Chinese carmakers need to build more competitive cars: BYD president

China’s electric vehicle manufacturers posted significant losses last month, as steep cuts in government subsidies continued to weigh on the sector.

But a top executive at the country’s largest EV maker, BYD, says Chinese carmakers need to “build more competitive cars” to reduce their reliance on government policies. 

 “We need to deliver a safer car, and a more reliable car, to the consumer,” Stella Li, BYD Motors president, told Yahoo Finance.

Deliveries for Warren Buffett-backed BYD plummeted 75% to 7,133 last month, with sales declining for a seventh straight month.

Government policies have helped fuel the dramatic growth of EVs in the world’s largest auto market. Beijing set out to reach 7 million in annual sales for EVs by 2025 to make up a fifth of its overall car sales and implemented a string of tax incentives and subsidies to help carmakers reach those targets.

But the government reversed course last year, slashing subsidies by more than half in July, sending sales into a downward spiral. 

Li criticized the subsidy cuts for being “too sharp” and “too stiff,” but said eeroding confidence in the safety of Chinese-made electric vehicles also contributed to the slowdown. Last year, a spate of fires involving EVs prompted Beijing to order safety checks by all carmakers. Battery fires forced at least one of those carmakers — Chinese startup NIO ($NIO) — to recall 5,000 of its ES8 Electric SUVs. 

While BYD vehicles weren’t implicated in any of the incidents, Li said, “Everything combined stopped people from buying electric vehicles.”

“We need to build more competitive cars, so we don’t rely on subsidies,” Li said. “Then the consumer will still want to buy.”

Effect of coronavirus

The coronavirus outbreak has complicated the outlook for the sector. Containment measures forced factories across China to shut down for weeks, extending the Lunar New Year holiday. Consumers largely stayed indoors, especially in the epicenter of Wuhan in the Hubei Province. 

In recent weeks, BYD, like other manufacturers, has reconfigured its assembly lines to churn out face masks to address the country’s shortage. 

“Our production stopped for 10 more days or weeks,” Li, said describing the economic impact as a short-term loss. “Because of today’s overreaction (by the government), I think after a few months, this will all be under control.”

Future of EVs is strong

The Chinese government has said there are no plans to dramatically reduce subsidies further, for now. But with nearly 500 manufacturers still producing EVs, Li said some consolidation will be necessary to ensure the long-term health of the industry.

“In the long term, the market will continue to grow, without subsidies,” she said. “In the future, consumers will only buy the EV or plug-in hybrids.”

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita