---
title: "Automotive Supply Chain Under Cost Reduction Pressure"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/222355071.md"
description: "BYD has requested suppliers to reduce prices by 10% starting in 2025, sparking heated discussions in the industry. The company claims that price reductions are an industry norm, but the pressure of market price wars is being transmitted to the supply chain. Automakers are shifting costs to suppliers through methods such as delayed payments and financial product settlements. Although the overall revenue and profit of the automotive parts industry have increased, cash flow is tight, and both the revenue cash ratio and net profit cash ratio have declined. Supply chain companies are facing business difficulties and find it hard to extricate themselves"
datetime: "2024-12-15T06:46:13.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/222355071.md)
  - [en](https://longbridge.com/en/news/222355071.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/222355071.md)
---

> Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/222355071.md) | [繁體中文](https://longbridge.com/zh-HK/news/222355071.md)


# Automotive Supply Chain Under Cost Reduction Pressure

Requesting suppliers to reduce prices annually, is this an industry practice or a unilateral demand? A recent internal email has put China's leading electric vehicle manufacturer BYD (002594.SZ) in the spotlight.

On November 27, BYD's email requesting suppliers to lower prices starting in 2025 sparked heated discussions. The BYD passenger car division stated in the email to suppliers that to enhance the competitiveness of BYD's passenger cars, the entire supply chain needs to work together to reduce costs, demanding suppliers to lower prices by 10% starting January 1, 2025.

BYD responded that the price reduction is an industry practice and not a mandatory requirement, but the price war in the Chinese automotive market has been ongoing for nearly two years with no end in sight, and the pressure to reduce costs has undoubtedly been transmitted from the market to car manufacturers, and then layer by layer to the upstream supply chain.

Requesting suppliers to lower prices, delaying payment terms, and using financial products instead of cash to settle payments are various methods through which car manufacturers have brought the price war to suppliers.

According to estimates by Caijing based on the financial reports of 16 listed Chinese car manufacturers, the average turnover days for accounts payable and notes payable in the current automotive industry is 182 days, nearly twice that of international car manufacturers. This duration is still extending, with the first nine months of 2024 generally being one month longer than in 2023.

The signal revealed is that some upstream suppliers, after investing capital in production and delivering goods, still have to wait up to six months to actually receive payment—sometimes the payment received is not cash, but rather digital bond certificates provided by supply chain financial platforms.

The overall revenue and profit scale of automotive suppliers are expanding, but cash flow is becoming increasingly tight. Caijing's analysis of Wind data shows that the overall operating revenue of China's automotive parts industry (only A-share listed companies and New Third Board companies) for the first three quarters of 2024 was 784.6 billion yuan, a year-on-year increase of 9%, with a net profit attributable to shareholders of 49.7 billion yuan, a year-on-year increase of about 23%. However, the cash income ratio (cash received from sales of goods and services/operating revenue) decreased from 0.923 to 0.909, and the net profit cash ratio (net cash flow from operating activities/net profit attributable to shareholders) decreased from 1.39 to 1.18.

Costs do not disappear out of thin air; they only shift to other bearers. In interviews with Caijing, many supply chain company leaders expressed similar feelings, stating that business is becoming increasingly difficult, caught in a dilemma of not wanting to get involved but finding it hard to extricate themselves.

The ideal situation is that both car manufacturers and suppliers across the industry should be able to make profits. However, under the mountain of the price war, it is visibly tightening the strings between the two.

## Average 182 Days, Car Manufacturers' Payment Terms Are Still Lengthening

Caijing estimated BYD's accounts payable and notes payable turnover days based on financial reports, finding that in 2022 it was 115 days, which has been increasing year by year, with the average payment term for the first three quarters of 2024 extending to 145 days.

