Jin Tou Wang·2025-06-12 08:00Core Viewpoint - Chinese automotive companies have collectively addressed the issue of payment terms with suppliers, committing to reduce payment periods to within 60 days, marking a significant shift in industry practices [1][3]. Group 1: Policy Impact - The push for shorter payment terms is driven by the implementation of the "Regulations on Ensuring Payment to Small and Medium Enterprises," which mandates large enterprises to pay within 60 days and prohibits non-cash payment methods that could extend payment periods [3]. - The automotive industry is responding to regulatory pressures, with major companies like FAW, Dongfeng, and BYD leading the charge in adopting these new payment practices [1][3]. Group 2: Industry Dynamics - The automotive sector has been experiencing intense price competition, particularly in the electric vehicle market, which has led to declining profit margins. The industry's profit margin fell from 7.3% in 2018 to an estimated 4.3% in 2024, with Q1 2023 figures showing a further drop to 3.9% [4]. - Payment cycles for Chinese automotive companies are significantly longer than their international counterparts, with companies like BYD averaging 127 days and NIO at 195 days, compared to 60-90 days for leading overseas firms [5]. Group 3: Supply Chain Challenges - The prolonged payment terms have placed significant financial strain on suppliers, leading to calls from industry associations for automotive companies to address their payment practices. The China Iron and Steel Association criticized automakers for not only engaging in price wars but also for delaying payments, which exacerbates the financial pressure on suppliers [7]. - The shift to a 60-day payment term is expected to improve cash flow for suppliers, potentially increasing their cash flow turnover by 25%, thereby stabilizing the supply chain [8]. Group 4: Financial Implications - Implementing a 60-day payment term could result in increased annual funding costs for major automotive companies, potentially amounting to several hundred billion yuan [10]. - Companies are responding by streamlining their approval processes and utilizing digital systems to reduce reconciliation times from 15 days to 3 days, indicating a push towards operational efficiency [10]. Group 5: Future Outlook - The automotive industry plays a crucial role in the Chinese economy, contributing 10% to the national GDP. Addressing supply chain issues is essential for sustainable growth and avoiding systemic risks [11]. - The collective action of leading automotive companies in response to government policies is seen as a milestone for the industry, fostering a healthier supply chain and setting the stage for future growth and innovation [11].