BYD, China’s leading electric vehicle manufacturer, is transitioning from its in-house Dilian promissory notes to commercial paper or bank notes for supplier payments. This shift addresses criticisms of delayed payments that strained parts makers during the ongoing auto industry price war, promoting faster settlements and regulatory compliance.
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Regulatory pressure: New Chinese rules mandate payments within 60 days, eliminating forced acceptance of non-cash IOUs like Dilian notes.
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Industry challenges: Suppliers face extended payment terms averaging 127 days for BYD, compared to global norms under 90 days, increasing financial risks.
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Financial impact: A GMT Research study estimates BYD’s true debt at 323 billion yuan due to supply chain financing, far exceeding reported figures.
BYD shifts supplier payments from Dilian notes to bank options amid EV price wars. Explore regulatory changes, payment delays, and industry implications for faster, fairer transactions. Stay informed on China’s auto sector evolution.
What is BYD’s shift in supplier payment methods?
BYD’s shift in supplier payment methods involves moving away from its proprietary Dilian electronic IOUs to more standard commercial paper or bank notes. This change, reported by Reuters, aims to streamline payments for suppliers who have endured long delays, often up to a year, amid fierce competition in China’s electric vehicle market. The transition supports broader industry efforts to shorten payment cycles and reduce financial burdens on parts manufacturers.
How does the Dilian payment system operate?
The Dilian system, developed by BYD, functions as an in-house platform for issuing electronic promissory notes, essentially IOUs, to settle payments with suppliers. Unlike traditional commercial paper or bank notes used by other automakers, Dilian notes are not directly regulated by Chinese authorities, leading to perceptions of higher default risk. Suppliers often cash these notes early through BYD’s bank partners at a discounted rate of about 6%, which increases their costs. According to data from LSEG, BYD’s average payment period to suppliers reached 127 days in the previous year, exceeding China’s industry average of 108 days and global standards below 90 days for many manufacturers. This structure has allowed BYD to manage working capital efficiently, maintaining substantial cash reserves while launching new models rapidly, primarily for the domestic market. However, a January study by Hong Kong-based GMT Research highlighted that such supply chain financing inflates BYD’s actual debt to approximately 323 billion yuan as of June 2024, compared to the 27.2 billion yuan officially reported. Experts note that while Dilian complies with existing guidelines, the shift to conventional payment instruments reflects growing scrutiny and the need for transparency in supplier relations.
In the broader context of China’s electric vehicle sector, this evolution underscores the tension between cost control and sustainable supply chain practices. BYD has confirmed increased payments to suppliers this year, yet details on the full scope of the transition remain undisclosed. The automaker’s strategy aligns with its overseas expansion plans, even as domestic sales slow and profits decline, emphasizing the importance of robust financial operations.
Frequently Asked Questions
Why is BYD changing its supplier payment practices now?
BYD is changing its supplier payment practices due to intensified regulatory oversight and industry-wide complaints about prolonged delays. New rules from Chinese authorities in June require automakers to pay within 60 days and prohibit mandating non-cash payments like IOUs. This addresses the EV price war’s impact, where suppliers struggle with unpaid invoices and pressure to cut prices, ensuring fairer dealings across the supply chain.
What are the implications of BYD’s Dilian notes for suppliers?
BYD’s Dilian notes allow suppliers to settle payments with their own contractors but often involve early cashing at discounts, raising costs and risks. While compliant with regulations, these notes extend payment timelines beyond industry norms, contributing to financial strain. The shift to bank notes promises quicker, more reliable transactions, benefiting smaller suppliers in China’s competitive auto ecosystem.
Key Takeaways
- Payment timeline reduction: BYD’s move to commercial paper shortens supplier wait times from 127 days, aligning with new 60-day mandates and easing cash flow issues.
- Debt transparency: Supply chain financing via Dilian masks true liabilities, with estimates showing 323 billion yuan in hidden debt, highlighting risks in EV financing models.
- Industry-wide reform: This change sets a precedent for other automakers, promoting standardized payments and strengthening the resilience of China’s electric vehicle supply chain.
Conclusion
BYD’s transition from the Dilian payment system to commercial paper and bank notes marks a pivotal adjustment in supplier payment methods, driven by regulatory demands and the electric vehicle industry’s price pressures. By prioritizing faster settlements, BYD not only mitigates criticisms but also fosters a more equitable ecosystem for parts makers. As China refines its auto sector guidelines, this shift could inspire similar reforms, enhancing overall efficiency and supporting the global rise of sustainable mobility. Stakeholders should monitor these developments for opportunities in streamlined supply chains and investment in compliant EV innovations.
