Two of BYD's biggest dealers have stopped paying an advance subsidy of 120,000 yuan (HK$146,000) to buyers of the company's electric cars because they say it has become a burden on their liquidity.
The Shenzhen dealers which sell electric cars made by BYD Auto, a unit of rechargeable battery-maker BYD, said buyers would have to pay the full price and then claim the subsidy themselves.
The BYD e6 model is one of the most popular electric cars on the mainland. It costs 369,700 yuan.
A dealer, who declined to be named, said the decision was taken after it took some dealers nearly a year to get the subsidies back from the government, and some dealers had even stopped selling electric cars to avoid the delay in recovering their money.
In 2009, Beijing and 25 municipal governments began offering incentives to promote new energy vehicles. Electric cars are entitled to the highest subsidy of 120,000 yuan, while plug-in hybrid cars receive up to 100,000 yuan.
To boost sales, some dealers began offering the subsidies first and recovering the money later. Others said they were pressured by carmakers to pay the subsidies.
'If we sell 100 e6 models in a month, we would have to pay 1.2 million yuan in advance subsidies, and that would create pretty big pressure on us,' a senior sales agent said.
'Anyway, the proper procedure is for the customers to apply for the subsidies themselves. We are just doing them a favour.'
He denied the practice of paying the subsidies on behalf of the government was stopped because it took a long time to claim the money back. He said claims were settled within two months.
Another dealer said it took nearly a year to be reimbursed and this forced some dealers to stop selling electric cars to curb losses.
'For example, a dealer gets a BYD car for about 310,000 yuan from the manufacturer but can only sell it for 250,000 yuan after deducting the subsidy,' he said. 'Then they have trouble claiming the money back, so why should they do it when they have other less troublesome models to sell?'
In Shenzhen, the two main passenger car models entitled to subsidies are BYD's e6 - which is also used as a taxi - and its older plug-in hybrid F3DM model, on which buyers can claim a subsidy of 80,000 yuan.
BYD spokesman and senior manager Paul Lin said he was not concerned that the decision by the dealers would affect sales.
'In Europe and the United States, it is the buyer's responsibility to claim the subsidies. In China, dealers do that for the customers to boost demand, and now they find demand better than supply.'
According to mainland online search engine Sohu, BYD sold 129 e6 models in April and 113 in March, which was short of the carmaker's sales projection of about 300 units a month.
Recent sales could also have been affected by the headline-grabbing collision between an e6 car and a sports car on May 27, which sparked a fire and left three people dead.
That incident could have dented confidence in the car's safety, said John Lu, an analyst with Guosen Securities, who noted that some passengers were now refusing to hire e6 taxis in Shenzhen.
Lin said with more electric cars on the road, there were bound to be more accidents.
BYD would hire an independent expert team to investigate the cause of the accident, he said.
The number of BYD dealerships, which has fallen from 1,000 two years ago