BYD, currently under public scrutiny, is not the only car manufacturer in the industry requesting long payment terms. Caijing's analysis of Wind data shows that the average turnover days for accounts payable among Chinese car manufacturers has reached 182 days and is continuing to grow Among the 16 listed Chinese car companies, 6 have a turnover period of over 180 days. Haima Automobile (000572.SZ) has the longest turnover period at 298 days, followed by BAIC Blue Valley (600733.SH) at 252 days.

The two traditional car companies, Changan Automobile (000625.SZ) and JAC Motors (600418.SH), have turnover periods of 199 days and 194 days, respectively. Among the new force car companies, XPeng (9868.HK) and Nio (9866.HK) also fall within this range, with periods of 248 days and 193 days, respectively.

Half of the listed car companies (8) have turnover periods between 120 days and 180 days. Among them, SAIC Motor Corporation (600104.SH) and Li Auto (2015.HK) are close to 180 days, with 177 days and 176 days, respectively; Great Wall Motors (601633.SH), BYD, and Seres (601127.SH) have similar turnover levels at 153 days, 145 days, and 145 days, respectively.

Geely Automobile (0175.HK), Dongfeng Motor Group (0489.HK), and Leapmotor (9863.HK) have not disclosed their Q3 2024 financial reports, but all three companies had turnover periods exceeding 120 days in 2023, extending by 50 to 80 days compared to 2017.

Only Beijing Automotive (1958.HK) and GAC Group (601238.SH) have turnover periods below 120 days. BAIC has the shortest turnover period at 83 days.

GAC has a turnover period of 109 days, which is significantly longer than 68 days in 2023 for its accounts payable and notes payable. In 2024, GAC's performance showed a significant decline, with a revenue of 75.5 billion yuan in the first three quarters, a year-on-year decrease of 23%, and a net profit attributable to the parent company of 120 million yuan, down 97% year-on-year.

According to a 整理 of Wind data by Caijing, among the 16 Chinese car companies, except for the three that have not published their Q3 reports, 11 companies have seen an increase in their payment periods, generally extending by one month in the first nine months of 2024 compared to 2023.

The most significant extensions in payment periods are seen in Haima Automobile and BAIC Blue Valley, which increased by 94 days and 72 days, respectively. These two companies have the smallest revenue scale and sales volume in the industry, with Haima Automobile's revenue at 1.084 billion yuan from January to September 2024, a year-on-year decrease of 44%, and BAIC Blue Valley's net profit attributable to the parent company at -4.491 billion yuan, continuing to decline.

The two outliers in the industry are Seres and Great Wall Motors, which have reduced their accounts payable turnover days against the trend—Great Wall Motors' turnover period has decreased from 200 days in 2022 to 153 days from January to September 2024, while Seres has halved its turnover period from 313 days in 2023 to 145 days These two companies are also among the few car manufacturers that achieved profit growth. In the first three quarters of 2024, Seres turned losses into profits, achieving a net profit attributable to shareholders of 4 billion yuan, while Great Wall Motors realized a net profit attributable to shareholders of 10.4 billion yuan, a year-on-year increase of 109%. Due to the boost from sales, the company's capital turnover efficiency has significantly improved.

83 days is the shortest record for accounts payable among Chinese car manufacturers, but it is still nearly twice that of international car manufacturers.

According to statistics from Caijing, the financial reports of 14 international car manufacturers show that their accounts payable are generally controlled within 60 days. The shortest is Honda Motor (7267.T), with a turnover period of only 32 days, while the longest is Mitsubishi Motors (7211.T) at 105 days, still lower than most Chinese car manufacturers. Although market competition has intensified in recent years and international car manufacturers are also under performance pressure, their accounts payable have not shown significant fluctuations.

Overall, German car manufacturers have the fastest turnover speed. From January to September 2024, Mercedes-Benz (MBG.DF), BMW Group (BMW.DF), and Volkswagen (VOW.DF) maintained their previous collection rhythm, with turnover days of 47, 42, and 44 days, respectively.

