Chen Changhua: Should We Be Concerned About the Auto Industry? (AI Translation)

【周刊提前读】陈昌华专栏：汽车业财务状况值得关注吗？

After the introduction of government subsidies at the end of 2024 to encourage trading in older consumer products for new ones, sales of affected goods accelerated notably. During the first five months of 2025, the retail sales of home appliances, office supplies, furniture, and telecommunications equipment rose by 30%, 26%, 21%, and 27% year-on-year, significantly outpacing other consumer goods. In contrast, however, retail sales of automobiles—another major beneficiary of the program—declined by 1.9% in the same period. This raises the question of why auto sales failed to respond similarly to policy incentives. [para. 1]

Meanwhile, data from the China Association of Automobile Manufacturers showed that car sales volumes (i.e., vehicles sold by manufacturers) increased by 12.6% compared to the previous year. This discrepancy between car retail sales (as measured in value) and production figures suggests several possible explanations: first, growth has been driven primarily by exports; second, sales by manufacturers are piling up in dealership inventories rather than actually reaching end-users; third, there have been substantial price declines for vehicles. [para. 2]

Looking closer, car export values rose 5.3% during the first five months, outpacing domestic retail sales, but since exports account for only about 10% of total auto sales, this does not sufficiently explain the overall retail decline. The accumulation of vehicles with distributors is plausible but lacks concrete evidence. [para. 3]

A significant price drop appears to be the main factor. Customs data indicates that, while the export value of cars rose 5.3% year-on-year, export volume increased by 15.2%, implying an approximate 10% price drop. Since export and domestic car pricing trends are similar, this price fall largely explains the gap between sales revenue and unit sales. [para. 4]

Such large price declines across the automobile industry are likely due to both cost reductions from technological progress and, more critically, emerging signs of overcapacity and excessive competition. Similar industry trends in China, such as with home appliances and solar panels, have previously resulted in rapid expansion followed by overproduction, intensified competition, and worsened business conditions. Despite substantial growth in new energy vehicle sales, some financial indicators from major car manufacturers are starting to suggest tightening cash flow. [para. 5]

An examination of the financial health of eight major listed car companies—some focused on new energy vehicles (NEVs) and others on conventional cars—reveals that their combined operating income rose from over 1.4 trillion RMB in 2019 to nearly 2.3 trillion RMB in 2024 (a 52% increase). However, accounts payable (debts to suppliers) and inventories increased by 126% and 152% respectively, two to three times faster than sales, signaling unhealthy financials. For example, NEV giant BYD’s revenue increased by 508% from less than 130 billion RMB in 2019 to over 777 billion RMB in 2024, but its accounts payable surged by 973%, and inventory by 354%. [para. 6]

A similar pattern is observed among auto parts suppliers. CATL, the dominant battery provider, saw its revenue grow 691% from 2019 to 2024, roughly in line with its accounts receivable, suggesting automakers cannot afford to delay payments. However, CATL’s accounts payable soared by over 1,100%, showing it is deferring payments to its own suppliers. In contrast, the other seven major parts manufacturers’ revenues only increased by 26%, while their accounts receivable and inventory jumped by 94% and 63% respectively, reflecting severe payment delays from car manufacturers. [para. 7]

Overall, while China’s auto industry has made major strides, especially with NEVs, mounting competition has driven prices down and cash-flow risks are mounting across the supply chain. Even amid supportive government policy and continued revenue growth, these financial warning signs imply that companies and policymakers need to prepare for slower growth in the future. [para. 8][para. 9][para. 10]