17 September 2019

Subsidy cut may stall hybrid buses

The latest news on China’s subsidy policy for hybrid buses has been a mixed bag. The good part is that the government subvention is likely to be extended. But the worrisome aspect is that the subsidy amount may be reduced substantially, which could hurt the fledgling new-energy vehicle market.

In China over 70 percent of the commercial vehicles powered by new energy are bus coaches. Of such vehicles, diesel-electric hybrids account for 90 percent, given the fact that the government subsidies are generous and bus fleet buyers can get easier access to charging ancillary facilities.

Generally speaking, the sticker prices on traditional diesel and hybrid coaches are 300,000 yuan (US$49,410) and 800,000 yuan respectively. But China has been handing out subsidy of up to 420,000 yuan for each hybrid bus sold since 2009, making the greener model quite competitive in the market.

On strength of the subvention and expected huge saving in fuel expense, sales of diesel-electric powered coaches heated up in the country, with about 20,000 units sold over the last four years.

Zhengzhou Yutong Bus Co. Ltd. (600066.CN) and Xiamen King Long Motor Group Co. Ltd. (600686.CN) have emerged as the key hybrid bus providers in the country. The two firms are continually expanding their production capacities to absorb the robust demand. But both of them are also more exposed to the growing policy risks.

According to the Shanghai Securities News, Beijing will soon revise the subsidy policy and slash the maximum allowance to just 100,000 yuan. If that indeed happens, it will greatly undermine the competitiveness of hybrid coaches in the country, driving fleet buyers back to the environment-unfriendly pure-diesel-powered buses.

The possible subsidy cut, coupled with the steady rise in electricity tariffs in China, could easily ruin the painstakingly established niche market for home-built new-energy vehicles.

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