This is related to the business practices of the countries where the car manufacturers' headquarters are located. It is understood that Germany has specific legislation regarding delayed payments in commercial transactions. Once the standard payment period is exceeded, creditors are entitled to receive default interest at a rate 9 percentage points higher than the basic rate; even if both parties agree to extend the payment period, if the longer payment term is severely unfair to the creditor, the extension is considered invalid.

Japanese car manufacturers carry the gene of pursuing modern management philosophy, and supply chain management is an important part of this. Taking the most representative Toyota Production System (TPS) as an example, this system emphasizes Just-In-Time (JIT) production, which means "everything must be just right," controlling inventory during the production process to the minimum level or even no inventory to manage inventory costs. Toyota relies more on whether suppliers can stably cooperate with enterprise production management, and the relationship between the main factory and upstream suppliers is not limited to which party has more bargaining power, but emphasizes maintaining a collaborative relationship with suppliers.

Therefore, in 2024, although Nissan Motor (7201.T), Toyota Motor (7203.T), and Honda Motor have all experienced the collective retreat of joint ventures in China, their accounts payable turnover days have not changed much, at 74 days, 53 days, and 32 days, respectively.

In contrast, American car manufacturers have a slightly slower overall turnover speed, but it is still significantly lower than the shortest accounts payable period of Chinese car manufacturers. Ford Motor (F.N), General Motors (GM.N), and Tesla (TSLA.O) have turnover days of 62, 70, and 67 days, respectively.

## Supplier Cash Flow Tightening

Based on the financial report data for the third quarter of 2024, Caijing estimates that the average turnover days for accounts payable among Chinese car manufacturers have reached 182 days. This signals that some upstream suppliers, after investing capital in production, delivering goods, and paying a large amount of upfront payments, still have to wait up to six months to actually receive payment—sometimes the payment received is not even cash For example, BYD has introduced supply chain finance to create "Di Chain," where some accounts payable in the financial report are packaged into financial products that circulate among suppliers. Industry insiders reveal that under cash flow pressure, some suppliers ultimately choose to discount the amount of payment or opt for discounting to realize cash in advance.

This tightens the cash flow for suppliers, and the various data in the financial reports reveal clues.

Each listed automaker has disclosed its top ten suppliers, and Caijing has compiled this information, excluding companies whose main business is not in the automotive industry (such as media services) to avoid the influence of industry factors, ultimately selecting 25 automotive suppliers for analysis.

These suppliers include WanXiang QianChao (000559.SZ), which provides components to BYD, SAIC Group, Great Wall Motors, and Dongfeng Motor, as well as Weimaisi (688612.SH), the largest supplier for Li Auto and Leapmotor.

The revenue cash ratio is typically used to measure how much of the current operating revenue has actually turned into cash inflow and how much remains on the books. 0.8 and 1 are two important dividing lines; a ratio greater than 1 means the company can recover its current sales payments (as revenue cash generally includes value-added tax, a revenue cash ratio greater than 1 is a normal operating phenomenon), while a ratio below 0.8 indicates that sales payments are not timely, putting pressure on cash flow turnover.

Caijing's statistics show that in the first three quarters of 2024, 17 out of the 25 automotive suppliers had a revenue cash ratio of less than 1, with 7 companies having a ratio below 0.8, and 4 companies maintaining a revenue cash ratio below 0.8 since 2022.

The time for cash collection on the books is also lengthening. Caijing analyzed Wind data and found that the average turnover days for accounts receivable and notes receivable among the 25 suppliers is 121 days, with 21 suppliers having accounts receivable periods exceeding 90 days. Twelve suppliers have periods concentrated between 120 days and 180 days, with the highest being Xiyue Zhixing (301198.SZ) at 244 days and the lowest being Yapu Co., Ltd. (603013.SH) at only 57 days.

Since 2022, 18 out of the 25 suppliers have shown a trend of lengthening collection periods, with Dapeng Industrial (873739.BJ) experiencing the most significant increase, extending by 69 days from 116 days to 185 days compared to 2022. Dapeng Industrial is a supplier of precision industrial cleaning systems and related services, with major clients including Changan, BYD, Geely, and Haima Automobile.

