EV makers in China are facing the brunt of a major economic slowdown, as sales start to stagnate and revenues start slipping. In such a situation, you wouldn’t want to upset your suppliers, but that’s exactly what certain EV makers are doing in China.
Several Chinese EV makers are running at least 2-3 months behind in clearing their supplier’s dies. In contrast, Tesla has somehow managed to pay its suppliers on time.
The lengthening payment cycles within China’s electric vehicle (EV) industry highlights the various challenges that automakers face in one of the world’s largest automotive markets. As of the end of 2023, prominent EV manufacturers like Nio Inc. and Xpeng Inc. have seen significant delays in settling their payable receipts, which reflects a broader trend of financial strain within the sector.
While Nio’s payment time stretched to approximately 295 days, up from 197 days in 2021, Xpeng experienced a similar increase, with its payment period extending to 221 days from 179 days previously. In contrast, Tesla Inc., renowned for its efficiency in operations, maintained a comparatively stable payment period of around 101 days.
These prolonged payment cycles serve as a barometer of sorts for the mounting pressure that automakers operating in China face in the fiercely competitive EV landscape.
The economic slowdown, with diminished consumer enthusiasm for EVs, the discontinuation of the national subsidy program in 2022 — has created a challenging operating environment.
Smaller manufacturers, in particular, have borne the brunt of these adverse conditions, with some pushed to the brink of bankruptcy. The restructuring of WM Motors and the suspension of operations by Human Horizons Group Inc., owner of the premium EV brand HiPhi, highlight the severity of the challenges facing industry players.
The ongoing price wars and compressed profit margins have strained manufacturers’ liquidity, resulting in delayed payments to suppliers. This financial strain has begun to reverberate throughout the automotive supply chain, particularly impacting smaller-tier suppliers. As delayed payments cascade down the supply chain, Tier-three or four suppliers face acute financial pressures, raising concerns about their long-term viability.
EV makers emphasized that the prevailing price war and financial stress in the industry are poised to intensify pressure on suppliers. Many car component producers are actively seeking avenues to bolster their financial performance or contemplating divesting unprofitable business segments to mitigate risks stemming from the volatile market dynamics. Consequently, weaker players in the supply chain face the imminent risk of being sidelined from the industry as it undergoes a period of tumultuous transformation and consolidation.
(With inputs from agencies)
