Chinese carmaker BYD sees slower growth ahead for green car sales after subsidies cut

Billionaire Wang Chang-fu, chairman of mainland China car and battery producer BYD, said on Wednesday that sales growth of the company’s new energy vehicles(NEV) will decelerate this year due to cuts in government subsidies for green energy cars.

The Chinese carmaker, backed by Warren Buffett, reported its net profit rose 78.9 per cent to 5.1 billion yuan (US$741 million) in 2016. Earnings per share was 1.88 yuan, up 67.9 per cent from 1.12 yuan in 2015. The final dividend payment was 0.178 yuan per share.

Sales of the group’s new energy vehicles surged 70 per cent to 96,000 units in 2016, but failed to meet the target of 120,000 units.

“The sales growth of NEVs is expected to slow to 40 per cent to reach 140,000 to 160,000 units in 2017,” said Wang. “The subsidy decrease will have a significant effect on the NEV industry.”

China’s central government has used billions of yuan in subsidies to promote green energy vehicles as part of efforts to solve the serious air pollution problems in the country and to encourage technology innovation.

But the government began to reduce subsidies after investigations into subsidy fraud and policy changes.

In 2017, the subsidies offered by the central government decreased 20 per cent compared to that of 2016. Further, any local government financial subsidies should not exceed 50 per cent of the central government’s subsidy for each vehicle.

“The subsidies in 2017 were cut by more than our expectation and we will improve our sales and cut operating costs to reduce the negative impact,” said Wang, who added that vehicle prices will adjust to the market forces.

In terms of quarterly performance the Chinese carmaker expects its net profit could fall as much as 35 per cent year on year to 550 million yuan in the first three months of this year.

BYD reported slower earnings in the third quarter of last year after four consecutive quarters of triple-digit growth on the back of surging NEV sales.

On the news that China’s internet giant Tencent acquired a 5 per cent stake in US electric car maker Tesla, Wang said he was positive on the development. “The deal is a sign that market participants are bullish on the NEV development,” he said.

BYD shares dropped 3.26 per cent, their biggest daily loss in 10 weeks, to close at HK$43 on Wednesday.