How China's BYD Is Squeezing Suppliers in the EV Price War

Hindustan Times

11-07-2025

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.'
I owe you
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 [e-mail] and Raffaele Huang at [e-mail]