Amidst a price war and declining profits, some Chinese electric car manufacturers are now taking longer to settle their accounts payable compared to previous years, signaling further pressure on the Chinese automobile market. The extension of payment terms by manufacturers is impacting automotive component suppliers, leading to weaker entities in the supply chain facing risks of closure.
In recent years, with China’s economy facing downturns and high youth unemployment rates, consumer reluctance to spend has weakened the demand for electric vehicles, plunging the electric car market into fierce price wars and decreasing profit margins. The elongated payment cycles indicate mounting pressures faced by many car manufacturers in China.
According to the latest data compiled by Bloomberg, Nio, a Chinese electric car company, has seen the time required to settle its accounts payable (mostly owed to suppliers) increasing annually from 2021 to 2023. In 2021, it took around 197 days, rising to about 247 days in 2022, and reaching approximately 295 days in 2023. The data also shows that Xiaopeng Motors needed about 221 days in 2023 to fulfill its payment obligations to suppliers and related parties, compared to around 208 days in 2022 and about 179 days in 2021.
In contrast, the American electric car giant Tesla managed to reduce the time taken to pay its suppliers in 2023 compared to the previous two years. The data reveals that Tesla required about 101 days in 2023, down from 112 days in 2022 and around 113 days in 2021.
Tesla’s primary Chinese competitor, BYD, required 275 days in 2023 to settle its accounts payable, higher than 219 days in 2022 and 198 days in 2021.
Nio’s financial report released on March 5 showed a net loss of 20.7198 billion yuan in 2023. Over the span of six years from 2018 to 2023, Nio’s total net losses have exceeded 80 billion yuan.
Similarly, Xiaopeng Motors’ financial report unveiled on March 19 indicated a net loss of 10.38 billion yuan in 2023, widening from 9.14 billion yuan in 2022.
Jochen Siebert, Managing Director of JSC Automotive, quoted by Bloomberg, expressed that “everyone is suffering.”
“For manufacturers, price reductions mean less incoming funds. Therefore, the money they owe suppliers may be necessary for maintaining liquidity,” Siebert remarked.
Both Nio and Xiaopeng Motors declined to comment on Bloomberg’s requests for statements.
Siebert warned that delayed payments are starting to have a chain reaction on automotive component suppliers.
“Third- or fourth-tier suppliers are indeed being hit,” he added, suggesting that with supplier bankruptcies, the electric car industry could witness “chaotic consolidation,” leading to rapid production issues for car manufacturers.
Zhu Lin, Managing Director of Alvarez & Marsal in Shanghai, stated that “the price war will not end soon, and the pressure will ultimately shift to suppliers.”
“We are seeing more and more auto parts manufacturers seeking performance improvements from us, with some considering selling unprofitable businesses,” she said. “Weak links in the supply chain will face a high risk of being squeezed out of the game.”
According to Bloomberg, the data compiled highlights that Minth Group Ltd., an auto parts supplier based in Zhejiang, saw its receivables surge by over 40% to 4.74 billion yuan (656 million dollars) by the end of December last year compared to the end of 2020, while its cash and cash equivalents shrank by nearly a third to 4.2 billion yuan.
Moreover, one of BYD’s main suppliers, Hunan Yuneng New Energy Battery Material Company, saw an over twofold increase in receivables reaching 10.43 billion yuan by the end of 2022, while its cash reserve depleted to 435.2 million yuan.
With over 200 electric car manufacturers in China currently grappling with substantial overcapacity issues, experts predict that many smaller firms may not survive in such a fiercely competitive environment.
Whether it’s the brutal domestic price wars or the sluggish economy leading to a slowdown in sales, Chinese electric car factories are facing formidable challenges. Additionally, waning global enthusiasm for electric vehicles poses a significant setback for Chinese manufacturers hoping to alleviate domestic pressures through overseas exports. Furthermore, the United States has increased tariffs on Chinese electric cars to curb the issue of dumping cheap vehicles. The European Union is also investigating Chinese electric cars with the possibility of imposing anti-subsidy tariffs.