Which will be eliminated first, weak car companies or supply chain companies?

In recent years, China's automotive industry chain has developed rapidly, with revenue and profit scales continuously expanding. However, objectively speaking, the Chinese automotive industry chain is facing unprecedented financial difficulties. The rapid expansion of new car-making forces and the transformation pressure on traditional automotive giants have jointly intensified competition among enterprises, and the supply chain system is also bearing a heavy operational burden. ● Weak enterprises, for example, the recently popular JiYue Automobile, a "second-generation star" company backed by Baidu and Geely, has lost over 10 billion yuan in just three years, falling into a survival crisis, exposing common problems in the current industry: high R&D costs, sluggish gross profit margins, delayed payment terms, and a series of persistent issues. ● Supply chain enterprises are also not optimistic, with cash flow conditions becoming increasingly tight. Issues such as car companies extending payment terms and pressuring suppliers to lower prices are becoming more prominent, especially in the context of ongoing price wars, leading the entire industry into a "payment term crisis," which is a problem for the supply chain. In this wave of mutual harm, the bankruptcy of weak car companies triggers bad debts in the supply chain. Everyone is helpless regarding the financial status of the automotive industry chain. Faced with the dilemma of car companies and suppliers under pressure from profits and payment terms, how should we address the survival challenges faced by the weak links in our industry chain? Financial Status and Dilemmas of China's Automotive Industry Chain ● Low gross profit margins in the industry chain: Weak profitability In recent years, the overall gross profit margin of China's automotive industry chain has shown a downward trend, especially in the new energy vehicle sector, facing dual pressures of high R&D investment and market price wars. The case of JiYue Automobile is particularly typical: ◎ The gross profit per vehicle is negative, with a single vehicle loss of up to 50,000 yuan. ◎ Cumulative losses in 2024 have exceeded 10 billion yuan. This low gross profit margin not only limits the company's self-financing ability but also exacerbates dependence on external financing. Taking JiYue as an example, despite multiple rounds of investment from Baidu and Geely, the loss situation has not been reversed, ultimately leading to a break in the capital chain. JiYue Automobile extended its payment terms to suppliers from the initial 45 days to 90 days, even defaulting on accounts payable of up to 3 billion yuan. ● Financial pressure on car companies and extended payment terms According to statistics, in the first three quarters of 2024, the average payment term for listed car companies in China reached 182 days, which is twice that of international car companies. New force car companies, including BYD, XPeng, and Nio, generally have payment terms exceeding 180 days; while Haima Automobile and BAIC BluePark have payment terms reaching 298 days and 252 days, respectively. This long-term delayed payment directly compresses the cash flow space of suppliers, leading to difficulties in their capital turnover. International car companies generally maintain payment terms within 60 days, such as BMW at 42 days, Toyota at 53 days, and Honda as low as 32 days In contrast, Chinese car companies have clearly passed the price war and financial pressure onto the upstream supply chain. According to data from the first three quarters of 2024, the operating income of China's automotive parts industry increased by 9% year-on-year, and the net profit attributable to the parent company grew by 23%. While suppliers' reported profits have increased, their actual cash collection ability is declining, leading to intensified cash flow pressure. Some suppliers, such as Weimaisi and JOYREPAK, have seen their accounts receivable turnover days reach 112 days and 244 days, respectively. The prolonged inability to receive payments has forced some companies to discount or sell their accounts receivable at a lower price, further eroding their actual profit margins. ● Financial Models of Car Companies Car companies are attempting to alleviate account period pressure through "supply chain finance" models. For example, BYD has launched the "DiChain" platform, which allows suppliers to digitize and circulate their accounts receivable. However, this approach has not truly resolved the cash flow tightness issue; instead, it has imposed additional discounting costs on suppliers. Some small and medium-sized suppliers, under financial pressure, have no choice but to accept unfair conditions, further compressing their profit margins. Of course, compared to these discounting costs, bad debts from companies like ZEEKR and Nezha can indeed trigger a chain reaction of defaults in the supply chain. Weak Car Companies and Suppliers: Who Will Collapse First? ● Car Companies: Increasing Divergence, Weak Companies Under Continuous Pressure There is a clear divergence in the profitability of car companies. ◎ Strong car companies such as Great Wall Motors, BYD, and SERES have successfully compressed account periods and improved profitability by leveraging scale effects and product advantages. Great Wall Motors reduced its account period from 200 days in 2022 to 153 days. SERES has also successfully turned from losses to profits, with its account period decreasing to 145 days. ◎ Many weak car companies are trapped in losses or minimal profits under the pressure of price wars and account periods. HAIMA AUTO and BAIC BluePark reported losses of 4.491 billion yuan and nearly half of their revenue, respectively, in the first three quarters of 2024, with year-on-year declines as high as 44%. For these smaller companies, prolonged account periods not only exacerbate cash flow pressure but also limit their investment in research and development and production, further weakening their market competitiveness. For companies like ZEEKR, which suffer significant losses per vehicle, suppliers find it difficult to maintain normal operations under extended account periods and unstable orders. This predicament can transmit layer by layer along the supply chain, creating systemic risks. ◎ The ZEEKR 07 model has halted production due to a lack of funds, directly leading to order interruptions for upstream suppliers. ◎ Some suppliers have stopped providing services, further exacerbating ZEEKR's production difficulties. In this vicious cycle, the collapse of weak car companies often drags down a group of suppliers. ● Suppliers: Cash Flow Crisis May Lead to Supply Chain Breakdowns The survival pressure on suppliers is more direct. As the endpoint of cash flow, suppliers cannot transfer risks upward by delaying payments. Among suppliers, small and medium-sized enterprises face the most significant cash flow pressure. As car companies continue to extend account periods or delay payments, these small and medium-sized suppliers may exit the market due to cash flow breakdowns, posing a threat to the stability of the entire industry chain From the perspective of the entire industrial chain, the current Chinese automotive industry faces the following major macro challenges: ◎ Pressure from price wars: Automakers are continuously promoting low prices to seize market share, further compressing the profit margins of the supply chain. ◎ Costs of technological transformation: During the transition from fuel vehicles to new energy vehicles, the costs of key components such as batteries and chips remain high, exacerbating the cost pressures on the supply chain. ◎ Deteriorating financing environment: Affected by the global macroeconomic environment, the capital market's enthusiasm for the new energy vehicle industry has declined, leading to increased difficulties in financing. The price war in the Chinese automotive industry has been ongoing for nearly two years, with overall industry profits rapidly compressed. In the fierce competition, automakers are trying to maintain market share by reducing costs and increasing efficiency, and this pressure ultimately transmits upstream to the supply chain. The cash flow crisis in the supply chain will, in fact, have a counterproductive effect on automakers, potentially leading to unstable parts supply or significant cost increases, creating a vicious cycle. Summary In the long run, the Chinese automotive industry chain needs to build a more resilient ecosystem through technological innovation and model transformation. In this process, the collaborative development of leading enterprises and suppliers will be key, while the exit of weaker enterprises may be an unavoidable cost. The entire supply chain is also undergoing restructuring, and this clearing process cannot actually be resolved. Price wars can stimulate market demand but may also destroy the foundation of the industry. How to find a balance between competition and cooperation will determine the future success or failure of the Chinese automotive industry chain. Author: Tao Yanyan, Source: ZhiNeng Automobile, Original title: "Which will be eliminated first: Weak automakers or supply chain companies?" Risk warning and disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at their own risk