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https://twitter.com/gablova/status/1666781014511820800

https://twitter.com/glennluk/status/1665788282087649281

https://twitter.com/glennluk/status/1666485498053812246

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Glenn

@GlennLuk

Jun 21

Others have now raised this topic a few times, so allow me to share some thoughts on the BYD (and broader) supply chain financing story:

1⃣ BYD's high payables number actually reflects the strength of its underlying business model and market dominance for two key reasons (ability to extract favorable supplier terms; how that number is driven in part by rapid expansion in production capacity)

2⃣ Establishing industry norms that forces larger players like BYD to adhere to standard payment terms (voluntarily or involuntarily) is a positive step forward for the whole industry, leading to more efficient overall financing approach.

3⃣ BYD and other market leaders that also run large negative working capital balances are generally not a risk of insolvency by adhering to new industry norms as they are generally under-leveraged (with traditional debt financing) and will simply plug the financing hole with more traditional debt and equity financing. In BYD's case, I expect all or most of it to be to replaced with debt (long-term bonds).

1⃣ BYD's high payables figure reflects strength of its underlying business model and is in part a reflection of its rapid growth in production capacity

While the high payables figure has been portrayed as a potential weakness (with some even raising the idea that BYD is insolvent), actually it reflects the opposite.

BYD uses its scale to extract favorable terms from its suppliers. It trades volume for pricing as well as non-pricing advantages, like extended payment terms. It does this because that's what extremely competitive companies do: they try to exploit every advantage they have over the competition.

As BYD has only gotten bigger and more powerful, it has maintained its ability to sustain structural negative working capital state on its balance sheet.

Companies that can maintain negative working capital are often extremely competitive. This is a very desirable business model to run for rapidly growing companies because as revenue grows, working capital becomes a source of funding.

Amazon's marketplace business was an example of this. Amazon collects payment upfront and then pays out sellers later. This leads to a negative working capital balance, which is effectively a very low-cost form of growth financing for its marketplace business.

Ability to maintain negative working capital is even more rare in a capital-intensive businesses like the car sector. That reflects just how dominant BYD has become.

This doesn't mean it's a good thing for the industry overall (and I'll touch on this in the next point), but it does reflect on the increasing dominance of BYD individually.

Read 13 tweets

Glenn

@GlennLuk

Jun 19

People have a tendency to compress complex, multi-decade stories into simple narratives that follow cause-and-effect storylines, often ones that tie into pre-existing narratives. This creates the risk of dangerous over-simplification.

In this case, the prevailing narrative goes something like this:
▪️ "China failed to build a competitive auto industry for decades."
▪️ "Then Tesla entered the market and became the magic fix that enabled China to develop a globally competitive car industry."
▪️ "Therefore, we should apply the same magic fix to our own industry."

In my view, this is a dangerous over-simplification. Reducing the story to a simple cause-and-effect narrative often leads to blissfully naive solution sets that fail to address the core issue: how do we re-industrialize America?

Believing that simply inviting Chinese car companies into the U.S. will serve as a "magic fix" — just as Tesla supposedly was for China — misses the mark, for two key reasons:

1. The "magic fix" narrative is a gross oversimplification of five decades of development in China's auto and broader industrial/manufacturing sectors.

2. The fundamental challenges China faced over those decades are very different from the ones the U.S. faces today.

None of this is to say that inviting Chinese automakers to invest FDI in the U.S. cannot be part of a LT solution**. But it must be done thoughtfully — and only in tandem with addressing core domestic issues — if the goal is truly to re-industrialize this country in a meaningful way.

** Of course, all of this assumes they even find the risk/reward decision to commit long-term capital to the U.S. in today’s geopolitical climate remotely attractive compared to FDI opportunities elsewhere.

1⃣ First, let me go through several points that were brought up in the excerpted sections of the interview as well as the post to show how reality was much more complex than presented**

** I full interview is not out and I haven't seen it, so perhaps there will be more nuance there; this is mainly a reaction to how the narrative on the rise of China's auto industry has been grossly oversimplified and in certain cases, simply wrong.