Sometimes the data also appears contradictory. The average turnover days for automakers have increased to 182 days, while several major suppliers such as WanXiang QianChao, Changqing Co., Ltd. (603768.SH), Yapu Co., Ltd., Weimaisi, and Jinghua Optical (874232.BJ) seem unaffected, with their accounts receivable turnover days from January to September 2024 being 60 days, 93 days, 57 days, 112 days, and 81 days, respectively The emergence of supply chain finance has made the situation more complex. In order to alleviate the pressure of payment terms on suppliers, car manufacturers have been building their own financial circles in the upstream supply chain in recent years. China CITIC Bank, China Construction Bank, Agricultural Bank of China, and others have reached cooperation agreements with multiple car manufacturers to launch specific financing projects for their upstream suppliers.

BYD launched the "DiChain" platform and issued its first supply chain bill in September 2022. As of May 2023, the total issuance amount of the platform had exceeded 400 billion yuan. Chery Automobile had earlier launched the QianKun Circle BaoXiang on its RuiXuan supply chain finance platform, which had a scale exceeding 6 billion yuan as of July 8, 2022, and further surpassed 100 billion yuan in 2023. Great Wall Motors also began operating the Great Wall Factoring Supply Chain Finance Platform in 2022 and launched its first product, "Great Wall Chain"...

Accounts receivable have transformed from ordinary payment receivables into digital accounts receivable debt certificates. Suppliers can endorse and circulate the accounts receivable they hold within the supply chain ecosystem of the car manufacturer or use them as a basis for discounting or loans from financial institutions.

Taking WanXiang QianChao as an example, although the accounts receivable turnover days are controlled within 60 days, 36% of the total accounts receivable amount is planned to be used for discounting or loan financing from financial institutions, and this portion of funds is not included in the calculation of accounts receivable turnover days. Additionally, to alleviate cash flow through early monetization financing, suppliers need to pay certain interest costs, which also means that the amount of payment receivables originally owed to suppliers must be discounted.

Supply chain finance itself is a tool to improve capital efficiency, aimed at connecting the supply chain ecosystem of enterprises and providing suppliers with more diverse financing channels. However, the current risks in the automotive industry's supply chain finance lie in whether this is an active choice by suppliers to improve capital allocation efficiency or a necessary option made to accelerate cash recovery in the face of long payment terms.

This leads to the fact that while the overall revenue and profit scale of automotive suppliers are expanding, cash flow is continuously tightening.

As suppliers walk on increasingly thin cash flow "tightropes," their profit margins are diverging. According to statistics from Caijing, among 91 major suppliers in the automotive supply chain, only leading companies in niche segments can maintain or even further improve their gross profit levels, while component suppliers with low technical barriers mostly show a declining trend year by year.

In the first three quarters of 2024, both CATL and Fuyao Glass saw significant increases in gross profit margins, reaching 28% and 38%, respectively, setting new highs in three years. In contrast, companies like Weimaisi, Xingyu Co., WenCan Group, and Changhua Group showed significant declines, with gross profit margins dropping by 2%-8% compared to three years ago.

Whether this development trend is a natural market behavior or an industrial hidden danger depends on whether there is still room for upstream supply chains to compress profits and whether they have the capacity to absorb the cash flow pressure from long payment terms

## The Entanglement of the Supply Chain: Stuck Between a Rock and a Hard Place, Locking in the Future

A car has more than 20,000 components, of which 60% need to be procured from upstream suppliers. As the prices in the entire market decline, almost all car manufacturers are launching a new round of cost reduction and efficiency improvement. Behind the cost reduction of new cars is the heavy burden carried by automotive supply chain companies.

Many leaders of supply chain companies interviewed by Caijing believe that it is a common practice for car manufacturers to regularly lower procurement prices each year. However, the problem is that the frequency of reductions is now too high, the extent too large, and the reasons and standards for reductions too arbitrary, which is particularly evident among small and medium-sized automotive supply chain companies.

