Is the financial situation of Chinese automakers really that dangerous?

The analysis highlights that high debt ratios are common in the automotive industry due to its capital-intensive nature, but Chinese automakers are not uniquely vulnerable despite perceptions of high debt. Here’s a clear breakdown:

Debt Ratios

• Global Automakers (2024): Ford (84.27%), GM (76.55%), Volkswagen (68.92%)—all high but typical for the industry.
• Chinese Automakers (2024): NIO (87.45%), Seres (87.38%), BYD (74.64%), Geely, SAIC, and Great Wall (>60%). These are high but comparable to global peers.
• Trend (Q1 2025): Chinese automakers are reducing debt ratios rapidly. BYD’s dropped to 70.7%, a 7% decrease in under six months, indicating improving financial health.

Total Liabilities vs. Revenue

• Global Automakers:
• Volkswagen: Revenue 2.5T yuan, Liabilities 3.4T yuan (136% of revenue).
• Toyota: Revenue 2.2T yuan, Liabilities 2.7T yuan (123% of revenue).
• Ford: Revenue 1.3T yuan, Liabilities 1.7T yuan (131% of revenue).
• Others (GM, BMW, Mercedes-Benz, Hyundai): Liabilities >1T yuan.
• Chinese Automakers:
• BYD: Revenue 777.1B yuan, Liabilities 584.7B yuan (75% of revenue).
• Geely: Revenue 574.8B yuan, Liabilities 504.7B yuan (88% of revenue).
• Chery: Revenue 182.2B yuan, Liabilities 174.9B yuan (96% of revenue).
• SAIC: Revenue 627.6B yuan, Liabilities 610.4B yuan (97% of revenue).
• Insight: Chinese automakers’ liabilities are lower relative to revenue compared to global giants, suggesting better debt management.

Interest-Bearing Liabilities

• Global Automakers:
• Toyota: 1.87T yuan (68% of total liabilities).
• Ford: 1.1T yuan (66% of total liabilities).
• Volkswagen: 1T yuan (32% of total liabilities).
• Others (GM, Mercedes-Benz, BMW, etc.): Hundreds of billions.
• Chinese Automakers:
• Geely: 86B yuan (17% of total liabilities).
• Chery: 21.1B yuan (12% of total liabilities).
• Great Wall: 16.8B yuan (12% of total liabilities).
• BYD: 28.6B yuan (5% of total liabilities).
• Insight: Chinese automakers have significantly lower interest-bearing liabilities (none exceed 100B yuan or 20% of total liabilities), reducing liquidity risks compared to global peers.

Accounts Payable and Supplier Payment Terms

• Proportion of Accounts Payable to Revenue (2024):
• NIO: 52% (high, indicating potential capital turnover pressure).
• Changan: 49%.
• Great Wall: 39%.
• SAIC: 38%.
• BYD: 31% (healthiest, within the ideal <30% range).
• Supplier Payment Periods (2024):
• Chery: 143 days.
• Great Wall: 163 days.
• NIO: 195 days.
• Changan: >200 days.
• BYD: 127 days (shortest, reflecting strong supplier relationships).
• Insight: Shorter payment periods (e.g., BYD’s 127 days) indicate better cash flow management and healthier supplier relationships. Longer periods (e.g., Changan’s >200 days) could strain supplier ties but are not unusually long in the industry.

Why the Pessimism?

The pessimism about Chinese automakers likely stems from:

1. Misleading Debt Ratio Focus: High debt ratios are industry-standard but often misinterpreted as a sign of weakness without considering debt structure.
2. Lower Scale: Chinese automakers have smaller revenues and liabilities compared to global giants like Toyota or Volkswagen, making their debt seem disproportionately risky to casual observers.
3. Market Sentiment: Negative narratives may amplify concerns about China’s economic challenges, overshadowing the financial health of its automakers.
4. Supplier Payment Periods: Longer payment cycles (e.g., Changan, NIO) may raise concerns about liquidity, though BYD’s short cycle counters this.

Conclusion

Chinese automakers like BYD, Geely, and Chery are financially healthier than often perceived. Their debt ratios are comparable to or better than global peers, with significantly lower interest-bearing liabilities (e.g., BYD’s 5% vs. Toyota’s 68%). Rapid debt reduction (e.g., BYD’s drop to 70.7% in Q1 2025) and low accounts payable ratios (e.g., BYD’s 31%) further indicate resilience. While global giants like Toyota and Volkswagen manage trillion-yuan liabilities, Chinese automakers operate with far smaller, more manageable debt loads. The pessimism seems overstated, driven by selective focus on debt ratios without context.