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Zhiliao Auto / Fei De
Price competition in the domestic automotive market continues. To protect sales volume, car manufacturers constantly pressure suppliers to cut prices. Years ago, the industry default annual price reduction was 3% to 5%, now annual reduction requirements of 10% to 30% are appearing frequently.
Some OEMs require suppliers to cut prices directly by 10% starting from January 2025. Suppliers are no longer excited about large orders; instead, they must carefully calculate capital occupancy and profit margins. The larger the order volume, the heavier the funding pressure, and the higher the risk of losses.
Supplier profit margins are being systematically compressed. Taking domestic parts leader Huayu Automotive as an example, the company's 2025 revenue reached 183.999 billion yuan, but the gross margin dropped from 14.38% in 2021 to 12.30%.
Revenue continues to grow year on year, but net profit hovers around 7.2 billion yuan, with no substantial breakthrough in four years. This is not an operational issue for individual companies. Body parts see annual reduction rates ranging from 0.03% to 13.34%, while chassis parts also see significant cuts. Suppliers must invest in raw material procurement and production line operations before production, but payment may take months or even longer to arrive.
Payment term issues worsen the cash flow situation for suppliers. Before June 2025, the payment cycle for top domestic car manufacturers was generally over 125 days, with some companies having single-term spans exceeding half a year. In comparison, Toyota's supplier payment cycle is 52 days, Volkswagen is 40 days, and Mercedes-Benz is 36 days.
After profits and cash flow are squeezed simultaneously, suppliers are forced to make choices. Cutting R&D investment became the first reaction for most companies. Equipment investment for new projects is delayed, and the technical team's scale is compressed. The Chairman of Konghui Technology once released a public letter on Children's Day in 2025, writing that suppliers' dream was simply to reconcile invoices after goods are delivered and accepted, with payment arriving within a month. This letter resonated widely in the industry because it voiced the real situation of most suppliers. Once R&D is cut, product iteration speed slows down, and quality risks rise accordingly.
Supply chain relocation overseas is also a major trend. In 2025, China's total automotive parts export reached $59.051 billion, up 4.07% year-on-year. Southeast Asian countries such as Malaysia, Vietnam, and Thailand have become rapidly growing markets.
In the past, suppliers going overseas followed the footsteps of OEMs. Now, more companies are actively looking for safe havens for profits and cash flow. Overseas markets have more reasonable payment term rules and fuller profit margins. Some parts companies' overseas business gross margin reached 31.44%, significantly higher than the domestic business's 24%.
A common saying in the automotive supply chain industry is: "Being a supplier to domestic carmakers means payment terms of half a year or more, and profits thinner than paper. Working with overseas clients means payment within two months, and prices are 20% higher." This reflects suppliers' true feelings about payment terms and profits from domestic and foreign car manufacturers.
Chenyuan Sealing Parts, a leading domestic company in the rubber sealing parts field, is a typical case of shifting industry overseas. Facing rising domestic raw material costs and continuous price pressure from OEMs, the company decisively transferred its production lines to Southeast Asia.
These judgments from frontline practitioners indicate that if car manufacturers continue to save money by cutting prices and delaying payments, suppliers will inevitably gradually move high-quality capacity and R&D overseas. Pressuring purchase prices and extending payment terms can improve financial performance in the short term, but the cost is the simultaneous decline in suppliers' R&D capabilities and delivery quality.
Changes are being driven at the policy level. In June 2025, 17 key car manufacturers promised supplier payment terms of no more than 60 days. A China Association of Automobile Manufacturers survey shows the industry average payment term has dropped to 54 days. This is just the beginning. Truly sustainable competitiveness comes from improving technical efficiency and creating product value, rather than continuously shifting operational pressure onto upstream suppliers. When high-quality suppliers invest capacity and R&D into overseas markets, domestic car manufacturers will lose not just a few supporting partners, but the entire industrial foundation.
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