Currently, the automotive industry employs a variety of tactics to pressure suppliers on prices. Some car manufacturers choose to state upfront that they require a fixed annual cost reduction, but the extent is large and arbitrary; others sign orders with supply chain companies first and then find reasons to withhold final payments; some have long payment cycles that are delayed.

According to a business owner who manufactures bearings, car manufacturers continuously reduce costs under the guise of price wars, but in the manufacturing industry, especially with mature processes, the space for cost reduction is very limited, and prices are nearly transparent. Even so, car manufacturers still have continuous cost reduction targets, extending from first-tier suppliers to higher levels, layer by layer.

The main reason for the continuous price reductions is the excessively fierce market competition.

New energy vehicles have taken market share from traditional fuel vehicles; under the new business model, smart electric vehicle companies are willing to sell cars at a loss to capture market share, hoping for subsequent business; coupled with the very sufficient domestic automotive production capacity and slightly conservative consumer spending willingness. Ultimately, a large number of cars are being introduced like dumplings, and competing on price has become the most commonly used method.

But are consumers fully benefiting? This is a difficult calculation.

Mr. Sun recently bought a self-owned brand fuel vehicle. At first, he was pleasantly surprised that the new car was larger, had more technology, and was cheaper than before. However, once he actually drove the car, he found that it had too many cost-cutting measures. "In places you can't see, many previous designs and functions have been canceled or omitted." As a result, he has placed dozens of orders on online auto parts stores, preparing to make up for it himself.

"Invisible places, that's a conscience project." A head of a research institute at a leading self-owned brand automotive manufacturer told Caijing that he was surprised and worried about some companies' cost-cutting measures in the industry. Some cost-cutting behaviors may not show immediate effects in the short term but can lead to a shortened vehicle lifespan and increased subsequent maintenance costs. While costs may have been reduced in the short term, there is a risk of losing reputation and even commercial credibility in the long term. "Even if you report it, it is likely still compliant with national standards. The problem is that the internal standards of the company and the industry standards are gradually declining, how can that be acceptable?" he lamented.

At the 2024 China Automotive Chongqing Forum, Li Shufu, chairman of Geely Holding Group, mentioned the fierce price war in the Chinese car market over the past two years. He stated that the level of internal competition in China's automotive industry is the highest in the world, with price wars escalating one after another, which is unparalleled globally. This phenomenon is both good and bad. The healthy development of any industry must be reflected in a good economic benefit in terms of input-output ratio; endless internal competition and simple, crude price wars ultimately result in cutting corners, counterfeiting, and disordered competition that does not comply with regulations The pressure on parts manufacturers to continuously lower prices is also due to complete vehicle manufacturers starting to directly engage in parts business, disrupting the existing landscape.

Vehicle manufacturers represented by new car-making forces intend to strengthen vertical integration of the parts supply chain to reduce parts costs. In this process, some car companies choose to collaborate directly with equipment manufacturers or suppliers of non-automotive standard products, incorporating them into their parts procurement system. They use this as a reason to compete directly with established automotive parts companies by quoting lower prices, even prompting price reductions in the automotive supply chain through backup production methods.

Some supply chain companies lament, "They want our products to meet automotive standards while expecting our prices to reach consumer levels. Behind this is the car companies pretending to be confused while knowing exactly what they are doing."

The most troublesome aspect is that the cross-industry moves by car companies leave automotive supply chain companies unsure of how to respond. For example, some car companies have started to transform from customers into competitors. Some car companies take the technical solutions from Supplier A and provide them to Supplier B, who can offer lower prices due to not having R&D costs, leading car companies to intentionally reduce orders from Supplier A.

Some car companies directly send engineering teams to supply chain companies under the guise of learning and communication, taking away detailed solutions to develop in-house. Some innovative practices have sparked considerable controversy within the industry.

