China’s electric vehicle-makers are locked in a spiraling price war, writes The Wall Street Journal (July 14, 2025). Their suppliers say they are bearing the brunt.
The country’s biggest automaker, BYD, recently lowered the price of a starter EV to less than $8,000. To hit such low prices, suppliers say the company is squeezing them by demanding lower prices and dragging out payment periods.
BYD, or Build Your Dreams, often pays suppliers at first with an electronic IOU it calls D-chain (after the Dreams in its name). The suppliers may wait for the better part of a year before the notes can be cashed in. Such payment methods are a nightmare for cash flow. But suppliers fall into line, desperate to keep orders coming. Suppliers can sell the D-chain to a broker or bank, but that typically means losing percentage points of the face value to fees.
Overcapacity and lackluster consumer demand are driving the trend. China’s car business is one of many industries hit by a deflationary wave that threatens its economy.
The Chinese phenomenon is known by the word neijuan, which refers to a situation in which people work hard and compete fiercely without anyone getting ahead. Suppliers say they are now asked for price cuts as often as once a month. Carmakers like BYD are tightening their audits and demanding information on what suppliers pay for materials. They ask suppliers to submit electricity bills, worker records and other cost data to justify their prices. And carmakers go to the suppliers’ factories to check whether the reported number of workers on production lines is accurate.
“Market competition will grow fiercer in 2025, ushering in a final showdown, a knockout round,” BYD wrote, calling for a “concerted effort from our entire supply chain to achieve sustained cost-cutting.”
But the chairman of one large Chinese parts supplier penned an open letter which went viral for capturing their concerns. “I have a dream that one day in China’s auto industry, leading automakers and large suppliers will have a social conscience,” he wrote.
Classroom discussion questions:
- Why is BYD using the D-chain system?
- What can suppliers to BYD do in response?