Image Source: PexelsChinese automaker BYD is “addicted” to supply chain financing, masking a huge debt load, but it’s selling cars like mad.
$44 Billion in DebtBloomberg reports BYD’s Supply Chain Financing Masks Ballooning Debt

BYD Co.’s reliance on financing from working capital has masked surging debt levels at the Chinese electric vehicle giant, according to calculations from Hong Kong-based GMT Research.

While it’s common for fast-growing firms to use debt to fuel expansion, BYD appears “addicted” to supply chain financing, GMT, an accounting consultancy that previously raised the alarm about China Evergrande Group, said.

When adjusted to reflect receivables that have been removed from the balance sheet because they’ve been sold or borrowed against, and treating excess payables — any amount over 90 days — as a liability, BYD’s true net debt was more like 323 billion yuan ($44.1 billion) as of June 30, GMT said in a Jan. 10 research report. The company’s market value in Hong Kong is about $105 billion.

BYD itself put its net debt at 27.7 billion yuan as of mid-2024. Representatives for BYD declined to comment.

“However it’s structured, it’s clearly a form of financing, or hidden debt,” GMT analyst Nigel Stevenson said. “It’s using sleight of hand to present these liabilities as part of working capital.”

The hidden debt makes it harder for investors to get a handle on BYD’s actual financial situation as competition in China’s EV market intensifies. A bruising price war, spearheaded in part by the carmaker, has crushed weaker rivals and delivered a boom in business for the bigger players. It’s also left suppliers increasingly reliant on a smaller pool of manufacturers that have the power to command ever tougher terms.

For BYD, and other Chinese EV makers like Nio Inc. and Xpeng Inc., extended payment periods can stretch to hundreds of days. BYD took an average 275 days to pay suppliers in 2023, Bloomberg-compiled data show.

While long payment terms are becoming standard in China, they’re far more than the 45- to 60-day payment cycle for automakers in other parts of the world. Tesla Inc.’s Global Vice President Grace Tao has said the US EV maker typically pays suppliers within 90 days.

China’s BYD Overtakes Tesla (TSLA) RevenuePlease note China’s BYD Overtakes Tesla Revenue in the third quarter of 2024.

The Chinese electric vehicle giant BYD has seen its quarterly revenues soar, beating Tesla’s for the first time.

It posted more than 200bn yuan ($28.2bn, £21.8bn) in revenues between July and September. This is a 24% jump from the same period last year, and more than Elon Musk’s company whose quarterly revenue was $25.2bn.

However, Tesla still sold more electric vehicle (EVs) than BYD in the third quarter.

It comes as EV sales in China have been getting a boost from government subsidies to encourage consumers to trade their petrol-powered cars for EVs or hybrids.

BYD also notched a monthly sales record in the last month of the quarter, in a sign that momentum continues to build for China’s bestselling car maker.

But there is a growing backlash abroad against the Chinese government’s support for domestic car makers like BYD.

Earlier this week, European Union tariffs of up to 45.3% on imports of Chinese made EVs came into force across the bloc.

Chinese EV makers were already facing a 100% tax from the United States and Canada.

BYD vs TeslaBYD sold 500,000 cars in the month of October.Video Length: 00:14:18BYD makes little profit so Tesla clobbers BYD on that score. But BYD believe profit will come later, a common model.
BYD RevenueUp 400 percent since 2020. BYD is spent20.3 percent of revenue on capital expenditures, an enormous percentage. Tesla’s capex was 9.2 percent. Those were 2023 numbers.BYD has the largest workforce of any auto manufacturer and is poaching talent globally, pouring resources into AI because it knows it lags badly in that area.It’s an interesting video discussion.
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