The time it takes for some Chinese electric automotive makers to pay their suppliers is increasing, one other sign of stress within the country’s increasingly cutthroat automotive market.
According to the newest data available from Bloomberg, Nio Inc. took about 295 days to clear its money receipts at the top of 2023, the overwhelming majority of that are owed to suppliers, in comparison with 197 days in 2021. Xpeng Inc., one other U.S.-listed Chinese electric vehicle maker took 221 days to satisfy its obligations to suppliers and related parties, up from 179 days, the information shows.
By comparison, it only lasted about 101 days for Elon Musk’s Tesla Inc., and that period has remained largely stable over the past three years.
The prolonged payment cycles are a sign of the pressure many automakers are under in China, where economic growth stays sluggish and consumer sentiment is subdued. This has led to lower demand for electric cars and the once fast-growing market is now affected intense price wars and declining profit margins.
Since Beijing phased out a national incentive program for the acquisition of electrical vehicles in 2022, some smaller manufacturers have been pushed to the sidelines. WM Motors has submitted an application restructuring in October and Human Horizons Group Inc., the owner of premium electric vehicle brand HiPhi, exposed Operation for a minimum of six months in February.
“Everyone is suffering,” said Jochen Siebert, managing director of the consulting firm JSC Automotive. “For manufacturers, price cuts mean less money coming in. Therefore, the money they owe to their suppliers may be necessary to remain solvent.”
Representatives for Nio and Xpeng didn’t reply to requests for comment.
Late payments are beginning to impact auto suppliers, Siebert said.
“Tier 3 or tier 4 suppliers are really going to get bitten because they can’t pass it on,” he said, adding that there could possibly be “chaotic consolidation” in the electrical vehicle sector if suppliers go bankrupt, which is able to occur later would quickly result in production problems for automobile manufacturers.
In fact, Jiaxing, Zhejiang-based Minth Group Ltd., a supplier of exterior auto body parts, saw its trade receivables rise greater than 40% to 4.74 billion yuan ($656 million) in December because the end of 2020 , while their money and bills receivables rose greater than 40% in December 2020. According to Bloomberg data, the equivalent shrank by almost a 3rd to 4.2 billion yuan in the identical period.
Hunan Yuneng New Energy Battery Material Co., a key supplier to BYD Co., saw its trade receivables greater than triple to 10.43 billion yuan at the top of 2022 in comparison with the previous 12 months, in accordance with Bloomberg data. Cash reserves fell to 435, 2 million yuan.
“The price war will not end soon and the stress will eventually be transferred to suppliers,” said Zhu Lin, a Shanghai-based managing director of a turnaround management firm Alvarez & Marsal.
“We have seen more and more auto component manufacturers approaching us to improve their performance, and some of them are thinking about divesting unprofitable businesses,” Zhu said. “The weak in the supply chain will be at high risk of being thrown out of the game.”
