The world’s biggest EV maker weans itself off supply-chain finance

{"text":[[{"start":11,"text":"In a brief post on China’s WeChat messaging platform, the world’s biggest EV maker BYD last June made a commitment with a big effect on its balance sheet."}],[{"start":21.35,"text":"The world’s biggest EV maker vowed to start paying its suppliers within 60 days — a direct response to Beijing’s crackdown on auto groups’ ill treatment of component suppliers, who had been squeezed during the electric vehicle boom of the previous five years."}],[{"start":37.05,"text":"BYD’s promise is now seen as a watershed moment for the company, its tens of thousands of suppliers and the investors trying to assess its financial health. It comes as the Shenzhen-based Tesla rival embarks on a multibillion-dollar assault on overseas markets amid a domestic sales slowdown."}],[{"start":56.449999999999996,"text":"BYD had been using the money owed to suppliers as a form of cheap funding to drive its rapid growth from a little-known electronics component maker to a manufacturing powerhouse reshaping the world’s auto industry."}],[{"start":70.14999999999999,"text":"The payments vow triggered a sweeping internal overhaul as it tries to pay suppliers faster. "}],[{"start":75.89999999999999,"text":"BYD is now moving from an unconventional system of issuing promissory notes — essentially IOUs — to conventional commercial bank notes and cash. This change has required restructuring tens of billions of dollars in debt."}],[{"start":90.64999999999999,"text":"Stella Li, BYD vice-president in charge of its aggressive overseas expansion, told the FT Future of the Car summit this month that supply chain finance was “industry standard” but added that the company was in the process of resolving the issue."}],[{"start":104.74999999999999,"text":"“BYD is in the stage of . . . solving the cash flow issue and then BYD will have very strong cash flow,” Li said, adding: “Then we will have more money to invest for new technology.”"}],[{"start":116.59999999999998,"text":"The changes under way are reflected in two key metrics: the level of BYD’s borrowings and its notes payable."}],[{"start":null,"text":"

"}],[{"start":123.84999999999998,"text":"According to its latest annual report, published in late March, the group’s total borrowings had soared to Rmb113.4bn ($16.6bn) in 2025, up from Rmb28.5bn a year earlier. "}],[{"start":141.39999999999998,"text":"That was followed by first-quarter results released in late April, where short-term borrowings were up 72 per cent to Rmb66bn at the end of March, compared with Rmb38bn at the end of 2025. "}],[{"start":154.79999999999998,"text":"BYD told the FT that the surge in borrowings “primarily” reflected the restructuring of the group’s liabilities but did not provide a further breakdown of the changes."}],[{"start":164.45,"text":"The group’s notes payable — meaning the commercial and bank acceptance bills the company uses to settle suppliers’ payments — rose to Rmb48.6bn, almost 20 times the figure for 2024. "}],[{"start":176.95,"text":"This highlights the gradual replacement of the IOU system now being orchestrated. "}],[{"start":182.04999999999998,"text":"BYD, in essence, previously used its receivables to pay suppliers during years of rapid growth. That supplier payment system stood out from peers both in its scale and the length of time that it took suppliers to eventually receive payment, analysts said. "}],[{"start":197.89999999999998,"text":"Beijing’s order to change this system was a key pillar of President Xi Jinping’s campaign against the risks stemming from industrial excess — a policy dubbed fan neijuan or “anti-involution”."}],[{"start":211.09999999999997,"text":"Dan Wang, head of China for the Eurasia Group, a consultancy, said BYD’s disclosures indicated the success of the anti-involution campaign. "}],[{"start":220.89999999999998,"text":"By “exposing this pain at BYD” and forcing it to move its supplier debt to on-the-book banknotes, Beijing had made an example of the EV sector’s biggest and most important player."}],[{"start":null,"text":""}],[{"start":232.24999999999997,"text":"The pressure from Beijing has put the spotlight on BYD’s unique in-house supply-chain payment system, known as Di Lian, that has been a key source of the company’s ability to finance its growth. "}],[{"start":242.94999999999996,"text":"BYD declined to comment on the size or scope of Di Lian. "}],[{"start":247.39999999999995,"text":"BYD suppliers have said the carmaker would sometimes stretch payment times to about 300 days under the system. Chinese media reports have estimated as many as 10,000 companies were paid via the system in recent years."