"The impact was brutal. When Tesla's Model 3 launched in 2020, it quickly became China's best-selling EV. BYD's total vehicle sales actually fell 7.7% that year to just 427,000 units."

This excerpt suggests that Tesla's market entry in China was the direct cause-and-effect reason why BYD's sales declined in 2020.

This is wrong. It may have played a minor role, but there were many other reasons why BYD's vehicle sales declined.

Read 35 tweets

Glenn

@GlennLuk

May 31

https://twitter.com/glennluk/status/1746605680566698438

This popped up on my timeline and was just a reminder of some of the sillier narrative framing of Chinese EVs just a year and a half ago.

https://twitter.com/glennluk/status/1746605680566698438

https://twitter.com/michaelxpettis/status/1746398654590574967

Since this post in January 2024, Chinese NEV production has increased from a ~10-11 million run rate to ~>16 million as of mid-2025 and virtually ALL of the increase has been absorbed by the Chinese market …

https://twitter.com/michaelxpettis/status/1746398654590574967

https://twitter.com/glennluk/status/1878469784074940927

… as EV exports have been more or less flat.

This means Chinese households are buying EVs as fast as they can be produced in the factories.

https://twitter.com/glennluk/status/1878469784074940927

Read 8 tweets

Glenn

@GlennLuk

May 31

Chinese chip designers finding workarounds for EDA software is roughly the same degree of difficulty / switching cost as moving away from CUDA/nVidia.

This is an effort measured in months, not years.

eetimes.com/u-s-restricts-…

By comparison the advanced lithography ban was an OoM more complex/difficult and the switching cost process measured in years, not months.

That was the largest source of leverage in the American tech/economic dominance toolkit and it was played early.

The other comp here is developing a homegrown OS and attracting a developer base.

Replicating EDA software and supporting libraries is the same order-of-magnitude task.

The development takes years, but this effort was also started years ago, with real efforts kicked off after the Meng arrest in 2018.

Read 11 tweets

Glenn

@GlennLuk

May 29

Can we please stop with this fiction that there are "only 2-3 profitable Chinese EV companies"?

I count at least 8 profitable NEV operations + CATL/Huawei. And it is the only market that is close to profitable selling NEVs at the sectorwide level after accounting for subsidies.

In 2023, the first year after Beijing ended buyer rebates, China's car sector sold an ~9.5M NEVs generating revenue of ~$233B ($24.6k ASP).

Sectorwide gross margin was ~21% (~14% ex-subsidies) with operating profit of ~1.4B (negative ~$21B after subsidies).

Note that comparable figures in the U.S. in 2023 were:

▪️ $66B in sector-wide revenue
▪️ $2.6B (4%) in gross profit (negative $13B, or -19%, after subsidies)
▪️ -$27B in operating profit (negative $42B after subsidies)

There was only one profitable operation before subsidies: Tesla. And after subsidies, Tesla's U.S. car operation was not profitable.

Indeed, I suspect the only solidly profitable segment of Tesla's car operations today (ex-subsidies) are its exports out of Gigafactory Shanghai.

Read 27 tweets

Glenn

@GlennLuk

May 14

Saying Apple "invests $55B in China every year" is financially illiterate nonsense.

We know exactly how much Apple has invested in China, as it discloses annually in its annual 10-K.

Apple has cumulative investment in "Greater China" (includes HK/TWN) of $4.8B as of 9/2024.

Included in this $4.8B balance sheet figure are leasehold improvements on Apple Stores, "inventoy prepayments" and owned "capital assets at its suppliers' faciliities" like molds and specialized equipment sitting in Foxconn's factories.

Again, the $4.8B represents the cumulative aggregate of long-lived assets that Apple has in China, Hong Kong and Taiwan.

And notably, Apple has been liquidating (a.k.a. converting to cash and repatriating) this tangible asset base.

This number peaked at ~$13B in 2019.

Read 13 tweets

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