logo
How China's BYD is squeezing suppliers in the EV price war

How China's BYD is squeezing suppliers in the EV price war

Mint12-07-2025
China's electric vehicle-makers are locked in a spiraling price war. Their suppliers say they are bearing the brunt.
The country's biggest automaker, BYD, recently lowered the price of a starter electric vehicle to the equivalent of less than $8,000. To hit such low prices, suppliers say the company and others like it are squeezing them by demanding lower prices and dragging out payment periods.
BYD, or Build Your Dreams, often pays suppliers at first with an electronic IOU it calls D-chain, after the Dreams in its name. The suppliers may wait for the better part of a year before the notes can be cashed in. Suppliers say such payment methods are a nightmare for cash flow. But they are falling into line, desperate to keep orders coming.
Overcapacity and lackluster consumer demand are driving the trend. China's car business is one of many industries hit by a deflationary wave that threatens its economy as trade relations with the U.S. remain tense.
The phenomenon has come to be known by the Mandarin word neijuan, which has become widely used to refer to a situation in which people work hard and compete fiercely without anyone getting ahead.
'Neijuan often arises when an economy experiences unexpected downturns, particularly during deflationary periods," said Jianwei Xu, a senior China economist at Natixis, a French investment bank. Chinese EV makers, stuck with big factories that they need to keep going, are 'trapped in neijuan," Xu said.
Prices for goods leaving Chinese factories have fallen year-over-year for 32 consecutive months. Profit margins in China's auto-manufacturing industry nearly halved over the past decade to 4.3% in the first five months of 2025, according to government data.
Lower prices might look nice to consumers, but the race to the bottom is corrosive for growth, economists say. Squeezed suppliers have little room to raise wages and insecure workers aren't likely to splurge on purchases.
Suppliers say they are now asked for price cuts as often as once a month. Carmakers are tightening their audits and demanding information on what suppliers pay for materials. The carmakers ask suppliers to submit electricity bills, worker shift records and other cost data to justify their prices, suppliers say. And carmakers go to the suppliers' factories to check whether the reported number of workers on production lines is accurate.
Frustrated with such practices, some auto suppliers have begun to speak up. Guo Chuan, chairman of KH Automotive Technologies, last month penned an open letter titled 'I Have a Dream," which went viral for capturing their concerns.
'I have a dream that one day in China's auto industry, leading automakers and large suppliers will have a social conscience," he wrote.
In a survey by the China Automobile Dealers Association, 84% of dealers said they sold cars last year at prices lower than the wholesale prices they paid carmakers.
Last November, BYD asked some suppliers to lower prices by 10% as the carmaker was negotiating contracts for 2025, according to a letter seen by The Wall Street Journal.
'Market competition will grow fiercer in 2025, ushering in a final showdown, a knockout round," BYD wrote, calling for a 'concerted effort from our entire supply chain to achieve sustained cost-cutting."
In the past five years, BYD has sextupled its revenue. Over the same period, its accounts payable, notes payable and other payables—which analysts say are essentially the money it owes to suppliers—surged ninefold to $54 billion, accounting for two-thirds of its total liabilities at the end of last year.
'None of BYD's recent growth has been financed with conventional debt," said Nigel Stevenson, an analyst at Hong Kong-based GMT Research. Instead, he said, the company squeezed suppliers to make money available for new factories and equipment.
BYD's accounts payable, notes payable and other payables have surged ninefold to $54 billion in the past five years.
Large companies around the world often take advantage of their position to delay paying suppliers by a few months, but the payment periods are stretched out even further in China. BYD suppliers say they typically get something within a few months of sending a bill—but it is D-chain, the electronic IOU issued by a BYD finance subsidiary, rather than cash.
The initial public offering prospectus of a BYD supplier, Guangdong Huazhuang Technology, offers a glimpse into the payment system. As of mid-2023, BYD accounted for a quarter of the revenue of the supplier, which makes auto parts such as brake-system controllers and cooling fans. The fast-growing company needed capital for a new factory and filed for an IPO in June 2023.
One of its problems was poor cash flow. The company said it was receiving D-chain a month or two after its deliveries to BYD, which usually had a six- to eight-month term.
Suppliers can sell the D-chain to a broker or bank, but that typically means losing a few percentage points of the face value to fees, say people in the industry.
Stevenson, the analyst, pointed to an item on BYD's balance sheet labeled 'other external current accounts," which he said looks like a form of supply-chain financing. The item was included for the first time under liabilities in 2021, the year before the carmaker's subsidiary started issuing D-chain on a large scale. It ballooned to $20 billion by the end of last year, accounting for nearly a quarter of total liabilities. BYD's annual report doesn't say to whom the $20 billion is owed.
The government has begun to show concern. In late June, China's legislature revised its competition law to add clauses that ban large companies from setting 'obviously unreasonable payment conditions" or forcing suppliers to sign exclusivity agreements.
Chinese leader Xi Jinping has urged officials to crack down on neijuan. Officials are looking into the risks posed by financial instruments used by carmakers including D-chain, people familiar with the matter said.
Under government pressure, more than a dozen Chinese automakers including BYD pledged in June to pay suppliers within 60 days of product deliveries—a pledge many suppliers are skeptical will be upheld.
The government moves don't address the fundamental reasons for the price war, said Ernan Cui, an analyst at Gavekal Dragonomics.
'While the leading automakers are profitable, there is a long tail of struggling firms that should probably exit the market, yet continue to produce thanks to ample government and private-sector financing," she wrote in a recent research note.
Write to Rebecca Feng at rebecca.feng@wsj.com and Raffaele Huang at raffaele.huang@wsj.com
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Construction of 130-km alternative road to DBO outpost in Ladakh reaches final stages
Construction of 130-km alternative road to DBO outpost in Ladakh reaches final stages

