BYD Co, backed by Warren Buffett's Berkshire Hathaway Inc, warned subsidy cuts for new-energy vehicles (NEVs) in China could slash its quarterly profit by as much as 90 percent, driving its shares down almost 10 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 in 2019.
BYD has invested heavily in battery electric and plug-in hybrid vehicles amid this government's push.
"(As we are) affected by the reduction in new-energy vehicles 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 estimated its first-quarter net profit slumped 75.2 percent to 91.8 percent from a year earlier due to the subsidy cuts.
That would put profits between 50 million yuan (.96 million) and 150 million yuan, versus 605.8 million yuan a year earlier.
In February, China cut subsidies for lower-range cars and for some buses in the NEV sector, but raised them for vehicles with higher performance.
BYD's shares in Hong Kong and Shenzhen fell as much as 10 percent to multi-month lows in intraday trade on Wednesday.
"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 released in February. In 2016, net profit jumped almost 80 percent.
China's 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 in 2019, would support larger players while "eliminating weaker players in the industry."
BYD, which is looking to diversify into electric batteries and other transport services, should see earnings growth pick up in 2018, with analysts polled predicting a 50 percent jump in net profit in 2018.