BYD Co., backed by Warren Buffett’s Berkshire Hathaway Inc., warned subsidy cuts for new energy vehicles could slash its quarterly profit by as much as 90 percent.

The squeeze on BYD’s profits underscores the challenge carmakers are facing in the world’s largest auto market, which is moving toward pure electric and plug-in hybrid vehicles with strict quotas set to come into effect next year.

“(As we are) affected by the reduction in new energy vehicle (NEV) subsidies, the profitability of the business, especially for electric buses, has declined substantially so as to bring great pressure to the group’s overall profit,” BYD said.

The company expects its first-quarter net profit to slump 75.2 to 91.8 percent from a year ago due to the subsidy cuts.

That would put profits for the three months to March between 50 million yuan (US$7.96 million) and 150 million yuan, versus 605.8 million yuan a year ago.

In February, China’s Finance Ministry cut subsidies for lower-range NEV cars and for some buses, but raised them for vehicles with higher performance.

“Even though people are still buying NEVs as subsidies fall, BYD’s plight speaks to a tough future for electric cars,” said Yale Zhang, head of consultancy Automotive Foresight.

BYD’s net profit in 2017 fell 19.5 percent to 4.07 billion yuan, roughly in line with preliminary figures release last month. In 2016, the firm’s net profit had jumped almost 80 percent.

The Central Government wants the country to be a world leader in NEVs and related technologies, but has been looking to phase out financial subsidies that have been behind the rapid growth of the sector.

BYD said a quota system giving carmakers a “credit score” based on their NEV output and performance, set to come into effect next year, would support larger players while “eliminating weaker players in the industry.”

Domestic and international industry executives have called for continued policy support from the government to help maintain growth in the world’s largest NEV market, where broader auto sales growth is slowing down.

BYD, which is looking to diversify its businesses into electric batteries and other transport services, should see earnings growth pick up in 2018, with analysts polled previously predicting a 50-percent jump in net profit this year.(SD-Agencies)