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China is considering further cuts to subsidies for electric-vehicle purchases, according to people familiar with the matter, threatening to deal another blow to a once-burgeoning industry that’s facing an unprecedented slump.

Industry regulators in the world’s largest EV market have been discussing the proposal but are holding off on a decision until they weigh sales data over the coming months, according to the people, who asked not to be identified because the discussions are private. The plan involves reducing subsidies next year but discussions are still at an early stage so there’s no guarantee the cuts will happen then, two of the people said.

China, which began subsidizing EV purchases in 2009 to promote the industry, has been gradually reducing handouts in the past few years to let automakers compete on their own. Problem is, the last time the government cut subsidies, it triggered the country’s first drop in EV sales on record, exacerbating what had already been the most prolonged downturn in the world’s largest auto market.

The slump in China dragged down the global EV sector as the country accounts for about half of the world’s sales of electrified cars. Still, regulators continue to face pressure to reduce handouts as state support helped bankroll the livelihood of hundreds of local startups and fueled concerns about a bubble in the industry.

But here’s the dilemma: Pull the levers too fast and it risks undermining China’s bigger ambitions of leading the world away from fossil-fueled gas guzzlers. China considers EVs as a strategically important sector, and is considering a target for 60% of all autos sold in the country to run on electric motors by 2035, people familiar with the matter have said.

China’s finance ministry, which has been overseeing the discussions, didn’t immediately respond to faxed queries.

Though China announced four years ago it would gradually eliminate subsidies for new energy vehicles EVs, plug-in hybrids and fuel-celled vehicles after 2020, details have been vague and it didn’t always stick to the plan. Policymakers have been surprised by the sudden, prolonged downturn that resulted from the latest subsidy cut in June, prompting them to debate whether another cut would be too much for automakers to handle, the people said.

The latest cut took effect in June, when the government cut subsidies of as much as $7,165 per EV by half. Chinese NEV sales began falling in July and have been dropping since. China’s top EV makers have since slashed their earnings outlooks and analysts have recently questioned whether the likes of Shanghai-based NIO Inc., once regarded by many as China’s Tesla Inc., will survive.

Warren Buffett-backed BYD Co., the country’s biggest maker of new energy vehicles, last month reported an 89% slump in third-quarter earnings and warned profit could fall as much as 43% this year. BAIC BluePark New Energy Technology Co. also forecast a 2019 loss in a grim earnings update.

Subsidies have played a vital role in making electric cars more affordable. While up-to-date data aren’t publicly available, the central government disclosed last month it handed out 22 billion yuan in EV subsidies to companies in 2017. Some municipalities also offer additional incentives.

Subsidy cuts aren’t likely to deter carmakers from China, and analysts at Sanford C. Bernstein say they continue to be positive on long-term EV demand. Tesla is putting the finishing touches on a multibillion-dollar factory near Shanghai as it prepares to start production in the country later this year. Global heavyweights such as Daimler AG and BMW AG also plan to bring in new EV models.

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