FT — World's Biggest EV Maker Weans Itself Off Supply-Chain Finance¶
Source: Financial Times
BYD, the world's largest EV maker, is phasing out its Di Lian supplier payment system — which imposed up to 300-day payment cycles on parts makers — replacing it with banknotes and cash. The shift comes after mounting pressure from Beijing.
"Great Enterprise Financed by Suppliers"¶
The FT characterizes BYD's model as a "great enterprise financed by suppliers." The Di Lian (short for "BYD supply chain") electronic promissory note system allowed BYD to:
- Keep a massive cash pile while delaying payments to suppliers for up to a year
- Circulate IOUs that suppliers could use to pay their own contractors
- Identify lower-tier suppliers and increase bargaining power
- Reduce BYD's working capital costs and reliance on external financing
The True Debt Picture¶
GMT Research revealed the staggering gap between BYD's reported and true financial position:
| Metric | Value |
|---|---|
| Reported net debt (books) | 27.7B yuan |
| True net debt (GMT estimate) | ~323B yuan |
| Days to pay suppliers (2023) | 127 days |
| China industry average | 108 days |
| Discount rate on Di Lian notes | ~6% |
| Bank note rate | <2% |
The gap of ~295B yuan was achieved entirely through delayed supplier payments and related financing structures — off-balance-sheet debt that never appeared in BYD's financial statements.
The Catalyst¶
Three converging forces drove the change:
- New regulatory rules: Automakers must pay suppliers within 60 days and cannot force non-cash payments
- BYD's financial slowdown: First revenue decline in 5+ years, 33% profit drop
- GMT Research spotlight: Public exposure of the debt gap
BYD has now joined other government-backed automakers in pledging 60-day supplier payments, though suppliers warn loopholes remain — automakers can delay by taking time to acknowledge receipt of goods.
Key Takeaway¶
The Di Lian unwind shows how China's regulatory crackdown on auto supply chains is forcing even the country's largest industrial champions to abandon practices that kept reported debt artificially low. The borrowings surge that follows tells the real story.