BYD  became the world’s biggest electric vehicle maker thanks to its market-leading position in China, which in turn became both the biggest automotive market and electric vehicle market in recent years.

But as the government is reducing its direct EV incentives and shifting to a zero-emission mandate, BYD has taken a hit and saw its sales drop 34% during the last quarter.

The move to phase out EV subsidies was reportedly directly aimed at weeding out smaller companies relying solely on them.

While BYD took a significant hit because of it, the company is amongst the most likely companies to get through it. MIT Technology Review reported:

“Yet in January, when the government cut funding for electric vehicle purchases in an attempt to force consolidation of the industry by weeding out smaller, subsidy-reliant companies, BYD’s first-quarter profit fell 29 percent to $88 million (605.8 million RMB), and sales dropped 34 percent. Now BYD is hoping its slump will be solved by a global expansion with new products like buses, garbage trucks, and trains eventually providing a full suite of clean-energy urban transportation. Subsidies will again play a role, and the company is investing in bus factories in France and Hungary.”

That’s a tough quarter for BYD which has seen ~45% annual growth in sales over the last few years before this quarter.

It was dominating the EV market in China, which grew past 500,000 vehicles last year.

The company is likely to see a lot more competition from established automakers in the sector in the coming years due to the government’s new ZEV mandate, which will require automakers’ electric vehicle sales to represent at least 8% of their total sales in 2018, 10% in 2019 and 12% in 2020.

We have seen several automakers, including GM, announcing more electric vehicle production in China in recent months because of those new regulations. Tesla is also looking at establishing local manufacturing capacity to stop importing its electric vehicles in the country.

The California-based automaker wasn’t eligible to most of the direct EV subsidies because of its importation of vehicles. Therefore, it wasn’t affected by the overall slowdown of EV sales during the first quarter in China. As we reported last week, it actually had record sales in both mainland China and Hong Kong – though for different reasons.

BYD is looking at its heavy electric trucks and buses in order to compensate for the drop in passenger electric car sales. It delivered its first massive 60-ft all-electric bus in the US last week and it is also producing electric yard trucks.