China's major automakers and some new carmakers have pledged to shorten supplier payment terms as longer payment cycles pose a potential threat to supply chain security.
Multiple automakers, including BYD (HKG: 1211, OTCMKTS: BYDDY), Geely Auto (HKG: 0175), Chery, and Xpeng (NYSE: XPEV), have announced from last night to today that they will commit to shortening supplier payment terms to within 60 days.
The move is to respond to regulatory authorities' requirements and maintain the stability of China's automotive industry supply chain, according to their statements.
As of now, the automakers that have made this commitment include:
BYD, Geely Auto, Chery, Changan Automobile, GAC Group, FAW Group, Dongfeng Motor, Seres Group, Xpeng (NYSE: XPEV), Xiaomi EV, Great Wall Motor, Li Auto (NASDAQ: LI), Leapmotor (HKG: 9863) , BAIC Group, Nio (NYSE: NIO), Anhui Jianghuai Automobile Group, SAIC Motor.
This list may continue to grow, and CnEVPost will keep it updated.
Their statements all mention that this move is for fulfilling corporate social responsibility and promoting "high-quality development" in China's automotive industry.
Over the past few years, China's new energy vehicle (NEV) industry has seen rapid development, with a robust supply chain serving as its foundation.
However, the issue of lengthy payment cycles for suppliers has frequently sparked discussions, posing a potential threat to supply chain security.
Recently, with the outbreak of a new round of price wars in China's automotive market, concerns have intensified that suppliers' profitability and survival space will be further squeezed.
One example is that the China Iron and Steel Association (CISA) issued a rare statement yesterday, urging automakers to collaborate in safeguarding supply chain interests and resisting unfair competition.
The price competition among automakers has put significant pressure on upstream raw material suppliers, and steel companies share this concern, the CISA said in its statement yesterday, adding that this has severely impacted the stable operations of enterprises.
"Since last year, some automakers have demanded that steel mills reduce the price of automotive steel sheets by over 10 percent, far exceeding what steel mills can accept," the CISA statement read.
Some automakers rely on their own supply chain finance platforms to delay payments to suppliers for months, settling through corporate promissory notes instead of paying promptly after delivery, the CISA noted.
These automakers have shifted the financing pressure and costs they should bear onto upstream suppliers and continuously extended supplier payment terms, resulting in significantly increased financial pressure on steel mills, CISA said.
In contrast, international automakers, including Japanese automakers, have established long-term, close, and stable partnerships with suppliers, controlling costs while leaving suppliers with a reasonable profit margin, CISA noted.
CISA urges Chinese automakers to engage in fair competition and cease relying on occupying upstream funds to sustain their development.
