A Major Turning Point for BYD’s Supply Chain Strategy
China’s EV giant BYD, long celebrated for its rapid growth and cost-efficient operations, is now making one of its most significant operational shifts in years. After relying heavily on its in-house Dilian payment note system — a practice that helped the company conserve cash but strained supplier relationships — BYD is reportedly moving toward more standardized payment methods such as commercial paper and bank notes.
This strategic reset comes at a critical time. With the Chinese auto market in the midst of an aggressive price war, suppliers under extreme financial pressure, and regulators tightening oversight, BYD’s pivot could reshape the company’s entire supply chain. But the bigger question is: Will this shift alleviate supplier stress, or will it create new challenges for a company already dealing with slowing sales and shrinking margins?
BYD’s Dilian System: A Tool for Growth — and Tension
For years, BYD used its in-house Dilian notes — essentially electronic IOUs — to pay suppliers. This unique system gave the company tight control over its working capital, allowing it to roll out new EV models quickly while minimizing dependency on external financing.
However, this advantage came with a cost. Suppliers frequently complained about:
- Delayed payments, sometimes stretching nearly a year
- High discount rates when cashing Dilian notes early
- Uneven bargaining power, since BYD could trace subcontractors through note circulation
While the system boosted BYD’s expansion, it gradually became a source of friction between the automaker and the businesses that supported its supply chain.
A Move Toward Commercial Paper and Bank Notes
According to sources familiar with the situation, BYD has begun notifying select suppliers that it plans to abandon Dilian notes in favor of bank notes and commercial paper — mainstream payment tools used by other Chinese automakers.
Unlike Dilian IOUs, bank-issued notes are directly regulated, perceived as lower-risk, and carry much lower discount rates — typically under 2%, compared to the 6% discount applied to some Dilian notes.
Although BYD has not officially explained the shift, analysts believe the company is responding to:
- Supplier distress caused by delayed payments
- Regulatory tightening around supply chain financing
- Public pressure amid industry-wide scrutiny
- Slowing sales and reduced profits, which limit BYD’s flexibility
Industry Pressure: China’s EV Price War Hits Suppliers Hard
China’s EV market has become a battleground. Intense competition has triggered a brutal price war, forcing automakers to cut prices and squeeze costs. Suppliers, already grappling with thin margins, bore the brunt of this pressure as payment timelines grew longer and financial risk increased.
This led Chinese authorities to impose new rules in June, mandating auto companies to:
- Pay suppliers within 60 days
- Stop forcing vendors to accept non-cash payments
- Improve transparency and reduce credit risk
While BYD publicly stated it would comply and had already “sped up payments,” insiders claim loopholes still exist, such as delaying the official confirmation of goods received.
Regulatory Spotlight: Dilian Faces More Scrutiny
China’s financial regulators recently announced plans to tighten oversight on supply chain financing tools, including electronic IOUs like Dilian notes. Issuers have been given a two-year window to improve self-regulation — a clear sign that authorities want greater transparency and accountability in payment practices.
For BYD, this means the era of unrestricted use of Dilian notes is nearing an end. As oversight increases, the company may find it increasingly difficult to maintain the same cash-flow advantages the system once provided.
Financial Risks Behind Dilian: Hidden Debt Concerns
Some analysts have long warned that BYD’s heavy reliance on Dilian could mask deeper financial vulnerabilities.
In January, Hong Kong’s GMT Research suggested that BYD’s supply chain financing practices meant its true net debt was closer to 323 billion yuan ($45B) — far higher than the 27.7 billion yuan reported in earnings.
BYD did not respond to Reuters’ inquiries about the claim, but the discrepancy raised concerns among investors about the automaker’s actual financial health.
A Strained Timeline: Suppliers Wait Longer Than Industry Norms
BYD took an average of 127 days to pay suppliers last year — significantly longer than the 108-day industry average in China. Globally, many manufacturers settle payments in under 90 days, and in some regions under 60 days.
Long payment cycles can choke suppliers’ cash flow, particularly small and mid-sized manufacturers, threatening the stability of the broader supply chain.
Widespread Use of Dilian Notes Beyond BYD’s Network
Dilian notes became so prevalent that they began circulating outside BYD’s own supply chain. A rivet manufacturer in Henan reported receiving Dilian vouchers four to five times in two years, despite not being a BYD supplier.
This widespread circulation highlights just how deeply BYD’s financing system permeated the ecosystem — and how unwinding it may require careful, gradual transition.
The Timing: BYD Faces New Challenges at Home and Abroad
The shift away from Dilian comes as BYD faces mounting business pressures:
- 12% drop in October sales
- Domestic market share down from 19.1% to 13.2% in a year
- Quarterly revenue down 3%, the first decline in over five years
- Profit falling by one-third
At the same time, BYD is expanding aggressively overseas, requiring significant capital investment. Without the financial cushion Dilian once provided, BYD may face tighter margins and slower model rollout speeds.
BYD’s Payment System Pivot Marks a New Era of Accountability
BYD’s move away from its Dilian payment system marks a pivotal moment for both the automaker and its suppliers. While the transition may create short-term financial and operational challenges, it could ultimately lead to a more transparent, efficient, and fair supply chain.
As global competition intensifies and regulatory scrutiny deepens, BYD’s willingness to reform its practices may help strengthen long-term supplier relationships — a critical asset as the company pushes deeper into international markets.
For now, the shift signals BYD’s recognition that sustainable growth requires more than innovation and scale — it demands trust, fairness, and stability across the entire value chain.
Frequently Asked Questions (FAQs)
1. Why is BYD moving away from its Dilian payment system?
The shift is likely driven by supplier pressure, new regulations, and the need to improve transparency and reduce credit risk.
2. What were the problems with Dilian notes?
Suppliers faced delayed payments, high discount rates, and increased financial risk due to a lack of direct regulation.
3. How will this change impact BYD’s suppliers?
Suppliers may experience faster payments, lower financing fees, and improved cash-flow stability.
4. What risks does BYD face by ending Dilian?
BYD may lose some cash-flow flexibility and face higher working capital costs during a period of slowing sales.
5. How does BYD compare to other automakers in supplier payment cycles?
BYD averages 127 days for payment — far longer than many global automakers, which often pay in under 90 or even 60 days.
6. Will this shift affect BYD’s overseas expansion?
Possibly. Reduced cash reserves could make it harder for BYD to fund rapid overseas growth without taking on more debt.