The Chinese auto industry is facing a systemic crisis due to non-payments and a price war

As an example of some of the destructive processes taking place in the Chinese automotive industry, DigiTimes cited the history of the Ji Yue brand, which Baidu and Geely are jointly trying to develop. Intense competition and deferred payments have made it difficult for the automaker to find funds for its continued existence.

Image source: Geely

Financial crises in the Chinese electric vehicle industry may arise in the near future due to the way automakers work with their suppliers. The latter provide them with up to 180 or even 298 days of deferment for payment for supplied components. Considering that prices for finished electric vehicles are constantly changing, and sometimes they fall quite sharply, this creates problems for participants in the automotive components market. They may be faced with the lack of sufficient amounts from their counterparties to pay for products delivered long ago. Such deadlines for payment for supplies also complicate rhythmic planning, which, in the context of the active expansion of the model range, creates significant risks for suppliers of automotive components.

Many Chinese electric vehicle manufacturers depend on external financing and are still far from breaking even; price wars with market leaders only reduce the chances of newcomers getting on their feet. It is becoming increasingly difficult to attract investors to finance the activities of automakers as the risks intensify. The capricious consumer in the Chinese market demands not only lower prices for electric vehicles, but also rapid improvements in related technologies. The development of the latter also requires money, which only players with a significant margin of financial strength can afford to spend. Just by delaying deliveries, Ji Yue accumulated more than $400 million in debt to its parent Geely, after which it stopped supplying it with the necessary products. Ji Yue lost almost $7,000 on each machine, and its total losses for the current year should exceed $1.3 billion.

Typically, classic automakers pay their suppliers much faster: Honda in this regard is generally a model of discipline, paying invoices in 32 days. Since Chinese automakers cannot boast of anything like this, they create serious systemic risks for the entire industry, whose rapid growth only increases the scale of a potential collapse.