Tesla's Tao Lin went viral with a picture: "Payment cycle has been shortened to about 90 days"! 204 auto parts suppliers have accounts receivable exceeding 230 billion yuan, a surge of 65% in 3 years

After BYD announced a 10% price reduction from a certain supplier, it was recently reported that SAIC Maxus invited suppliers to participate in a cost control project, aiming for a 10% reduction in costs.

Against the backdrop of multiple automakers requesting suppliers to lower prices, Tesla has spoken out. On November 28, Tesla's Vice President Tao Lin posted on Weibo, stating that the payment cycle to suppliers has been shortened to about 90 days, achieving a win-win situation with supplier partners.

On the 28th, Tao Lin stated that in 2024, Tesla's payment cycle to supply chain partners has been further shortened compared to last year, now only requiring about 90 days. She introduced that over 95% of the components for the Shanghai Gigafactory come from local suppliers, and Tesla's achievements in China and globally are inseparable from these partners.

"Achieving a win-win situation with supplier partners through technological innovation to increase efficiency and reduce costs is the only way for enterprises to go further, for the industry to prosper, and for consumers to continuously receive the best products," Tao Lin emphasized.

She also posted a diagram showing the changes in payment times from Chinese new energy vehicle manufacturers to suppliers, indicating that some companies have not only failed to shorten their payment times year by year but have instead significantly extended them.

Subsequently, Tao Lin added that cost reduction relies on technological innovation and reducing unnecessary expenditures, reiterating the importance of safeguarding supplier interests.

She wrote, "Save where you can, spend where you must. Quick payments to suppliers do not mean that product prices need to be increased. Because, cost control = technological innovation to improve efficiency + reducing all unnecessary expenses (such as luxury reception centers, advertising costs, executive offices... especially losses caused by wrong business/technical decisions). While safeguarding supplier interests, we continue to invest in research and development and production, striving to provide consumers with better prices and products."

The payment cycle mentioned by Tao Lin is significant for suppliers. Lengthening the payment cycle is a common disguised cost reduction method used by many automakers. Originally, a payment cycle of three to four months has been extended by some automakers to six months to a year, making it particularly easy for small and medium-sized suppliers to face cash flow issues.

According to statistics from Wind data, there are a total of 204 A-share listed companies in the automotive parts sector under CITIC Securities. At the end of 2020, the accounts receivable balance was 140.88 billion yuan, which grew to 231.8 billion yuan by 2023, an increase of 64.57%, and further increased to 244.669 billion yuan in the third quarter of this year.

Of course, the revenues of these companies are also increasing, with a total revenue of 669.44 billion yuan in 2020, growing to 943.406 billion yuan in 2023, an increase of 40.9%. It can be seen that the revenue growth in the automotive parts industry is far lower than the growth in accounts receivable, indicating that a significant portion of the increased revenue is actually at the cost of increased receivables, reflected in the accounts receivable turnover days The arithmetic average of the 204 companies mentioned above was less than 100 days in 2020, but it has stretched to 107.76 days by the third quarter of this year.

Specifically for enterprises, the pressure from accounts receivable is even more significant. Taking Desay SV as an example, a supplier of smart cockpits, intelligent driving, and connected services, its accounts receivable balance was less than 2 billion yuan at the end of 2020, but it has ballooned to 8.635 billion yuan by the third quarter of 2024, an increase of more than three times, while the company's revenue only grew by 1.8 times during the same period.

Another example is Shanghai Zijiang New Materials Technology Co., Ltd., which terminated its IPO. In response to regulatory inquiries, Zijiang New Materials stated that the book value of its accounts receivable for the years 2019, 2020, 2021, and the first half of 2022 were 71 million yuan, 109 million yuan, 193 million yuan, and 316 million yuan, respectively, accounting for more than 30% of total assets. At the end of each reporting period, BYD's accounts receivable balance accounted for more than 70%, and BYD's supply chain uses "Di Chain" supply chain notes with a credit period of 7 months. "This credit policy is higher than comparable companies, higher than the credit terms given to other customers by the company, and also higher than the credit terms BYD provides to other suppliers."

On the vehicle manufacturing side, according to a report by Yicai, there are significant differences between vehicle manufacturers based on the "accounts payable turnover days" indicator, as shown in the table below:

It is worth noting that accounts payable turnover days do not completely equate to the payment cycle that automakers provide to suppliers. By definition, accounts payable turnover days, also known as average payment period, is an indicator that measures how long it takes for a company to pay off its debts to suppliers. The accounts payable turnover days provided by Wind are calculated based on the accounts payable turnover rate, where accounts payable turnover rate = (2 * operating costs) ÷ (beginning accounts payable + ending accounts payable).

Another automaker hopes suppliers will lower prices?

Driven by factors such as the automotive price war, some automakers have recently begun to "bargain" with upstream suppliers, attracting market attention.

After BYD reportedly asked a supplier to lower prices by 10%, there were reports online that another automaker also made similar requests to its suppliers.

A screenshot of an email circulating online shows that SAIC Maxus invited supplier partners to participate in a major cost control project together. In the email, SAIC Maxus stated: "Through close cooperation between both parties, we can jointly develop more cost-effective solutions to achieve a win-win situation. Further strengthen management, improve quality, enhance services, increase efficiency, reduce costs, and enhance survival capabilities under complex situational pressures, with the goal of reducing costs by 10%."

It is worth mentioning that SAIC Maxus discussed and suggested the feasibility of cost reduction directions with suppliers in the email. For example, improvements in production processes; encouraging suppliers to leverage their professional advantages to collaborate with SAIC Maxus in design, proactively conducting systematic optimization of component costs, and scientifically and boldly providing VAVE (Value Analysis & Value Engineering) proposals; Suppliers can work with the SAIC Maxus logistics team to optimize the logistics distribution system, among other things. As of the time of the reporter's publication, SAIC Maxus has not responded to the authenticity of the above information.

In fact, annual price negotiations between manufacturers and suppliers are a common practice in the industry. "In the past, annual price negotiations (with clients) generally only needed to be discussed once at the beginning of the year, but in recent years, it has turned into ongoing price negotiations throughout the year. Both parties need to negotiate several times to reach an agreement, so the pressure from the manufacturers is very high," a senior management executive from an automotive supplier told the Daily Economic News.

Regarding the reasons for hoping suppliers to lower prices, a screenshot of an email circulating online titled "BYD's cost reduction requirements for passenger cars in 2025" indicates that 2025 will be a "decisive" year for the automotive market, and the elimination rounds will intensify. In the face of competition, BYD needs to maintain its competitiveness.

SAIC Maxus stated that at the beginning of 2024, brands such as BYD and Tesla have successively lowered prices, marking the start of a new round of price wars. As the competition over market share and prices between new energy vehicles and fuel vehicles becomes more intense, it is expected that by 2025 or 2026, the competitive landscape of the automotive market will gradually become clear. Currently, the issue of oversupply in the automotive market is prominent, closely related to the contradiction of excess supply and insufficient demand. With a large number of new cars being launched, the imbalance between supply and demand in the market is expected to be difficult to fundamentally improve in the short term, leading to a prolonged price war.

"The leakage of information regarding annual price negotiations between manufacturers and suppliers also indicates that the industry's internal competition has not stopped, and the industry price war will not cease," an automotive industry analyst believes that the price war is already brewing for next year.

Source: Daily Economic News