Bus Makers’ Profits Squeezed by Cuts to New-Energy Subsidies

Chinese commercial bus manufacturers reported sharp declines in first-half profits after the central government slashed subsidies for new-energy vehicles, according to interim reports released by major listed companies.

Shanghai-listed Zhengzhou Yutong Bus Co., the country’s largest bus maker, said first-half profit dropped 35% from the like period last year. Major rival Zhongtong Bus & Holding Co. reported a 79% plunge in first-half profit. Another major bus maker, Shenzhen-listed Anhui Ankai Automobile Co., swung to a loss of 28.8 million yuan in the first half from a net profit a year earlier.

The bus makers cited sluggish sales of new-energy buses. Regulators almost halved the subsidies this year from the 2015 level after some new-energy vehicle companies were accused of abusing subsidy rules.

The Ministry of Industry and Information Technology (MIIT) and other departments last year launched a nine-month fraud investigation and fined seven manufacturers for making fraudulent applications and inflating production totals to obtain higher subsidies.

Zhengzhou Yutong said its sales declined nearly 30% year-on-year in the first half, and Zhongtong Bus reported a 42% decline in sales. Sales of new-energy buses made up 80% of Zhongtong’s total 2016 sales and contributed almost 90% of profit, the company said.

Regulators in December decided to re-evaluate the catalog of vehicles eligible for new-energy incentives and raised requirements for automakers to receive subsidies. Bus makers were especially affected as it was not until April that regulators announced that new-energy buses would be eligible for subsidies.

The government also cut subsidies on new-energy buses by 20% this year from 2016 and will further reduce incentives in 2019-2020. After 2020, all subsidies on new-energy vehicles will be phased out.

But some bus makers and analysts said they expect the new-energy bus market to revive later this year reflecting strong demand.

Yangzhou Yaxing Motor Coach Co. said it expects demand for new-energy vehicles to pick up soon, although in the first half the company posted a 12.4% drop in revenue and a 23.8% drop in profit.

China International Capital Corp. said in a research note that the first half is usually worse for bus makers like Zhengzhou Yutong and a recovery is likely to start in the third quarter.