Imbalanced Profit Distribution in China's Auto Supply Chain: Extended Payment Terms and Channel Inventory Pressure Raise Industry Concerns

In recent years, China's automotive industry has expanded rapidly in scale. The market share of domestic brands has surged from 33% in 2019 to 64% in 2024, while annual vehicle exports have risen from 1 million units to 7.1 million. However, behind this sales growth lies a persistent imbalance in profit distribution across the supply chain, placing severe strain on collaborative relationships among automakers, dealers, and suppliers. Financial reports from several listed dealership groups reveal alarming losses: Zhongsheng Holdings reported a net profit margin of -1.2%, Yongda Automotive -9.8%, Meidong Auto -3.8%, and Harmony Auto -3.6%. Industry insiders note that if automakers adopt direct-sales models, such losses would effectively be borne by the manufacturers themselves. Meanwhile, leading Chinese automakers typically impose average payment terms exceeding 125 days on their suppliers—some even stretching to 200 days—far longer than international peers like Toyota (52 days), Volkswagen (40 days), Mercedes-Benz (36 days), and Tesla (60 days). Although national regulations cap payment terms for large enterprises to small and medium-sized enterprises (SMEs) at 60 days, some automakers circumvent this rule through various means to delay actual payments. These excessively long payment cycles tie up suppliers’ working capital for extended periods. For a supplier with an annual business volume of tens of billions of yuan, each additional month of delayed payment freezes hundreds of millions of yuan in cash, directly impairing daily operations and R&D investment. This pressure cascades down to tier-2 and tier-3 suppliers, heightening survival risks for SMEs at the far end of the supply chain. Moreover, automakers routinely demand annual price reductions from parts suppliers, imposing rigid cost-cutting pressures averaging around 10%. Against the backdrop of diminishing policy support—such as the reduction of the new energy vehicle (NEV) purchase tax exemption from 100% to 5%, with potential restoration to the full 10%—automakers’ profit margins are further squeezed. While some OEMs still report modest net profit margins (e.g., Chery at 6.6%, BYD at 3%, Geely at 5%, Great Wall at 2%, SAIC at 3%, and Changan at approximately 1%), their profitability often relies heavily on policy subsidies and the strategic use of upstream and downstream working capital. For example, an automaker with annual procurement spending of RMB 200 billion could perpetually occupy hundreds of billions in supplier funds interest-free by extending payment terms from 60 to 180 days—directly translating into reduced financial expenses and inflated reported profits. Dealers at the retail end bear the brunt of this pressure: some OEMs mandate inventory-to-sales ratios above 2.0 and enforce stringent performance evaluations, exacerbating liquidity stress across distribution channels. Additionally, new costs associated with digital marketing are largely shouldered by dealers themselves, further eroding their already thin margins. In the components sector, apart from a few high-performing segments like traction batteries, most suppliers operate on razor-thin margins. Contemporary Amperex Technology Co. Limited (CATL), thanks to its dominant market share, artificially lifts the industry’s average profitability; excluding CATL, many ordinary component makers report revenues in the tens of billions yet net profits of only a few hundred million yuan. This distorted industrial ecosystem now poses multiple systemic risks: First, mounting survival pressure on suppliers has trapped many in a dilemma—“lose money if they accept orders, shut down if they refuse.” Second, constrained cash flow severely limits R&D capacity, stifling long-term innovation. Third, cutthroat price competition drives homogenization, hindering technological advancement. Fourth, quality risks for finished vehicles are rising as some suppliers compromise on raw materials and manufacturing standards to survive. Fifth, the retail channel is increasingly fragile—with nearly 5,000 dealerships already exiting the network in 2025 alone. Notably, not all companies follow this exploitative model. Huawei, for instance, maintains a stable payment cycle of around 80 days with transparent settlement rules and predictable cash flows, fostering a more collaborative and innovation-friendly supplier relationship. As the industry enters the “15th Five-Year Plan” period (2026–2030), growth opportunities are narrowing, policy tailwinds are fading, and overseas markets are becoming more fiercely competitive. The unsustainable practice of boosting paper profits by squeezing upstream and downstream partners can no longer continue. Experts urge automakers to abandon reckless price wars and instead focus on technological innovation, product excellence, and brand building. They must restore reasonable payment terms, ensure healthy supplier cash flows, respect intellectual property rights, and stabilize dealer profitability to build a win-win industrial ecosystem. China’s automotive industry stands at a critical inflection point—transitioning from scale leadership to quality leadership. Restoring balance across the supply chain is now the essential prerequisite for transforming from a “major auto-producing nation” into a true “global automotive powerhouse.”