Time of India

time2 hours ago

  • Time of India

Construction of 130-km alternative road to DBO outpost in Ladakh reaches final stages

Representational Image NEW DELHI: The new alternative 130-km road to the country's strategically located Daulat Beg Oldie (DBO) military outpost in eastern Ladakh is now in the final stages of construction in the forbidding high-altitude region, with the entire stretch likely to be fully operational by Oct-Nov next year. The Border Roads Organisation (BRO) has been working hard to complete this much-needed alternative road to the crucial sector - which includes Depsang Plains where Indian and Chinese troops disengaged in Oct last year - from Sasoma in the Nubra Valley through Saser Brangsa to the DBO outpost, as reported by TOI earlier. DBO, which includes an advance landing ground (ALG) at an altitude of 16,614 feet, overlooks the Karakoram Pass and is just a few km from the Line of Actual Control (LAC) and the China-occupied Aksai Chin region. All connectivity work from Sasoma to Saser Brangsa on the new road, including black-topping, and around 60%-70% of it eastwards towards Murgo and Gapshan has been completed by BRO, said sources. "Some heavy military equipment, including artillery guns like Bofors, have been moved on the completed stretches to test their load-carrying capacity. The entire 130-km road (Sasoma-Saser La-Saser Brangsa-Gapshan-DBO) should be ready by Oct-Nov 2026," a source said. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like No annual fees for life UnionBank Credit Card Apply Now Undo It will enhance the capacity to move soldiers, weapons and logistics faster to the frontier. A seven-km tunnel under Saser La (La means pass), which is at an altitude of 17,660 feet, is also planned for all-weather connectivity. The People's Liberation Army will not be able to easily track military movements on the new road, unlike the existing 255-km Darbuk-Shyok-DBO road that runs almost parallel to the LAC before ending around 20 km short of the Karakoram Pass. India had stepped-up the construction of the new 130-km road in the backdrop of the military confrontation with China.