It's not just the pressure on orders that leads to shrinking profits. Parts suppliers generally have large investment scales and extended payment terms, forcing companies to borrow for operations, resulting in high debt ratios and funding costs, making the cash flow security of enterprises extremely fragile.

"Sometimes I miss the old days," a head of an automotive interior factory lamented to Caijing. Back then, supplying joint ventures meant clear expectations and high product standards, but as long as the products met the standards, payments would be received within normal terms. Now, supplying independent brands involves long payment terms, high standards, and a lack of respect, often requiring round-the-clock availability.

This head is conflicted: he hopes to see cars becoming more affordable and more people buying them; he also hopes to see independent brand cars improving and selling to more foreigners; and he wishes to receive the returns he deserves.

The dilemma for automotive supply chain companies is that they are unwilling to roll with the punches and are reluctant to lie down, yet the initiative is not in their hands. With the wave of core technological transformations in smart, electric, and connected vehicles, leading global tier-one suppliers have embarked on their own transformation journeys, incurring huge costs. However, as major players enter new tracks, they find that business is harder than in traditional sectors. But there is no turning back now, as some traditional business markets are rapidly shrinking and gradually disappearing.

Similarly, for some small and medium-sized supply chain companies, the current choice is to hold on, producing at low profits or even at a loss to maintain production line operations, as starting or stopping a production line is equally challenging.

Moreover, excessive cutthroat competition may lead automotive parts companies to slow down their innovation momentum, focusing more on short-term benefits and merely seeking survival. Essentially, this will lock in the future development of automotive industry technology.

The famous economist Joseph Schumpeter once said, "The essence of innovation is to recombine existing resources more effectively to achieve higher efficiency." In fact, today's automakers and supply chains are at a critical period of resource restructuring, needing to build more robust and sustainable supply chain relationships, rather than simply engaging in zero-sum games.

## How to Ensure Profitability Across the Industry

Procurement is an important aspect of enterprise operations, with inquiries, quotations, price comparisons, and negotiations directly related to a company's sales strategy, market competitiveness, and profit margins. It is understandable that the procurement side seeks better purchasing results in a way that optimizes its own interests, in accordance with industry rules and market laws.

From an economic perspective, competition is the essential attribute and fundamental characteristic of a market economy. Only by promoting competition can the market play a decisive role in resource allocation, making market monopolies and price monopolies difficult to form. In recent times, key automotive components have been almost entirely controlled by a few companies, keeping prices high. Automakers must actively engage in price negotiations to avoid falling into the situation of "working for" component manufacturers.

China's new energy vehicles have achieved a leapfrog advantage, not only reflected in the competitive breakthroughs of numerous car companies but also supported by a complex and well-established supply chain relationship. The assembly of a car involves numerous suppliers, manufacturers, logistics providers, and sales companies; only by maintaining close cooperation can each link from design to delivery be completed efficiently and accurately.

Therefore, supply chain capability determines the life and development of car companies. By grasping the supply chain, car companies can seize their own destiny.

The automotive industry is undergoing unprecedented changes in a century, and the boundaries of the automotive supply chain have surpassed traditional concepts, undergoing significant changes. Simply reducing costs cannot lead to sustainability; how to transform supply chain management thinking, improve the relationship between manufacturers and suppliers, explore deeper collaborative cooperation between car companies and suppliers, and build a healthy and sustainable supply chain cooperation system has become the key to breaking the deadlock.

As the automotive industry accelerates its transformation towards electrification and intelligence, the revenue changes of new component suppliers are significant.

According to the "2024 Global Automotive Supply Chain Core Enterprise Competitiveness White Paper," in 2023, the overall revenue of the top 100 global automotive parts companies increased by 13.2% year-on-year, and the overall profit margin of automotive parts suppliers in 2023 was 6.1%, an increase of 0.7% year-on-year.

