BYD Announces Payment for Parts Within 60 Days... Why the Policy Benefits the Company

BYD: "Earlier Payments Will Benefit Headquarters' Finances"
High Vertical Integration and Subsidiary Proportion at BYD
Earlier Payment Deadlines to Improve Group-wide Cash Flow
Dismisses Media Claims of "Liquidity Crisis"

There are growing concerns about potential financial deterioration due to the Chinese government's recent decision to shorten payment deadlines, a measure aimed at addressing overheated competition among Chinese automakers and the squeezing of parts suppliers. However, BYD, the world's largest electric vehicle company, has stated that this policy could actually improve the company's financial soundness.

Although questions have recently been raised in global markets regarding BYD's cash liquidity, the company is confident that, due to its internalization of key components, earlier payment deadlines will improve cash flow across the group, including its subsidiaries.

Dongdong Yoon, Brand Strategy Manager for BYD Asia-Pacific Region, who oversees external cooperation in the Asia-Pacific region, explained this in an interview with Asia Economy at BYD's Shenzhen headquarters on June 24 (local time). Yoon emphasized, "BYD manufactures all core EV components, such as batteries and electronic systems, in-house," and added, "Because our internal supply ratio is high, shortening the payment deadline to 60 days will have a positive effect on the company's financial flow."

Dongdong Yoon, Brand Strategy Manager for BYD Asia-Pacific Region. Photo by Suyeon Woo

It is known that more than 70% of BYD's parts are sourced directly or through its subsidiaries. The company produces most components in-house, except for items such as tires, glass, and seat materials. At the same time, BYD also supplies core EV components like batteries to its competitors. Yoon stated, "The shortened payment deadline is a requirement for all Chinese companies, not just us," and added, "Since we will also receive payments more quickly from companies to which we supply parts, there is no downside for us."

Concerns about BYD's liquidity crisis began to surface in January, when Hong Kong accounting consultancy GMT Research published a report highlighting BYD's excessive reliance on supply chain finance. The report criticized the Chinese EV industry for its habitual overreliance on supplier credit transactions (promissory notes), and argued that if accounts payable (unpaid parts payments) were included, BYD's net debt could be up to 10 times higher than the official figure.

In May, international media outlets such as Bloomberg also focused on the potential debt and supply chain finance risks facing Chinese companies. As a result, the Chinese government recommended that payment deadlines for parts in the EV industry be reduced to "within 60 days" to ensure overall stability. Previously, payment periods for these companies ranged from as short as 120 days to as long as 250 days.

With BYD, the leading EV manufacturer, also announcing "payment within 60 days," market attention has turned to whether BYD and other Chinese EV companies can maintain stable cash flow despite the shorter payment deadlines. Anxiety has spread among investors as inventory levels have increased compared to last year and reports of some dealer bankruptcies have emerged. Yoon responded, "BYD's cash reserves stand at approximately 154.9 billion yuan (about 29.3 trillion won), which is sufficient," and added, "Our debt-to-asset ratio is in the 70% range, which is stable compared to the global automaker average of around 120%."

If financial risks were to spread at BYD, it could impact the broader Korean economy. BYD is not only a direct competitor to Korean companies in the EV and battery sectors, but also a supplier of batteries to domestic automakers such as KG Mobility. From the perspective of imported car dealerships, BYD is a supplier, and it also maintains a cooperative relationship with Korean logistics companies such as Hyundai Glovis by sharing maritime transport networks.

Above all, the significant scale of investment in BYD by Korean institutions and individual investors has focused stakeholder attention on this potential risk. According to the Korea Securities Depository, as of May this year, BYD is the Chinese stock most heavily held by Korean individual investors. The total investment amounts to 534.55 million dollars (about 737.7 billion won).