Some of China’s electric car manufacturers are taking longer to pay suppliers, indicating challenges in the competitive auto market in the country.
Nio Inc. was taking approximately 295 days to settle its payables to suppliers at the end of 2023, compared to 197 days in 2021, as per Bloomberg data. Xpeng Inc., another Chinese EV maker listed in the US, was taking 221 days to fulfill its obligations to vendors and related parties, up from 179 days.
In contrast, Tesla Inc., led by Elon Musk, was taking around 101 days to pay its suppliers, a period that has remained consistent over the past three years.
The prolonged payment cycles reflect the challenges faced by many automakers in China, where economic growth is slow and consumer sentiment is weak. This has led to reduced demand for electric vehicles, resulting in intense price competition and squeezed profit margins in the once rapidly growing market.
Following the discontinuation of a national EV subsidy program in 2022, some smaller manufacturers have struggled. WM Motors filed for restructuring in October, while Human Horizons Group Inc., the parent company of premium EV brand HiPhi, suspended operations for at least six months in February.
“Everyone is facing difficulties,” commented Jochen Siebert, managing director at JSC Automotive consultancy. “For manufacturers, price cuts mean less revenue coming in. Therefore, the payments owed to suppliers are crucial for their liquidity.”
Representatives for Nio and Xpeng did not respond to requests for comments.
The delayed payments are starting to impact auto-parts suppliers, according to Siebert.
“Tier-three or four suppliers are particularly affected because they cannot pass on the delays,” he explained, adding that the EV sector may witness a “messy consolidation” as suppliers go bankrupt, leading to production disruptions for automakers.
For instance, Minth Group Ltd., a supplier of exterior body parts based in Jiaxing, Zhejiang, saw its accounts and notes receivables increase by over 40% to 4.74 billion yuan ($656 million) by December from the end of 2020. Meanwhile, its cash reserves decreased by almost one-third to 4.2 billion yuan over the same period.
Hunan Yuneng New Energy Battery Material Co., a major supplier to BYD Co., experienced a more than three-fold increase in its accounts and notes receivables to 10.43 billion yuan by the end of 2022 from the previous year, while its cash reserves dropped to 435.2 million yuan.
“The price competition is unlikely to end soon, and the pressure will eventually reach suppliers,” said Zhu Lin, a managing director in Shanghai with turnaround management firm Alvarez & Marsal.
“We have seen more car component producers seeking assistance to improve their performance, and some are considering divesting unprofitable segments,” Zhu noted. “Weak links in the supply chain face a high risk of being eliminated from the market.”
