Just ten days after the Chinese government announced a 60-day payment policy for domestic automakers, a procurement officer at one of the newer brands told 36Kr that the company had completed internal assessments and decided to adopt the policy across all accounts. This included both new and outstanding debts, and applied regardless of supplier type.
It’s a step not all automakers can afford to take. For many companies with tight cash flow, retroactively shortening payment terms on existing payables could trigger financial strain or even a debt crisis.
On the supply side, several vendors told 36Kr that they had not yet observed any meaningful changes one month into the policy rollout.
Hope, for now, remains tempered by concern. A supply chain veteran with over 20 years of experience pointed out that if the 60-day window only begins after the invoice is issued, the rule may have little practical impact.
The ongoing price war in China’s automotive sector has yet to end, but a new dispute over payment terms has already emerged. As the supply chain continues to undergo consolidation, suppliers now face another round of operational and financial adjustments.
What’s behind late payments?
A review of eight publicly listed passenger vehicle makers on the A-share market—including Nio, Xpeng, and Li Auto—reveals a common trend: extended payment cycles. This reflects a broader pattern of downstream pressure stemming from excess capacity and growing internal competition.
The price war that began in 2023 has continued to compress automaker margins. According to China’s National Bureau of Statistics, profit margins in the automotive sector declined from 8% in 2017 to 4.3% in 2024, with Q1 margins slipping further to 3.9%.
While price competition is part of the issue, demand-side challenges are also at play. The procurement officer recalled that a previous car model used many imported components, which increased costs and failed to resonate with consumers. This prompted automakers to localize production and reduce costs through methods like value analysis and value engineering (VAVE).
As margins shrank, automakers began transferring cost pressures upstream. Extending payment terms became a widely adopted practice.
This was exacerbated by structural imbalances in bargaining power. Most suppliers, lacking leverage, were forced to accept these terms. “Supplier competition is already intense. If you don’t accept long payment terms, you risk losing the order,” said Xu Fei, an industry insider. Another supplier, Heyu (pseudonym), echoed the sentiment: “Most vendors have resigned themselves to this. They will accept anything to survive.”
“Losing money is better than having idle production lines,” another industry veteran said.
While aggressive competition may be part of a maturing market, misuse of supply chain finance has further strained supplier viability. Heyu, who runs a specialized testing firm, said, “Even though we hold patents and are recognized as a specialized and sophisticated supplier, our margins and cash cycles aren’t enough to sustain ongoing R&D.” Another supplier, Lizhou (pseudonym), added, “We’re basically staying afloat on shareholder advances. Expansion isn’t even on the table.”
During the ongoing price war, some automakers have adopted a lowest-bid-wins approach, reinforcing a cycle that damages both sides of the supply chain.
Still, supply chain finance, when used appropriately, can improve liquidity and support growth, especially where traditional bank financing falls short.
Implementation challenges
“Blanket rules don’t work,” said Xu, expressing skepticism about uniform enforcement of 60-day terms.
While the policy seems clear, execution varies. Automakers follow different internal payment processes. Some pay in stages, others only after full completion and approval of work. As Lizhou explained, payments typically follow a sequence: contract, fulfillment, acceptance, invoicing, and final settlement.
The procurement officer who spoke with 36Kr confirmed that payment cycles vary depending on procurement type. Before the 60-day policy, some short-term purchases were paid in 90 days, in cash, while component procurement followed different timelines.
A key issue is that few automakers clearly define when the 60-day period begins. From suppliers’ perspective, the clock should start at delivery. But automakers often insist it starts with invoicing, to comply with tax policies.
The biggest bottleneck is the acceptance process, according to Lizhou. “It’s the least transparent and most prone to delays.” After completing work, suppliers must go through approvals from business units, internal controls, and auditing teams before they are allowed to issue an invoice. “Any one of those steps can delay payment by a month,” he said.
If the 60-day period only starts after invoicing, “it doesn’t really change anything,” Lizhou added.
Another concern is how payment instruments are used. Among carmakers who have pledged to adopt 60-day terms, only SAIC Motor and BAIC Group have explicitly said they will avoid using commercial acceptance bills. Most others are expected to rely on instruments like bank acceptance bills or electronic accounts receivable certificates.
Heyu shared that for one automaker, it takes more than three months just to complete post-delivery acceptance. Even after invoicing, another month passes before a six-month maturity certificate is issued, meaning actual funds arrive over ten months later.
In other words, there is a gap between committing to 60-day payments and making them on time.
Financial stress on automakers
It remains uncertain whether enforcing 60-day terms will meaningfully improve conditions for suppliers. What’s clear is that it will impose added financial pressure on automakers.
According to Wind data, total accounts payable and notes payable in the automotive sector surpassed RMB 1 trillion (USD 140 billion) in 2024. Enforcing 60-day payments across the board could push some companies into a debt crisis.
The key metric here is whether an automaker’s cash reserves are sufficient to cover its payables.
The core issue is whether automakers have enough cash on hand to cover payables. If all outstanding accounts were shifted to a 60-day term, only a few—such as GAC, Nio, Xpeng, and Li Auto—would likely remain within a safe threshold.
This suggests most automakers will limit the policy to new transactions, allowing older payables to follow previous terms.
Smaller automakers could face more acute challenges. Xu noted that traditional automakers often complete their production-to-dealership cycle within 60 days. Once vehicles reach a 4S dealership, the dealer pays the automaker, allowing cash to flow even if the cars are still sitting unsold.
In contrast, direct-to-consumer brands like Xiaomi may be able to turn over inventory quickly. But companies with weak sales performance face greater difficulty.
“For companies that still aren’t profitable, strictly enforcing 60-day terms could severely compromise their cash flow,” Xu said.
According to a 2018 Wall Street Journal report, China once had over 487 electric vehicle manufacturers. Today, that number has shrunk to around 40.
What began as a price war has devolved into broader uncertainty. The 60-day policy may be intended to restore order, but whether it will lead to a more sustainable ecosystem remains uncertain.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Geng Chenfei for 36Kr.