Behind the rapid development of China's automobile industry, there is a problem that cannot be ignored: the tight capital chain between car companies and suppliers. In recent years, although the scale of enterprises in the entire automobile industry chain has continued to expand, the tight cash flow has become increasingly obvious, forming an unhealthy cycle.

Recently, an internal email from BYD, a leading Chinese new energy vehicle company, has sparked widespread discussion. In the email, BYD asked suppliers to reduce prices by 10% from January 1, 2025 to enhance the market competitiveness of its passenger cars. BYD responded that this is an industry practice rather than a mandatory requirement, but the automobile price war has lasted for nearly two years and there is no sign of calming down. The cost pressure is transmitted from the market to car companies, and then to the upstream supply chain.

Car companies not only require suppliers to reduce prices, but also pass on the pressure of price wars to suppliers by delaying payment terms and using financial products instead of cash to settle payments. According to Caijing magazine's estimates based on the financial reports of 16 listed Chinese car companies, the current average turnover days of accounts payable and bills payable for car companies is 182 days, which is close to twice the payment period of international car companies, and this number is still growing.

This means that some upstream suppliers need to wait up to six months to receive payment after investing capital in production and delivering goods, and sometimes they can only receive digital bond certificates provided by supply chain financial platforms instead of cash. This situation has exacerbated the cash flow pressure on suppliers and made their operations more difficult.

Although the overall revenue and profit scale of China's auto parts industry is expanding, the cash flow situation is becoming increasingly tight. According to Wind data, in the first three quarters of 2024, the operating income of China's auto parts industry (only A-share listed companies and NEEQ companies) was 784.6 billion yuan, a year-on-year increase of 9%, and the net profit attributable to the parent was 49.7 billion yuan, a year-on-year increase of about 23%. However, both the cash ratio of revenue and the cash ratio of net profit have declined, indicating that suppliers face difficulties in collecting sales and converting net profit into cash flow.

In this context, many heads of supply chain companies said that business is becoming increasingly difficult, and they are in a dilemma of not wanting to participate in price wars but also finding it difficult to get out of them. They hope that the entire industry can achieve profitability, but in the current market environment, this goal seems out of reach.

In contrast, the account period management of international automakers is relatively more reasonable. According to statistics from Caijing, the account periods of 14 international automakers are basically controlled within 60 days, which is far lower than the average level of Chinese automakers. This is related to the business practices and laws and regulations of different countries. For example, Germany has legislation specifically for delayed payments.

Among Chinese automakers, Haima Automobile and BAIC Blue Valley have the longest account periods, which have increased by 94 days and 72 days respectively. Seres and Great Wall Motors are among the few automakers that have achieved profit growth, and their account periods have also shortened. This shows that good capital turnover efficiency is crucial to the profitability of enterprises.

In order to ease the financial pressure on suppliers, automakers have built their own financial circles in the upstream industrial chain in recent years. BYD launched the "Di Chain" platform, and Chery Automobile and Great Wall Motors also operate their own supply chain financial platforms. These platforms provide suppliers with more diversified financing channels through digital accounts receivable debt certificates and other means. However, this also raises questions about whether suppliers are forced to accept these financial products to accelerate cash collection.

While walking on the increasingly thin "wire" of cash flow, the profit margins of automotive suppliers are diverging. Most of the parts suppliers with low technical barriers show a trend of declining gross profit year by year, while the leading companies in the subdivided track can maintain or even increase the gross profit level.

Faced with fierce market competition and shrinking profit margins, automotive supply chain companies are facing a dilemma. They do not want to participate in price wars that will lead to meager profits, but they are also worried that they will lose their living space if they exit the market. Therefore, many companies can only choose to support low profits or even lose money to maintain the operation of production lines.

In this case, how to build a healthy and sustainable supply chain cooperation system has become the key to breaking the deadlock. Automakers need to change their supply chain management thinking and explore ways to deepen collaborative cooperation with suppliers. At the same time, learning the cooperation and win-win strategies of foreign automakers in dealing with suppliers is also a feasible way.

In the context of new energy and intelligent transformation, the revenue of new parts suppliers has changed greatly. According to the "2024 Global Automotive Supply Chain Core Enterprise Competitiveness White Paper", the revenue of new energy and intelligent parts has become an important pillar of the top 100 parts companies. Therefore, automakers need to establish closer cooperative relationships with suppliers at all levels to jointly cope with future challenges and opportunities.

In general, while China's auto industry is developing rapidly, it is also facing the problem of tight supply chain capital chain. Automakers need to change their management thinking and establish a more stable and sustainable cooperative relationship with suppliers to achieve win-win development for the entire industry.