No this is unlikely to happen. You are not wrong in saying artists will lose jobs. But the AI will not completely replace humans in that process. It will only reduce the workforce necessary. AI is a tool, and the artist is the one who can use it to its full potential, and then take that outcome and make it even better, refining it further. Also, character design is not as simple as just chucking in some previously drawn faces and mixing and matching between the features. For example, look at how many mangaka have their unique style, like the authors of Soul Eater or BNHA. You can't create any of those characters through this process. Moreso because they are the first of their kind (design wise) so they do not have appropriate source material. Furthermore, character design also revolves around things like personality, history and a bunch of other complicated stuff, which this AI would not take into account.

How an artist could use this AI, however, is to establish certain rules about a character's design and go from there. E.g. they must have a metal prosthetic arm. So the artist goes and finds/draws/photographs many images of prosthetics, armour, robots and the likes and feeds it into this AI, which will generate a great amount of material that would have taken the artist a long time to create, or would have required a team of people. 99% may well be junk, but it is the artist's job to decide on that 1% and then choose what looks best, and use this as a basis for the final design.

There are more applications than this but this would be a typical workflow, including for games and film. The future really is bright.