Why BYD’s 60-Day Supplier Payment Pledge Could Reshape China’s Auto Industry

Major Chinese car manufacturers – from EV leader BYD to legacy state-owned giants – have publicly pledged to pay their parts suppliers within 60 days of delivery . This industry-wide initiative comes on the heels of an intense price war in China’s auto market and mounting pressure from both regulators and suppliers. In early June 2025, at least 14 to 17 automakers including BYD, Chery, Geely, Great Wall Motor, SAIC, FAW, Dongfeng, GAC, Changan, as well as newer EV firms like Xpeng, Nio, Li Auto and others, announced plans to drastically shorten their supplier payment cycles to two months or less . Automakers say the move is aimed at fulfilling corporate social responsibility and ensuring the “high-quality development” of China’s automotive supply chain .

This wave of pledges was largely catalyzed by external pressures. Chinese authorities had issued new rules in March requiring big companies to settle most payments to suppliers within 60 days, effective June 1, 2025 . Suppliers, especially in upstream industries like steel, had also voiced outrage over being squeezed by long overdue payments. In fact, China’s Iron and Steel Association took the unusual step of publicly complaining that some carmakers demanded steel price cuts of over 10% while delaying payments by months, leaving steel suppliers with “little profit margin and mounting liquidity pressure” . Regulators responded: on May 31, the Ministry of Industry and IT warned that authorities would punish automakers engaging in unreasonable price cuts to grab market share . Clearly, Beijing signaled that brutal price wars and off-balance-sheet supplier debt would no longer be tolerated, setting the stage for this industry payment reform.

BYD’s Leadership and Motivation

BYD, China’s largest electric vehicle maker, has emerged as a prominent champion of the 60-day payment initiative. It was among the first to announce compliance – releasing its statement just after 1:00 a.m. on June 11 – vowing to unify its supplier payment terms to within 60 days . BYD’s proactive stance reflects both external expectations and its own strategic interests. The company has been in the spotlight recently after a rival executive ominously warned that an “Evergrande of the auto industry” could be looming – a veiled reference that many interpreted as pointing at BYD’s rapid expansion and heavy liabilities . BYD’s management fiercely refuted those allegations, publishing data to show its finances are sound. For instance, BYD’s debt ratio (~70%) and accounts payable days (around 127 days) were argued to be comparable to or better than peers like Geely (127 days) and significantly lower than some rivals such as Great Wall Motor (163 days) or SAIC (164 days) . In 2024, BYD boasted over RMB 777 billion in revenue and RMB 154.9 billion in cash reserves – implying it has the liquidity to support faster supplier payments.

By embracing the 60-day payment rule, BYD demonstrates the “leading enterprise” responsibility expected of an industry front-runner . Motivations abound: First, it aligns BYD with the new regulatory requirements, avoiding any perception of non-compliance. Second, it helps defuse criticism that BYD’s success comes at the expense of suppliers – a narrative the company is keen to dispel. BYD’s brand chief stated that claims of BYD being an Evergrande-like ticking time bomb are “frustrating and amusing”, underscoring that no Chinese mainstream automaker is an ‘Evergrande’ and that undermining China’s EV industry with such rumors is unacceptable . The 60-day pledge allows BYD to underscore its financial health and commitment to fair partnerships. Third, supporting suppliers now is in BYD’s long-term interest: as BYD’s production and exports surge, maintaining a stable, innovative supply chain is critical for sustained growth. In short, BYD’s early adoption of the initiative is both a public relations message – signaling goodwill and stability – and a strategic move to fortify its supply chain for the future.

Industry-Wide Response: From Chery to Great Wall

Crucially, BYD is not alone – the 60-day payment commitment has quickly become a united front across China’s automotive sector. In an unprecedented show of solidarity, virtually all major Chinese automakers made coordinated announcements over June 10–11, 2025, committing to the new supplier payment standard . This group includes state-owned giants (FAW Group, Dongfeng Motor, GAC Group, SAIC Motor), leading private carmakers (Geely Auto, Great Wall Motor, Chery Automobile), and EV startups (Xpeng, Nio, Li Auto, Leapmotor, Xiaomi Auto) among others . For example, GAC was the first to confirm the change on the evening of June 10, followed in quick succession by FAW, Dongfeng, Seres (Chongqing Sokon), Geely, Changan Automobile, and others, with BYD and Xpeng issuing statements in the early hours of June 11 . By June 11, at least 17 automakers had joined this “collective action”, standardizing their supplier payment terms to 60 days or less .

