China EV makers taking longer to pay bills amid rising stress

Hong Kong – The time it is taking for some of China’s electric vehicle (EV) makers to pay suppliers is ballooning – a further sign of stress in the nation’s increasingly cut-throat auto market.

Nio was taking around 295 days to clear its receipts payable, the vast majority of which are owed to suppliers, at the end of 2023 versus 197 days in 2021, according to the most recent available data compiled by Bloomberg.

Xpeng, another US-listed Chinese EV maker, was taking 221 days to honour its obligations to vendors and related parties, up from 179 days, the data shows.

Billionaire Elon Musk’s Tesla, by comparison, took only around 101 days, and that period has remained largely stable in the past three years.

The extended payment cycles are indicative of the pressure many automakers are under in China, where economic growth remains sluggish and consumer sentiment is subdued.

This has translated into reduced demand for electric cars, and the once fast-growing market is now beset with intense price wars and crunched profit margins.

Since Beijing phased out a national subsidy programme for EV purchases in 2022, some smaller manufacturers have been pushed to the brink. WM Motors filed for restructuring in October, and Human Horizons Group, the owner of premium EV brand HiPhi, suspended operations for at least six months in February.

“Everybody’s suffering,” said Mr Jochen Siebert, managing director at consultancy JSC Automotive. “For manufacturers, price reductions mean less money coming in. So the money they owe to their suppliers may be necessary for them to remain liquid.”

Representatives for Nio and Xpeng did not respond to requests for comment.

Delayed payments are starting to have knock-on effects at auto parts suppliers, Mr Siebert said, adding that the EV sector may see a “messy consolidation” as suppliers go bankrupt, quickly causing production issues for automakers down the line.

Indeed, the Minth Group, a supplier of exterior body parts, saw its accounts and notes receivables surge more than 40 per cent to 4.74 billion yuan (S$899 million) as at December from the end of 2020, while its cash and equivalents shrank by almost one-third to 4.2 billion yuan over the same period, according to data compiled by Bloomberg.

Hunan Yuneng New Energy Battery Material, which is a major supplier to BYD, according to data compiled by Bloomberg, saw its accounts and notes receivables more than triple to 10.43 billion yuan at the end of 2022 from a year earlier, while cash reserves fell to 435.2 million yuan.

“The price war won’t end soon and the stress eventually will be delivered to suppliers,” said Ms Zhu Lin, a Shanghai-based managing director with turnaround management firm Alvarez & Marsal.

“We’ve seen more car component producers approaching us to improve their performance and some of them are thinking about offloading unprofitable businesses,” Ms Zhu said. “The weak ones in the supply chain will face a high risk of being kicked out of the game.” BLOOMBERG