BYD Suffers Profit Hit From China Cutting Electric Car Subsidies

(Bloomberg) -- China's plan to wean carmakers off handouts for electric cars is hitting BYD Co., adding to the pressure billionaire Chairman Wang Chuanfu may face from the slew of startups aiming to enter the market in the next few years.

The manufacturer, which gets more than half its revenue from the auto business, said its net income slumped 29 percent to 605.8 million yuan ($88 million) in the first quarter, after government rebates fell. The company said in January that falling state subsidies will lead to a decline in electric vehicle sales and undermine profitability.

China surpassed the U.S. to become the biggest market for electric vehicles largely on the back of generous funding by the government to both automakers and consumers. The central government scaled back its subsidies by 20 percent this year from 2016 and lowered the cap on funding matches by local governments to weed out the weaker companies, many of which had sprouted with the primary aim of receiving the handouts.

The tightening of subsidies come at a time when investments are flooding into the production of electric vehicles. To date, newly set up companies have announced at least 98 billion yuan of investments to build electric car factories with a total annual capacity of 2.9 million units a year, or six times the number of plug-ins sold last year, according to data compiled by Bloomberg from company statements.

BYD, which had a 23 percent share of China's new-energy vehicle market last year, may benefit from declining subsidies over the long run as smaller manufacturers exit the market, the company said in its annual report.

As competition to sell electric vehicles in China intensifies, Wang is seeking new avenues of growth by expanding into monorail and solar-energy storage systems. BYD also plans to add another electric bus plant in Europe this year to tap rising demand in the continent, where many countries are phasing out buses running on fossil fuels.

--With assistance from Yan Zhang

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net.

To contact the editors responsible for this story: Chua Kong Ho at kchua6@bloomberg.net, Subramaniam Sharma

With assistance from Tian Ying