(Reuters) – China’s automobile sector has been upset by overcapacity and extended price wars, sparking vigilance among regulators and industry executives warning of confusion. China’s top leaders have pledged to tighten aggressive price cut regulations and support orderly, gradual graduals from outdated production capacity, state media reported earlier this month.
LSEG data from 33 listed car manufacturers headquartered in China have shown a wide deterioration in key financial metrics over the past six years, highlighting the impact of the brutal price war that began in 2023.
The data showed the average time it took for automakers to pay suppliers and the expansion of other short-term creditors that expanded from 99 days in 2019 to 108 days in 2024.
On June 1st, new regulations began, requiring that large companies resolve payments within 60 days of receiving their goods, engineering services or materials.
Joerg Wuttke of DGA-Albright Stonebridge Group in Washington state said European and German suppliers usually paid the supplier within 40-50 days.
“That (the new regulations) will put in a more level playing field and essentially stop these automakers from turning suppliers into bankers,” he said.
Among the leading brands, BYD, the top electric vehicle seller, took an average of 127 days to pay its suppliers and other short-term creditors from 81 in 2019 to 2024.
When asked about the data, BYD said there was an average payment period for suppliers that covered accounts and payments paid in 127 days from 139 in 2019 to 2024.
According to LSEG data, Geely Automobile payment periods rose from 139 in 2019 to 193 days in 2024.
Geely declined to comment.
Backing the trend, Mari no Choco has reduced its payment cycle from the 115th in 2019 to 94 days in 2024.
Total inventory levels in this sector have doubled from 2019-2024 to 370 billion yuan ($515.5 billion).
The automaker’s total debt skyrocketed from 56% to 95.9 billion yuan from the level last year in 2019. The median debt-equity ratio rose 21 percentage points to 51.3%.
The median net profit margin for the sector fell from 2.7% in 2019 to just 0.83% in 2024.
However, BYD has increased its profit margin to 5.4% from 1.7% in 2019. This led to the company that manufactures automotive and mobile phone components attributed it to a change in the business mix as a contribution to automotive-related revenue, as its share of total revenue increased from 49.5% to 79.4% over the period.
The story continues