Notably, this concerted action was not entirely voluntary – it was strongly encouraged by industry bodies and regulators. China’s Association of Automobile Manufacturers (CAAM) had issued an industry initiative calling on OEMs to end “involution” (vicious, self-defeating competition) and to “stop occupying upstream funds to sustain development”, following complaints about egregiously long payment periods . Automakers explicitly framed their pledges as a response to government and CAAM guidance: for instance, BYD’s statement cited the need to “implement the directives of the state authorities to stabilize the supply chain and promote high-quality development”, and Changan and Geely invoked their duty as central state-owned enterprises to set an example . In effect, the 60-day payment rule has rapidly become an industry norm. As one analyst noted, with regulatory enforcement kicking in, this is “no longer optional, but a new baseline standard for doing business in the automotive sector” . Any automaker that drags its feet risks both government scrutiny and losing supplier trust or even access to critical supplier resources if they don’t match the new standard .

It’s worth noting that a few carmakers had not yet publicly committed at the time of the initial announcements , possibly smaller local manufacturers or those assessing the financial impact. But given the powerful bandwagon effect and the explicit legal mandate now in force, it is expected that holdouts will have little choice but to follow suit. The Regulation on Ensuring Timely Payments to Small and Medium-Sized Enterprises, which took effect June 1, 2025, legally requires all large enterprises (and government entities) to pay SMEs within 30 days of delivery by default, or within 60 days if a longer period is contractually agreed . Crucially, the regulation also bans the practice of forcing suppliers to accept promissory notes or other non-cash payment instruments that delay actual cash receipts – a loophole automakers frequently used in the past to stretch payment times. In line with this, several automakers like BAIC and SAIC specifically vowed not to use commercial paper for supplier payments going forward . The fact that leading OEMs are applying the 60-day rule not just to small suppliers but to all suppliers, regardless of size, as a voluntary higher standard , indicates the industry’s determination (or obligation) to reset its payment practices across the board.

Lifeline for Suppliers: Cash Flow Relief and Survival

For automotive suppliers – especially the thousands of small and medium-sized parts makers in China – this change couldn’t come soon enough. Extended payment terms have long been a pain point in the industry, effectively using suppliers as a “bank” for assemblers. Chinese automakers’ payables were notoriously slow: on average it took about 182 days for Chinese car companies to pay their suppliers (as of 2024), roughly double the payment cycle of international automakers (around 90 days) . In some extreme cases, payment cycles stretched beyond 240 days – meaning certain suppliers waited 8 months or more to get paid, essentially financing the automaker’s operations for up to a year . This practice has pushed many suppliers to the brink. It eroded suppliers’ profit margins (which are often single-digit in the auto parts business) and forced them to shoulder extra costs – for example, by borrowing money to cover their own expenses while awaiting payment, or by selling invoices to banks at a discount to get cash. According to the China Iron & Steel Association, some car OEMs were delaying payments and settling with corporate promissory notes instead of cash, shifting financing costs onto upstream suppliers and “significantly increasing financial pressure” on those suppliers . Suppliers often had no choice but to accept these delayed-payment notes, which they might only redeem or factor months later at a loss, further chipping away at their already thin profits .

The new 60-day payment commitment promises to radically improve this situation. Slashing average payment times from ~6 months to 2 months means suppliers will see cash much sooner – a nearly two-thirds reduction in their accounts receivable cycle . Analysts estimate that if fully implemented, this could unlock “hundreds of billions of yuan” in liquidity across China’s auto supply chain . That freed-up cash will relieve suppliers’ debt burdens and interest costs, potentially saving many smaller firms from insolvency. Official data shows that as of April 2025, large industrial companies in China were waiting longer for payments (70.3 days on average, 4 days more than a year prior) – a sign of worsening payment delays . In the auto sector it was even worse: one report noted 16 listed Chinese automakers took an average of 182 days to pay suppliers in the first 9 months of 2024, a full month longer than the prior year’s average, and roughly twice as long as global peers . The 60-day rule directly targets this chronic problem. Industry insiders told Yicai Global that although shortening payment terms will put some strain on carmakers’ cash flow, it is a necessary correction to an unhealthy trend . It will “firmly uphold a fair and orderly market environment” and support the high-quality development of the auto industry, they said .

From the perspective of a small supplier, the benefits are concrete and immediate. “For SME suppliers, having a clear 60-day payment deadline means far more certainty of cash recovery,” noted a Sina Finance commentary, “which alleviates cash flow pressure and lowers financing costs. It gives them the confidence and ability to invest in technology R&D and expand capacity, thereby boosting innovation across the supply chain.” . In other words, instead of worrying about survival, suppliers can plan for growth. One automotive parts maker told First Financial that if receivables truly convert to cash within 60 days of delivering goods, it will “greatly improve our cash flow”. In the past, even when nominal payment terms were 60 days, big automakers often paid with acceptance drafts that could only be cashed much later – for example, getting paid 8 months after delivery was common, unless the supplier was willing to accept about a 6% annualized discount to cash it in early . “Now, getting cash in hand in two months is certainly much better,” the supplier said, “since our profit margins aren’t high to begin with – the key is we won’t have to give up so much of our profit in exchange for prompt payment.” Many supplier firms are also hopeful that faster payment will allow them to reduce bank loans or invoice financing usage, cutting interest expenses. In capital-intensive sectors like auto components, cash is indeed king – and the difference between 2 months and 6+ months in payment time can be the difference between a healthy supplier and a bankrupt one. It is telling that right after these pledges, Chinese auto parts stocks jumped sharply, with investors betting that supplier balance sheets and survivability will improve** **.