At the same time, revenue from new energy and intelligent components has become an important revenue pillar for the top 100 component companies, accounting for 34% of total added value; the profit growth of new energy components accounts for 36% of total added value; and the net profit of intelligent electronic components has maintained a growth rate of 200% for two consecutive years.

In the new type of relationship between manufacturers and suppliers, the "chain leader" is not fixed, and the probability of automakers being in a passive position has greatly increased.

"The connotation and extension of the automotive industry are constantly enriching. The traditional chain relationship between components, complete vehicles, and marketing service companies is evolving into a networked ecosystem with multiple participants, presenting a new development trend for the automotive supply chain," said Lu Fang, CEO of Voyah. In this transformation, how to build a more efficient, flexible, and competitive new automotive supply chain development strategy is both a challenge and an opportunity In the view of Chen Liming, president of Horizon, automobile manufacturers previously had the closest contact with Tier 1 suppliers, Tier 2 suppliers might have some understanding, but Tier 3 suppliers basically knew nothing. In the new networked supply chain relationship, Tier 1, Tier 2, and Tier 3 still exist, but the relationship between automobile manufacturers and them has fundamentally changed. The difference now is that car companies are more focused on core components and key functions, and manufacturers will directly engage in in-depth discussions with Tier 1 to Tier N suppliers.

"Especially regarding system price reductions and cost control, it is difficult to achieve system cost control without direct contact with the main component and function suppliers. These are the driving forces behind the fundamental transformation of the supply chain," Chen Liming stated.

Only through continuous innovation and cross-chain cooperation can automobile manufacturers and suppliers better face future challenges and opportunities together.

In fact, foreign car companies place more emphasis on cooperation and win-win relationships when dealing with suppliers. Taking Toyota as an example, it has established long-term stable cooperative relationships with suppliers through systematic continuous optimization, based on shared risks and shared benefits, which incentivizes suppliers to invest in research and development and process optimization.

Toyota's supplier relationship management strategy emphasizes partnerships rather than simple transactional relationships. This strategic collaborative relationship allows Toyota to achieve more efficient cost control and technological advancement within the supply chain. At the same time, Toyota also collaborates with its component companies to go global, actively building alliances and promoting vertical integration of the supply chain, thereby thickening its competitive barriers while achieving mutual benefits with suppliers.

In the era of new energy, Tesla's case is worth referencing. Tesla's Vice President of External Affairs, Tao Lin, stated on Weibo that Tesla has compressed the payment cycle with suppliers to 90 days, far lower than the 300-day payment cycle of Chinese new energy vehicle companies.

She emphasized that Tesla's success relies not only on low costs but also on symbiotic win-win relationships with suppliers and continuous technological innovation. "Cost control = technological innovation + efficient management + reducing all unnecessary expenses. Ensuring supplier interests does not mean raising product prices," Tao Lin stated.

According to data from the China Passenger Car Association, in the first ten months of 2024, the revenue of China's automotive industry was 833.2 billion yuan, a year-on-year increase of 2%, while costs reached 731.13 billion yuan, a year-on-year increase of 3%. The industry's profit margin was only 4.5%, lower than the average profit margin of 6.1% for downstream industrial enterprises.

From 2014 to 2023, the current profit margin of China's automotive industry dropped from 8.99% to 5.0%, and now it has fallen below 5%, highlighting the significant profit pressure on automotive enterprises.

The competitive pressure in the Chinese market makes it difficult for car companies to achieve healthy profits, which can put pressure on suppliers, affect supply chain stability, and potentially further impact product quality. For car companies, thin profits make it challenging to provide sufficient funding support for continuous innovation and development, and research and development investments will also be forced to shrink How can car companies manage their relationships with suppliers while expanding their scale, enhance supply chain stability, and ensure profitability across the industry? This will test the supply chain management capabilities of automotive enterprises.

Authors: Wang Jingyi, Li Xiyin, Source: Caijing.com, Original Title: "The Automotive Supply Chain Under Cost Reduction Pressure: A String That Is Getting Tighter and Tighter | Caijing Special Report."

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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk

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