In China, nearly 500 companies are making electric vehicles (EVs) thanks to heavy government subsidies aimed at boosting the industry. Now the tide is turning, and many are facing tough times trying to keep their businesses afloat.

Nio, one of the leading electric car startups, is reportedly cutting about 1,000 staff members, which comes after the company laid off 70 employees in April from two Silicon Valley offices. The layoffs come mostly from R&D and marketing departments, according to Chinese tech news outlet 36Kr, which Nio said was for “improving business efficiency.”

The new round of layoffs is just the latest sign of trouble for the US-listed EV company, which has seen mounting losses this year. Nio lost US$390 million in the first quarter. It also just sold its Formula E team, which largely contributed to the company’s fame.

Nio isn’t the only EV startup having a bumpy ride. From April to June, at least five electric cars combusted in China, leading to an order for carmakers to do safety checkups. Nio recalled nearly 5,000 cars in June, citing a vulnerability in the battery for its ES8 SUV.

Another EV company wound up hurting itself as a result of an eagerness to get a new product on the market. Last month, Xpeng Motors angered owners of its G3 model when it released a revamped model with a longer driving range for a lower price just seven months after the original.

Xpeng co-founder He Xiaopeng speaking at the Guangzhou International Automobile Exhibition in November 2018. (Picture: Bloomberg)

Protesters gathered at the company’s headquarters in Guangzhou, holding signs calling the company deliberately deceptive, Caixin reported. Customers complained that that salespeople told them prices for the original model might rise soon.

(Abacus is a unit of the South China Morning Post, which is owned by Alibaba, a backer of Xpeng Motors.)

Chinese government policies have contributed to the country’s overheated EV market. Its heavy subsidies for EV buyers, which peaked in 2014 at 100,000 yuan (US$16,000), triggered ample investment and a wave of startups.

But as the government has gradually scaled back the subsidies, an overcrowded market started bracing for a downturn. 

One industry executive predicted that 80 percent of existing startups could go under. Layoffs and late salary payments are already common among the smaller startups, according to local media reports.