Strengthening the Supply Chain: Efficiency, Transparency and Credit

Beyond immediate cash relief, industry experts say the 60-day payment reform could transform the dynamics of China’s automotive supply chain. Shorter payment cycles encourage a more balanced and collaborative relationship between automakers and suppliers, rather than the previous zero-sum game. As the South China Morning Post noted, when carmakers delay payments to fund price cuts, they are effectively creating a hidden, interest-free debt at suppliers’ expense . This not only hurts suppliers, it also undermines trust and long-term innovation – suppliers starved of cash are less able to invest in new technologies or maintain quality. A former executive vice-president of CAAM, Dong Yang, remarked that protracted payment delays had become a “typical tool of involution-style competition” in the auto industry, one that weakened the resilience and innovation capacity of the entire supply chain . Now, with timely payments, the supply chain’s collective health improves. Upstream firms will have more working capital to upgrade equipment, develop better components, and ensure product quality – benefiting automakers with more reliable and advanced supplies in the long run.

Moreover, several automakers have signaled they will use this opportunity to increase financial transparency and trust with suppliers. State-owned FAW Group and GAC, for example, said they will leverage digital tools to make the payment process more transparent, ensuring every invoice is paid on time and establishing a stronger trust foundation between OEMs and parts makers . This kind of digitized payment platform can reduce disputes over payment status and build a credit history for timely-paying manufacturers. Other companies, like BYD, have spoken about a “dual optimization of technology and management” alongside the 60-day payment rollout, aiming to move the supply chain relationship from a zero-sum bargaining mindset to one of collaborative innovation . In practical terms, this could mean closer coordination on inventory management, joint cost reduction efforts, and co-development of new solutions – since suppliers who are paid promptly may be more willing to share innovations exclusively with cooperative automakers.

Importantly, the new payment discipline is expected to reshape competitive behavior. When automakers can no longer lean on overdue payables as a cushion, they must manage cash flow more rigorously and compete on real efficiency rather than on unsustainable discounts. “Shortening payment times will impact automakers’ cash flow, limiting their ability to wage price wars,” noted Dong Yang, implying that firms will have to curtail the practice of using supplier credit to bankroll destructive price cuts . Executives echo this view: Changan Auto’s chairman Zhu Huarong recently urged the industry to “resolutely oppose immoral price wars”, and Seres CEO Zhang Xinghai warned that “low-price competition endangers quality standards – safety is the greatest luxury” . With a mandated 60-day pay cycle in place, carmakers can no longer prop up aggressive discounting campaigns by stringing along their suppliers. This should naturally dial down the frenzy of the price war that has raged since early 2023 . As one Chinese auto consultant observed, this concerted action by carmakers is a first step by authorities to regulate the market, and “automotive companies will eventually refrain from offering steep discounts as government agencies tighten oversight of their sales strategies.” The focus of competition, he suggests, will shift from purely price to areas like technology, quality, and brand – a much healthier scenario for the industry’s sustainable development.

Another anticipated outcome is the bolstering of a credit culture and payment credibility in the auto sector. In the past, many Chinese suppliers had to worry about their customers’ creditworthiness and might factor in long delays or default risk into their pricing. If the 60-day term becomes strictly upheld, suppliers can have greater confidence in getting paid promptly, effectively improving the credit profile of the entire industry. Some automakers have even framed the new practice as building a “community of shared future” with suppliers and shifting competition toward credit and management capability . In other words, those OEMs that manage their finances well and honor agreements will gain a reputational edge. Over time, one can envision an ecosystem where superior payment reputation becomes a competitive advantage in attracting the best suppliers. Manufacturers might begin to compete for supplier loyalty not by squeezing payment terms, but by offering better collaboration, which ultimately improves vehicle quality and innovation. This is analogous to the Japanese auto industry model that Chinese industry groups have pointed to – Japanese automakers are known for long-term, stable partnerships with suppliers, leaving them reasonable profit and fostering joint innovation . By committing to fair payment cycles, Chinese carmakers are taking a page from that playbook, which could raise the overall technical level and reliability of China’s automotive supply chain.

Outlook: Toward a New Standard and a Healthier Competition