Chinese electric automakers hit by new threat of subsidy cuts

Shares of Chinese electric-car makers dropped following a Bloomberg News report that stated regulators may slash subsidies further on the embattled industry.

BYD Co., China’s biggest company of new energy vehicles, dropped 2.8% in Hong Kong. BAIC BluePark New Energy Technology, the country’s biggest company of pure electric cars, retreated 2.9% in Shanghai, while Contemporary Amperex Technology, the world’s biggest car-battery company, fell 2.5%. Hong Kong’s Hang Seng Index dropped 2.6% and the Shanghai Composite Index dropped 1.8%, their biggest losses in three and four months.

China will assess demand for EVs before deciding whether to slash subsidies for the automobiles again, Bloomberg reported recently, citing people familiar with the issue. The government, which started subsidizing EV purchases in 2009 to promote the industry, has been gradually decreasing handouts to encourage automakers to rival on their own.

China’s auto market is going through a prolonged downturn that has dragged down the global EV sector as the nation accounts for about half of the world’s sales of electrified cars. Still, regulators keep experiencing pressure to decrease handouts as state support fueled concerns about a bubble in the industry.

The recent funding cut took effect in June, when the government slashed subsidies of as much as 50,000 yuan ($7,165) per EV by 50%. Chinese NEV sales then started falling in July and have been falling since. China’s top EV makers cut earnings outlooks and experts have recently questioned whether the likes of Shanghai-based NIO Inc., once regarded by many as China’s Tesla Inc., will be strong.

Warren Buffett-backed BYD in the earlier month reported an 89% drop in third-quarter earnings and warned profit could drop as much as 43% this year. BAIC BluePark also forecasts a 2019 loss in its revenues update.

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