}],[{"start":261.99999999999994,"text":"Laila Khawaja, a Chinese technology expert with Beijing research group Gavekal, said while long payment cycles were common across China’s automotive industry, BYD’s long payment terms stood out as “particularly aggressive”. "}],[{"start":275.99999999999994,"text":"Using interest-free supplier financing to support its expansion and high R&D spending had, for many years, “eased BYD’s own cash flow pressure”, she said. "}],[{"start":286.29999999999995,"text":"Khawaja said the sharp decline in accounts payable in 2025, alongside the surge in bills payable, and a steep year-on-year fall in operating cash flow, “all point” to BYD shifting away from Di Lian as it pays suppliers with notes and cash. "}],[{"start":null,"text":""}],[{"start":302.19999999999993,"text":"Operating cash flow slumped to Rmb59.1bn last year, from Rmb133.4bn the previous year. The trend continued into the start of 2026 with cash flow at Rmb2.8bn at the end of March, compared with Rmb8.6bn in the same period in 2025."}],[{"start":323.1499999999999,"text":"“This shift has already put pressure on its operating cash flow,” Khawaja added."}],[{"start":327.0499999999999,"text":"That pressure comes as BYD is building factories in Hungary, Brazil, Indonesia, Thailand, Turkey and Uzbekistan, as well as launching its own fleet of eight ships to transport its cars from China. "}],[{"start":340.8499999999999,"text":"Taylor Ogan, chief executive of Snow Bull Capital, a hedge fund invested in BYD, argued that the company could still use formal financing at low interest rates. He pointed to reported credit borrowings at low interest rates — ranging from 1.5 per cent to 2.9 per cent — and noted “zero overdue positions on either short- or long-term debt”. "}],[{"start":361.2499999999999,"text":"Ogan also said that BYD has a Rmb75.8bn cash war chest, buoyed by $5.6bn in equity that the group raised in Hong Kong a year ago: “They’re not losing access to credit — they are using cheap leverage to fund another capex super-cycle and overseas capacity build-out.”"}],[{"start":null,"text":""}],[{"start":381.9499999999999,"text":"Eurasia’s Wang added that BYD was still likely to find cheap credit available from state-backed and commercial lenders that have been directed by Beijing to support clean-technology companies. "}],[{"start":393.9999999999999,"text":"Nigel Stevenson, an analyst with GMT Research, a Hong Kong accounting research firm that has tracked BYD for years, agreed that the company had financed growth with “what is a form of short-term working capital debt”."}],[{"start":407.1999999999999,"text":"The carmaker’s unconventional supplier payment system had also obscured the true debt levels on its balance sheet. "}],[{"start":413.84999999999985,"text":"BYD’s headline net cash at the end of 2025 came to Rmb22bn. According to GMT’s calculations, BYD’s adjusted net debt stood at about Rmb320bn last year when adding up “de-recognised receivables” and “excess payables beyond 90 days”.  "}],[{"start":434.1999999999999,"text":"While over the past year BYD has shifted towards using conventional debt, GMT continues to label BYD as having a “high” accounting risk because of opacity in its financial disclosures. "}],[{"start":446.4499999999999,"text":"BYD told the FT that concerns over the group’s liabilities were “unwarranted”. "}],[{"start":null,"text":""}],[{"start":453.2499999999999,"text":"Data from Wind, a China-based financial data provider, showed BYD’s payment cycle was now 123 days, four days shorter than a year ago but still far off Beijing’s 60-day target."}],[{"start":466.2499999999999,"text":"An executive with a Shanghai-based component maker supplying BYD, who asked not to be named, said his company was pleased to see BYD start to shift from using its promissory notes — issued via Di Lian — to cash payments. "}],[{"start":480.3499999999999,"text":"He said BYD had begun making the change with smaller suppliers that had fallen under the most financial stress. "}],[{"start":486.3499999999999,"text":"For smaller suppliers like his, BYD’s payment system had tied up almost a year of receivables, with the end-to-end cycle from delivery to cash collection often reaching more than 300 days. "}],[{"start":498.9999999999999,"text":"The executive still believed BYD was a “great enterprise”, but said its growth has been “financed by suppliers”."}],[{"start":505.64999999999986,"text":"Two larger BYD suppliers, Alnera and Guangdong Hongtu, which make aluminium-based components for EVs, told the FT there had been no change in the pace of their payments from BYD."}],[{"start":526.9499999999999,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1779865957_4467.mp3"}