BYD Sees Profits Squeeze As China Cuts Back Generous EV Subsidies

Chinese electric carmaker BYD is feeling the pinch from the national government scaling back on generous subsidies.

The company, backed in part by Berkshire Hathaway investor Warren Buffet, anticipates net profits will drop up to 25 percent for the first nine months due to China’s cutting down its “new energy vehicle” subsidies for manufacturers and consumers – and from increasing market competition.

The Shenzhen-based automaker posted net profits of 1.72 billion yuan ($259.9 million) for the first six months of this year. Analysts had predicted it would be 1.82 billion yuan ($274.4 billion).

Vehicle sales fell 14.8 percent to 183,637 units sold, according to Shanghai-based consultancy Automotive Foresight. That compares the first half of this year with the first half of 2016.

BYD saw its net profit skyrocket last year by 78.9 percent last year.

The company was also the world’s largest manufacturer of battery electric and plug-in hybrid electric vehicles worldwide over the past two years. Last year, the BYD Qin and Tang PHEVs led the way along with the EV300, e5, e6, and Denza battery electric models.

China continues to battle its heavily polluted cities, and is expected to launch a zero emission vehicle campaign later this year modeled after California’s policy. Along with starting to favor manufacturer mandates over costly subsidies, the national government has been frustrated with a subsidy scandal carried out by several automakers and discovered last year.

Bill Russo, managing director at consultancy Gao Feng Advisory Co., said that BYD could benefit from taking a broader vehicle development strategy than just electric cars. That includes building electric buses and commercial trucks, and being part of the energy storage market. It is starting to pay off, Russo said.

SEE ALSO: BYD Signs One Of Largest Ever Electric Bus Contracts With LA Metro

Some of that is based in the U.S., with the company ramping up its Lancaster, Calif., production plant that builds electric buses and trucks.

“We have seen a sales recovery trend for BYD during the past few months, especially in Q2. In addition, BYD is pushing green public transportation in China and globally,” Russo said.

Reuters


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