Eliza Wong
Industry-Wide Push to Shorten Payment Cycles
The Chinese automotive industry has been undergoing significant transformation, with one of the most notable developments being the collective commitment to supplier payment terms. Earlier this year, 17 major automakers made a joint pledge to compress supplier payment cycles to within 60 days, aiming to provide much-needed financial relief to component manufacturers. This movement came as part of a broader ‘anti-involution’ trend sweeping through China’s auto sector, with various stakeholders including government departments, industry associations, automakers, and dealers advocating for healthier industry practices.
The timing of this pledge coincides with the release of mid-year financial reports from China’s leading listed automakers. These reports provide the first comprehensive look at whether companies are making progress toward their 60-day payment pledge commitment. The findings reveal a complex picture of an industry in transition, with some companies making significant strides while others struggle to adapt their payment practices.
Overall Accounts Payable Trends Among 18 Listed Carmakers
Analysis of the 18 listed automakers’ financial reports shows that as of the first half of the year, their combined accounts payable and notes receivable totaled 1.020903 trillion yuan, representing a decrease of 62.934 billion yuan compared to the end of last year. This reduction in overall payables might initially suggest improved payment practices, but the reality is more nuanced when examining payment cycle duration.
The average accounts payable turnover days across these 18 companies increased to 192.46 days, up 6.17 days from the end of last year. This creates a contradictory situation where total payables are decreasing while payment cycles are actually lengthening. This divergence suggests that while companies may be reducing their overall debt to suppliers, they’re taking longer to settle individual invoices.
Leaders in Payables Reduction
Among the 18 companies analyzed, 14 showed a reduction in their accounts payable and notes receivable compared to the end of last year. The most significant reductions came from:
– Changan Automobile: Decreased by 24.085 billion yuan
– SAIC Motor: Decreased by 10.591 billion yuan
– Geely Automobile: Decreased by 8.124 billion yuan
In terms of percentage reduction, Changan Automobile, BAIC BluePark, and GAC Group led the pack. These reductions suggest that some companies are actively working to settle their supplier debts, possibly in preparation for implementing shorter payment cycles.
Companies With Increasing Payables
In contrast to the overall trend, four companies actually increased their accounts payable and notes receivable:
– XPeng Motors: Increased by 7.607 billion yuan (32.96% growth)
– Leapmotor: Increased by 4.425 billion yuan (23.41% growth)
– NIO: Showed a moderate increase
– Jiangling Motors: Showed a moderate increase
Industry analysts suggest that for XPeng and Leapmotor, the increase in payables correlates with their sales growth and expanded procurement from upstream supply chains. As these companies’ delivery volumes increase, their bargaining power within the supply chain strengthens, allowing them to more effectively utilize supplier financing, which naturally increases accounts payable volume.
Payment Cycle Performance: Who’s Meeting the 60-Day Pledge?
When examining accounts payable turnover days—the metric that actually measures payment cycle duration—only six companies showed improvement compared to the end of last year: SAIC Motor, Changan Automobile, XPeng Motors, BAIC BluePark, Haima Automobile, and Zhongtong Automobile. Among these, XPeng Motors demonstrated the most significant improvement, reducing its payment cycle from approximately 233 days to 170 days—a reduction of about 63 days.
XPeng’s Chairman He Xiaopeng (何小鹏) publicly stated on July 12: ‘After nearly a month of internal discussions, XPeng has formulated relevant steps for payment term adjustment and execution and has begun to push forward.’ According to sources, some XPeng suppliers received emails in July mentioning ‘based on long-term consideration of our cooperation, we have begun to initiate the signing of relevant supplementary agreements—payment terms shortened to within 60 days.’
Companies With Lengthening Payment Cycles
Eleven companies actually saw their accounts payable turnover days increase during the first half of the year:
– Seres Group: Increased to 266.3 days (up more than 100 days)
– BYD: Increased to approximately 142 days (up nearly 15 days)
– Li Auto: Increased to 208 days (up about 43 days)
– JAC Motors: Increased to nearly 218 days (up more than 27 days)
This widespread extension of payment cycles, even as total payables decrease, suggests that companies may be prioritizing certain suppliers while delaying payments to others, or that they’re managing cash flow by stretching payment terms despite reduced overall procurement.
