China’s EV-Makers Taking Longer to Pay Bills Amid Rising Stress

Chinese electric car manufacturers are experiencing prolonged payment cycles towards their suppliers amidst a fiercely competitive market. Nio Inc. and XPeng Inc., notable EV makers, have seen their payment periods increase significantly. As of the end of 2023, Nio took around 295 days to settle receipts payable, up from 197 days in 2021, while XPeng took 221 days compared to 179 days previously [para. 1][para. 2]. In contrast, Tesla Inc. maintained a stable payment period of approximately 101 days over the past three years [para. 3].

The extended payment durations highlight pressures stemming from China's sluggish economic growth and dampened consumer sentiment, which have led to reduced demand for electric vehicles (EVs). This market, once rapidly growing, now faces severe price wars and squeezed profit margins [para. 5]. The cessation of Beijing's national subsidy program for EVs in 2022 further strained the industry, pushing smaller manufacturers to the edge. For instance, WM Motors filed for restructuring in October, and Human Horizons Group Inc., known for the HiPhi EV brand, suspended operations for at least six months in February [para. 6].

“Everybody’s suffering,” remarked Jochen Siebert, managing director at consultancy JSC Automotive, noting that price reductions adversely affect manufacturers' liquidity, compelling them to delay payments to suppliers, which could be essential for their survival [para. 7]. Representatives from Nio and XPeng did not respond to requests for comments [para. 8].

The delayed payments are beginning to impact auto-parts suppliers significantly [para. 9]. As Siebert pointed out, smaller tier-three and four suppliers are hit hardest as they cannot easily pass on these delays. This situation might trigger a “messy consolidation” in the EV sector, with suppliers going bankrupt, leading to potential production disruptions for automakers [para. 9]. An example of such strain is seen in Jiaxing, Zhejiang-based Minth Group Ltd., a supplier of exterior body parts, which experienced a 40% surge in accounts and notes receivables to 4.74 billion yuan ($656 million) by December end, from 2020 end. Concurrently, its cash holdings dropped by nearly 33% to 4.2 billion yuan [para. 10].

Hunan Yuneng New Energy Battery Material Co. Ltd., primarily supplying BYD Co. Ltd., observed its receivables triple to 10.43 billion yuan by the end of 2022 compared to the previous year, with cash reserves dwindling to 435.2 million yuan [para. 11]. Zhu Lin, managing director at turnaround management firm Alvarez & Marsal, predicts that the ongoing price war will continue to impose stress on suppliers. This strain is evident as more car component producers seek performance improvements or consider shedding unprofitable segments to survive [para. 12]. The weaker players in this supply chain face a high risk of collapsing under these pressures [para. 12].