China's BYD Drives Suppliers to the Brink in Electric Vehicle Price War

Chinese electric vehicle (EV) makers are engaged in a price war, with suppliers bearing the brunt of the low prices. BYD, the country's largest automaker, recently lowered the price of a starter EV to under $8,000. Suppliers claim that companies like BYD are squeezing them by demanding lower prices and extending payment periods. This has led to financial strain for suppliers, who are struggling to maintain profitability in the competitive EV market.

The Chinese electric vehicle (EV) market is currently embroiled in a fierce price war, with suppliers bearing the brunt of the low prices. The market leader, BYD, recently slashed the price of a starter EV to under $8,000, sparking concerns about the financial health of suppliers. This aggressive pricing strategy has led to suppliers struggling to maintain profitability in the competitive EV market.

According to Reuters [1], China's auto sector is reeling from overcapacity and an extended price war, raising alarm among regulators and industry executives. The sector's combined inventory levels more than doubled to 370 billion yuan ($51.55 billion) in 2024 from 2019, even as dealers complained of many firms dumping cars on them to meet high sales targets. Total debt among carmakers surged 56% to 959 billion yuan last year from 2019's level, and the median debt-to-equity ratio climbed by 21 percentage points to 51.3%.

BYD, the top electric vehicle seller, took an average of 127 days to pay suppliers and other short-term creditors in 2024, up from 81 days in 2019. This extended payment period has put significant financial strain on suppliers, who are struggling to maintain their profitability. Geely Automobile's payment period also rose to 193 days in 2024 from 139 days in 2019, according to LSEG data [1].

In response to the industry's financial turmoil, the Chinese government has stepped in to address what it calls "involution" competition, referring to destructive, zero-sum market behavior. The Ministry of Industry and Information Technology has vowed to address the issue, and the China Association of Automobile Manufacturers has urged fair competition [3].

To stabilize the market, 17 Chinese automakers, including BYD, pledged to pay suppliers within 60 days in June 2025. This significant shift aims to mitigate the financial strain on suppliers and promote long-term growth in the EV market [3].

As the EV market continues to evolve, the financial health of suppliers will be a critical factor in determining the market's sustainability. The government's intervention and the automakers' commitment to fair payment practices are essential steps towards stabilizing the market and supporting long-term growth.

References:
[1] https://finance.yahoo.com/news/china-automakers-price-war-overcapacity-041817430.html
[2] https://www.investing.com/news/stock-market-news/china-automakers-price-war-overcapacity-hurt-finances-4129088
[3] https://timesofindia.indiatimes.com/business/international-business/china-targets-involution-in-ev-market-crackdown-on-oversupply-and-price-wars-led-by-byd/articleshow/122248828.cms