60-Day Payment Pledge: How Chinese Automakers Are Stabilizing Supply Chains Amid EV Price Wars

The electric vehicle (EV) market in China is undergoing a seismic shift as automakers like BYD and Xpeng implement a 60-day payment pledge for suppliers—a move that could redefine credit risk mitigation and supply chain resilience. While payment delays have historically plagued the sector, this initiative aims to transform liquidity dynamics, offering investors a roadmap to capitalize on China's EV boom.

The Payment Problem: Delays Threaten Supply Chain Stability

Until recently, Chinese automakers were notorious for elongating payment terms, squeezing suppliers' cash flows. Data reveals that BYD's average days payable outstanding (DPO) surged from 198 days in 2021 to 275 days in 2023, while Nio's DPO climbed to 295 days over the same period. Such delays strained suppliers, with 50% of automotive sector respondents reporting late payments exceeding 2% of annual turnover in 2024—up from 33% in 2023 (Coface). Ultra-long payment delays (over 180 days) left 80% of these sums uncollectible, worsening supplier insolvency risks.

The 60-Day Pledge: A Strategic Response to Price War Panic

The 60-day payment pledge, spearheaded by BYD and Xpeng, represents a pivotal shift. While not yet a formal government regulation, the initiative reflects industry-led efforts to stabilize supplier ecosystems amid cutthroat competition. BYD's aggressive pricing—such as slashing the Seagull EV to ¥55,800 (US$7,800)—has triggered regulatory warnings about “disorderly price wars,” which compress margins and risk destabilizing the sector. By shortening payment terms, automakers aim to:
1. Reduce supplier attrition: Ensuring timely payments preserves supplier capacity and innovation.
2. Mitigate credit risk: Shorter DPOs lower the likelihood of defaults, creating a healthier financial ecosystem.
3. Differentiate in the market: Automakers adhering to the pledge signal fiscal discipline, boosting investor confidence.

Winners and Losers in the New Supply Chain Order

BYD: As China's EV sales leader (377,000 passenger vehicles in May 2024), BYD's adoption of the 60-day pledge aligns with its global ambitions. By stabilizing supplier relationships, it can scale production without overleveraging partners, giving it an edge over competitors like Nio and Li Auto, whose share prices have fallen amid BYD's price cuts.

Xpeng: The pledge positions Xpeng as a sustainability-oriented player. While its DPO rose to 221 days in 2023, its commitment to shorter terms could improve supplier loyalty, critical for its high-end EV models.

Suppliers: Firms like CATL (batteries) and FAW (components) stand to gain. Stable cash flows allow them to invest in R&D, reducing reliance on automaker credit.

Investment Implications: Prioritize Ecosystem Health

Investors should focus on automakers and suppliers demonstrating collaborative financial practices:
1. Automakers with short DPOs: BYD and Xpeng lead here, but monitor their adherence to the 60-day pledge.
2. Suppliers with diversified clients: Firms not overly reliant on a single automaker (e.g., Zhejiang Geely's supplier base) face lower default risks.
3. Policy alignment: The 14th Five-Year Plan's emphasis on “supply chain security” may reward firms complying with payment norms.

Risks and Considerations

• Price wars persist: Even with the pledge, automakers may prioritize sales over profitability, risking renewed delays.
• Geopolitical headwinds: U.S. tariffs on Chinese EVs (up to 20% by 2025) could disrupt cash flows, testing the pledge's durability.

Conclusion: The Pledge as a Long-Term Growth Lever

The 60-day payment pledge is more than a financial tool—it's a strategic move to solidify China's EV dominance. By aligning credit practices with supply chain stability, BYD and Xpeng are laying the groundwork for sustainable growth. Investors ignoring supplier health and payment terms risk overlooking the true champions of this transformation.

Investment thesis: Overweight automakers and suppliers adhering to the 60-day pledge, particularly those with exposure to BYD and Xpeng's ecosystems. Monitor DPO metrics and policy support to navigate this high-stakes sector.