France faces another tough wheat export year despite better crop
France faces another tough wheat export year despite better crop

Deccan Herald

time3 hours ago

  • Deccan Herald

France faces another tough wheat export year despite better crop

France could struggle to sell a much bigger wheat crop expected this year as export options for the European Union's top wheat producer have narrowed due to less demand from Algeria and China as well as strong competition from cheaper Black Sea grain. Sparse overseas demand could lead France to stock hefty amounts of wheat or offload more crop in livestock feed markets. Either outcome could keep prices below production costs, a trend that has fuelled farmer protests in the past year. Farm office FranceAgriMer on Wednesday projected French soft wheat exports outside the EU in 2025/26 at a relatively modest 7.5 million metric tons, contributing to a forecast 21-year high for end-of-season stocks. Sales to Algeria and China, among France's biggest wheat buyers in recent years, stalled last season due to a diplomatic fallout between Paris and Algiers and a general drop in Chinese imports amid hefty domestic supply. A smaller than normal 2024 French crop meant steady demand from Morocco and West Africa, plus sporadic sales to Egypt and Thailand, absorbed last season's surplus. But that may no longer be enough. "The harsh reality is that France has a huge challenge to reach a 7.5 million ton export programme," Rory Deverell, owner of Black Silo Commodity Consulting, said. A price rise in Russia amid tight availability in the world's biggest wheat supplier may offer only brief respite, with Russian and other Black Sea region producers expected to sweep up near-term demand, as shown by this week's 1 million ton purchase by Algeria. 'Russia, Ukraine, Romania and Bulgaria are likely to dominate wheat exports in coming months," a German trader said. 'The west EU faces the threat of being only a niche wheat exporter."

Sona Comstar stock to be in focus on Monday after autoparts maker signs to set up JV in China — Details here
Sona Comstar stock to be in focus on Monday after autoparts maker signs to set up JV in China — Details here

Mint

time5 hours ago

  • Mint

Sona Comstar stock to be in focus on Monday after autoparts maker signs to set up JV in China — Details here

Auto components maker, Sona BLW Precision Forgings (Sona Comstar) shares will be in focus of the stock market investors on Monday, 21 July 2025, as the company signed a binding term sheet with Jinnaite Machinery Co (JNT) to set up a joint venture (JV) in China, according to an exchange filing. 'Sona BLW Precision Forgings Ltd, a global leader in mobility technology solutions, has signed a binding term sheet with Jinnaite Machinery Co. Ltd to establish a joint venture company in China,' the company informed the BSE through an exchange filing. The company aims to manufacture and supply driveline systems and auto components in China. As part of the first phase of the JV, Sona Comstar will invest $12 million, and JNT will contribute $8 million in assets and business. 'As the largest electric vehicle market in the world and a leader in EV technologies, China offers tremendous opportunities for innovation and growth. By leveraging the strengths of both partners, this venture is well-positioned for strong growth, and it has the potential to become a key supplier of driveline solutions for electric vehicles in the region,' said Vivek Vikram Singh, MD & Group CEO of Sona Comstar. Singh also highlighted that the company expects to commence the operations of the joint venture later this year for both electric vehicle (EV) and non-EV auto component customers. Jinnaite Machinery operates a foundry utilising patented technology to manufacture complex castings and molds. The company has a strong base among the Chinese auto OEMs, and also caters to North America, Europe, and Japanese markets. Sona BLW Precision Forgings shares closed 1.29% lower at ₹ 479.75 after Friday's stock market session, compared to ₹ 486 at the previous market close. The company announced the joint venture update on Sunday, 20 July 2025. Shares of the auto component manufacturer have given stock market investors more than 31% returns on their investment in the last five years, but are trading 32% lower in the last one-year period. On a year-to-date (YTD) basis, Sona BLW's stock has lost 18.86% in 2025. However, the shares are trading 6.7% higher in the last five stock market sessions. Sona BLW shares hit their 52-week high level at ₹ 767.80 on 23 September 2024, while the 52-week low level was at ₹ 379.80 on 4 April 2025, according to the BSE data. The company's market capitalisation (M-Cap) is at ₹ 29,827.06 crore as of the stock market close on Friday, 18 July 2025. Read all stories by Anubhav Mukherjee Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store