminbi)
(Reporting by Jake Spring; Editing by Ian Geoghegan)