(Bloomberg) — Optimism this would be a banner year for the world’s biggest electric-car market is starting to wane. It is not worth the risk of spending a lot on a car right now in China. 

Shanghai’s grueling two-month lockdown and whack-a-mole restrictions in cities from Beijing to Tianjin have had a deleterious effect on consumer confidence and left the economy reeling. In fact, not a single car was purchased in Shanghai in April — not surprising given no one could leave their homes and dealerships were closed.

China Passenger Car Association had predicted that 5.5 million EVs will be sold in 2018, up from 3.3million last year. That could be under threat — even if demand quickly bounces back, automakers are struggling to operate at full capacity given Covid-19 restrictions on workforces and supply chain constraints. 

Just look at the latest sales figures of Xpeng and Li Auto (NYSE:) to see just how bad the auto industry is suffering. From March, Xpeng delivered just over 9000 vehicles in April. This is a 42% drop. Li Auto shipped just 4,167 vehicles in April, and earlier this month said it sees deliveries of 21,000 to 24,000 vehicles in the second quarter, well short of analysts’ expectations for 29,750.

Even Tesla (NASDAQ:) hasn’t escaped, shipping just 1,512 vehicles from its Shanghai plant in April, when it was closed for three weeks. Production is now back on track, and the EV pioneer went to extraordinary lengths in order to return to a capacity of approximately 2,100 cars per day.

The easing of Shanghai’s lockdown and recently announced central government measures to kickstart the economy and revive auto sales may not be much help to EV makers, either. 

Fitch Ratings claims that a tax cut of 60 billion yuan (roughly $9 billion) on new cars sales will mainly help fossil fuel-powered autos. This is because EVs are not subject to the 10% tax purchase tax which expires at the end this year. The end-of year cliff edge in EV subsidies serves as a reminder about how expensive battery-powered vehicles could become without additional government support. This is especially true given recent price pressures.

It’s not all bad news on the subsidy front, however, with regional governments pitching in to help EV makers. Shandong offers subsidies for both fossil-fuel-powered and electric cars, and Shenzhen (and Guangzhou) offer subsidies of 10,000 yuan for EVs. In addition to expanding the number of license plates for petrol- and diesel-powered vehicles, Guangzhou is offering subsidies in the amount equivalent to 10,000 yuan. Shanghai increased its car ownership limit by 40,000 over the weekend. It also offered subsidies for buyers of EVs. 

Even so, Fitch’s China auto analyst, Jing Yang, says the firm’s forecast for 50% growth in EV deliveries this year may have to be “revisited” once the effect of all the government moves becomes clearer. “Demand could be negatively affected by lower value-for-money compared to internal combustion engine cars after subsidies and new tax relief, in particular amid surging battery costs,” Yang said.

Independent economist Hao Hong says annual vehicle sales are already high, and car ownership among those who can afford one is “rapidly” reaching saturation point.  

“Unless the rough management of lockdown goes away, it will be difficult for car sales to normalize,” Hong said. “People don’t spend when they’re despondent. Zero car sales in Shanghai in April is the epitome of the destruction caused by lockdown.”

©2022 Bloomberg L.P.