BYD vows timely supplier Payments as China scrutinizes automakers

BYD Co. and Zhejiang Geely Holding Group Co. joined several of China’s government-backed automakers in a pledge to standardise bill payment for their suppliers to 60 days as authorities’ scrutiny of the industry’s health shifts to supply chain financing.

At least three carmakers, including Dongfeng Motor Group Co., Guangzhou Automobile Group Co. and China FAW Group Co. issued similar statements on Tuesday, saying their payment plans are aimed at promoting efficient capital flows across supply chains in the automotive industry.

That was followed by other major industry names, including Chongqing Changan Automobile Co. and Great Wall Motor Co., which also vowed to conform to the 60-day payment period.

Rounding out the flurry of pledges were US-listed startup Nio Inc., XPeng Inc., Li Auto Inc. and Stellantis NV’s partner Zhejiang Leapmotor Technology Co. Domestic tech giant Xiaomi Corp., which just launched its first model last year, also agreed to the standardized period.

“Leapmotor has always maintained a 60-day payment period to suppliers,” Vice President Li Tengfei said at a company event in Hong Kong on Wednesday. The carmaker will “continue to work with suppliers for win-win cooperation,” he said.

China’s auto industry, the world’s biggest, has found itself facing increasing government scrutiny after an extended domestic price war pushed some manufacturers to the brink.

The country’s carmakers have been seeking lower-cost components and delaying payments to suppliers by months, creating a form of quasi-debt financing. Regulators, including the Ministry for Industry and Information Technology, last week addressed the issue of supply chain financing with the heads of major electric vehicle manufacturers over concerns that the price war was becoming unsustainable.

Chinese authorities issued new rules in March to protect small and medium enterprises, stipulating that bills should be paid within 60 days — the industry norm — and that large firms shouldn’t force smaller businesses to accept non-cash payments such as promissory notes or use these methods to delay payments. The regulations will take effect in June.

Chinese auto parts stocks rose, with Morgan Stanley describing the move as positive, as a shorter accounts receivable period can bring better cash flow and lower provision cost. Chinese auto supplier accounts receivable days were generally longer than 100 in 2024, analysts including Shelley Wang wrote in a note.

Extended payment cycles are a feature of China’s auto sector, with periods far outstripping industry norms in other parts of the world. BYD took an average of 275 days to pay suppliers in 2023, Bloomberg compiled data shows.

Supply chain financing is also common in the auto industry. BYD, China’s best-selling car brand, has a promissory note system called Dilian, or Dilink in English, that it uses as a form of payment to its suppliers and can be redeemed at a later time. The platform had issued 400 billion yuan ($56 billion) worth of notes as of May 2023, the last time that BYD disclosed such information.

A report by accounting consultancy GMT Research puts BYD’s true net debt at closer to 323 billion yuan, compared with the 27.7 billion yuan listed on its books as of the end of June 2024, through delaying its payments to suppliers and other related financing.

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