The Cash Flow Challenge: Implementing the 60-Day Pledge
The disconnect between decreasing total payables and increasing payment cycles may be partially explained by timing. The 60-day payment pledge was initiated between June 10-11, while the half-year reports cover the period ending June 30. This means that changes resulting from the pledge would not yet be fully reflected in the financial data. Many companies reportedly completed their payment term adjustments in July, after the reporting period ended.
Analysis of corporate cash flow statements provides additional insights into how companies are preparing for the transition to shorter payment cycles. For example, Li Auto reported net cash used in operating activities of 3 billion yuan in the second quarter, significantly higher than the 430 million yuan during the same period last year. However, its free cash flow was -3.8 billion yuan, worsening by more than double year-over-year and further deteriorating from -2.5 billion yuan in the first quarter.
Li Auto’s Payment Term Adjustment
Li Auto explained that these changes primarily resulted from the company’s response to regulatory requirements for the 60-day payment pledge, shortening supplier payment cycles from 3-4 months to 60 days. Li Auto’s CFO Li Tie (李铁) stated during the earnings call that the company expects its cash flow to improve in the fourth quarter.
According to information obtained from Li Auto, the company completed payment term adjustments for all direct procurement suppliers by mid-July, establishing contract terms of 60 days with monthly payments and two unified payment periods each month. Most settlements are conducted via wire transfer, with only a small portion using bank acceptance. One supplier commented: ‘Li Auto’s payment terms have been changed to 60 days, with direct cash payments—no acceptance notes.’
Cash Reserves vs. Accounts Payable: The Liquidity Test
The successful implementation of the 60-day payment pledge ultimately depends on automakers’ liquidity positions. Analysis of cash reserves relative to accounts payable reveals significant variation across companies:
Using only cash and cash equivalents, only two companies—Jiangling Motors and Haima Automobile—have sufficient liquid assets to completely cover their accounts payable and notes payable.
When expanding the definition of ‘cash reserves’ to include cash equivalents and short-term investments that can be readily converted to cash, three additional companies—Leapmotor, XPeng Motors, and Li Auto—show sufficient reserves to cover their payables.
However, several major players still face coverage gaps even under this broader definition:
– BYD: Cash reserves below corresponding accounts payable
– Geely Automobile: Cash reserves below corresponding accounts payable
– NIO: Cash reserves below corresponding accounts payable
These shortfalls in coverage highlight the financial pressure some automakers face in implementing the 60-day payment pledge. As Beijing Academy of Social Sciences associate researcher Wang Peng (王鹏) noted: ‘Automakers themselves face cash flow pressure and have to prioritize the stability of their own capital chains, thus delaying payments.’
Implementation Progress and Challenges
The complexity of adjusting supplier payment terms should not be underestimated. The process involves numerous operational considerations, from contract revisions to payment system adjustments to internal coordination across finance, procurement, and production departments.
On August 11, exactly 60 days after the pledge was made, the Ministry of Industry and Information Technology disclosed调研 information about three companies’ implementation progress—FAW Group, GAC Group, and Seres Group had achieved payment within 60 days.
Cui Dongshu (崔东树), Secretary-General of the China Passenger Car Association, highlighted the implementation challenges: ‘The biggest obstacle to implementing the 60-day payment terms may lie in some automakers’ fund management capabilities and internal coordination mechanisms. For example, how to adjust cash flow in a short time to ensure timely payment to suppliers is no small challenge. Additionally, coordination between internal departments such as finance, procurement, and production needs to be further strengthened to ensure timely fund allocation and payment.’
The Road Ahead for Auto Industry Payment Practices
The mixed results from the first half of the year demonstrate that implementing the 60-day payment pledge represents a significant financial and operational challenge for automakers. While some companies have made substantial progress, others continue to struggle with extended payment cycles.
The industry’s transition to shorter payment terms is ultimately a ‘cash battle’ that requires robust liquidity management. Companies with sufficient cash reserves are better positioned to honor their commitments without straining their operations, while those with coverage gaps may need to implement more gradual transitions or seek additional financing solutions.
As the automotive industry continues to evolve amid technological transformation and market competition, supplier relationships will play an increasingly important role in maintaining competitive advantage. Companies that successfully implement shorter payment cycles may benefit from stronger supplier partnerships, potentially gaining access to better terms, priority treatment during component shortages, and more collaborative innovation relationships.
For industry observers and stakeholders, the coming quarters will provide clearer evidence of which companies are truly committed to the 60-day payment pledge and which continue to struggle with implementation. The ultimate test will be whether improved payment practices become sustained industry norms rather than short-term responses to regulatory pressure.
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