Summary
- LSEG data for Chinese automakers show deteriorating key financial metrics over the past six years
- Automakers taking longer to pay suppliers and short-term creditors
- Chinese regulators have warned the turmoil is undermining the sector’s long-term viability
(Reuters) – China’s auto sector is reeling from overcapacity and an extended price war, raising alarm among regulators and industry executives who warn the turmoil is undermining the sector’s long-term viability.
China’s top leaders have pledged to step up regulation of aggressive price-cutting and support the orderly phasing out of outdated production capacity, state media reported earlier this month.
LSEG data for 33 listed automakers headquartered in China show a broad deterioration in key financial metrics over the past six years, highlighting the impact of a brutal price war that began in 2023.
Data showed that the average time carmakers took to pay their suppliers and other short-term creditors widened to 108 days in 2024 from 99 days in 2019.
China auto sector’ average payable payment days
On June 1, new regulation kicked in, requiring large companies to settle payments within 60 days of receiving goods, engineering services or materials.
Joerg Wuttke, Washington-based partner at DGA-Albright Stonebridge Group, said that European and German suppliers generally paid suppliers within 40 to 50 days.
“That (new regulation) is going to enforce a more level playing field and basically stop these automakers from turning their suppliers into bankers,” he said.
Among major brands, top electric vehicle seller BYD took an average of 127 days to pay suppliers and other short-term creditors in 2024, up from 81 days in 2019, the LSEG data showed.
When asked about the data, BYD said its average payment period to suppliers that covered both accounts payable and notes payable dropped to 127 days by 2024 from 139 days in 2019.
Geely Automobile’s payment period also rose to 193 days in 2024 from 139 days in 2019, according to LSEG data.
Geely declined to comment.
Bucking the trend, Great Wall Motor Co shortened its payment cycle to 94 days in 2024 from 115 days in 2019. The company did not respond to a Reuters request for comment.
China auto companies’ inventories and debt levels (in billion CNY)
The sector’s combined inventory levels more than doubled to 370 billion yuan ($51.55 billion) in 2024 from 2019, even as dealers complained of many firms dumping cars on them to meet high sales targets.
Total debt among carmakers surged 56% to 959 billion yuan last year from 2019’s level. The median debt-to-equity ratio climbed by 21 percentage points to 51.3%.
China auto companies’ inventory turnover and debt to equity
The sector’s median net profit margin fell to just 0.83% in 2024 from 2.7% in 2019.
BYD, however, boosted its profit margin to 5.4% from 1.7% in 2019. The company, which makes cars and mobile phone components, attributed the improvement to a change in its business mix as the contribution of automotive-related revenue as a share of total revenue grew from 49.5% to 79.4% over the period.
Some of the key matrices for BYD
Nio Inc and Xpeng Inc , two of China’s best-known EV brands, had among the longest payment periods among the 33 firms.
The two companies stretched their payment periods to suppliers and other short-term creditors to 223 days and 237 days, respectively.
Both companies continued to remain in the red, although both improved their negative margins sharply over the period.
Some of the key matrices for BYD
Nio said it would commit to paying suppliers within 60 days.
Xpeng said its cash liquidity continued to improve and referred to comments its CEO He Xiaopeng made last Thursday at a media event that the company would also, like other firms, endeavour to meet a commitment to pay suppliers within 60 days as soon as possible.
Some of the key matrices for BYD
($1 = 7.1769 Chinese yuan renminbi)
Reporting by Gaurav Dogra, Brenda Goh and Zhang Yan; Editing by Harikrishnan Nair and Miyoung Kim
Source: worldautoforum.com
