On Tuesday, the China Iron and Steel Association (referred to as “CISA”) published an article criticizing domestic car manufacturers’ price wars, causing upstream companies such as steel producers to have virtually no profit. CISA also mentioned that after supplying to car manufacturers, they delay payments, shifting financing pressure and costs onto the upstream suppliers through extending payment terms in contracts.
The article titled “Resisting ‘Internal Competition’ to Safeguard the Overall Interests of the Industry Chain” was unexpectedly released on Tuesday, June 10th by CISA. It states that in recent years, automotive companies have been aggressively cutting costs, continuously demanding steel mills to lower prices of automotive plates. Since last year, some major automakers have requested price cuts of more than 10% for automotive plate supplies from steel mills, far exceeding the mills’ acceptable capabilities.
In January this year, Yao Lin, the President of CISA, stated during the 7th session of the 6th Annual Member Meeting that in 2024, key statistics showed that the steel industry achieved an operating income of 6.02 trillion yuan with an average sales profit margin of 0.71%. Currently, there is a severe imbalance in supply and demand in the steel market, with “internal competition” disrupting market order and industry profitability declining in recent years.
According to data from the National Bureau of Statistics of China, the profit margin of the automotive industry was 7.3% in 2018 but dropped to 4.3% by 2024, further decreasing to 3.9% in the first quarter of this year. The China Automobile Dealers Association data shows that the industry incurred direct losses of 138 billion yuan from January to August in 2024 due to price wars.
The article also mentions that in the current steel market environment, automotive plates, as a key product of the steel industry, now have minimal profit margins, while car manufacturers still demand price reductions from steel mills.
Recently, some domestic automakers have caused “internal competition” among steel mills by conducting tenders to purchase automotive plates, pricing them as regular steel products, leading to a situation where the lowest bidder wins.
According to the data released by the Metallurgical Industry Planning and Research Institute predicting downstream steel demand in 2023, construction (including real estate and infrastructure) accounts for 57.1% with automotive steel demand at 53.7 million tons, representing 5.9% and ranking as the third-largest industry in terms of steel demand.
According to the China Iron and Steel Industry Association data, in 2024, the production volume of automotive plates from key enterprises reached about 40 million tons, with cold-rolled automotive plates (including cold-rolled and galvanized) accounting for approximately 29 million tons.
CISA also pointed out the issue of payment terms within domestic car manufacturers. Some automotive companies utilize their own supply chain financial platforms to delay payments to upstream companies like steel producers, only making payment through enterprise bills several months later, thus transferring the financing pressure and costs that should be borne by themselves to the upstream suppliers. This practice leads to significantly increased financial pressure on steel mills due to extended payment terms.
Recently, Wei Jianjun, the Chairman of Great Wall Motors, criticized the automotive industry for creating its own version of “Evergrande.” He stated, “There is already an ‘Evergrande’ in the automotive industry, just that it hasn’t burst yet.” Pure electric vehicles are facing significant losses on a large scale, failing to establish a sustainable business model, and with capital exiting profits, leaving the industry in a difficult situation.
As reported in the financial sector, an industry insider revealed that automobile manufacturers not only demand a reduction in component prices each year but also significantly extend the payment periods for suppliers. A decade ago, the accounts payable turnover days for automotive companies were 45 days, which now has extended to at least 90 days.
According to Wind data, the average accounts payable turnover days for 16 listed Chinese automakers is 182 days, nearly twice the international automakers’ payment terms.
The 2024 annual report indicates that BYD has the largest accounts payable scale among domestic car manufacturers, reaching 244 billion yuan, a figure that has now risen to 250.7 billion yuan in the current year. Geely had 182.4 billion in accounts payable at the end of 2024, while SAIC had 41.1 billion.
At the “China Automobile Chongqing Forum” held on June 7 in Chongqing, Yang Xueliang, Senior Vice President of Geely Holding Group, strongly criticized the behavior dubbed as the “king of internal competition” within the automotive industry. He commented, “Last year (BYD) tossed out the ‘playing cards theory’ in Chongqing Forum, this year it’s the ‘pulling and stepping theory’ and ‘stupid and evil theory.’ Isn’t this a case of the thief crying ‘catch the thief’? I don’t know what rule had Great Wall Motors violated by reporting BYD’s fuel tank and emission fraud? We cannot twist right and wrong, or replace the rule of law with foolishness and malice.”