It’s more than just the torque being cut, power is too.
The electric cars don’t lose anything, my I Pace makes over 500hp normally and still does after the King effect kicks in.
Power is derived from torque, so any change to torque (or RPM) affects power naturally.
Interesting on the second point though - that almost sounds like it's applying an air restrictor, but I don't think Forza really simulates intake airflow. What they could be doing is changing the outside air pressure and letting the boost simulation take over - I'll have to keep an eye on the telemetry next time I use a naturally aspirated car in PG.