Toyota's China Supplier Sees Rising Profit on Hybrid Sales

  • Corun to supply 30,000 hybrid systems to China carmakers
  • Company posted operating loss for three consecutive years

Hunan Corun New Energy Co., a supplier of batteries for Toyota Motor Corp.’s China-made hybrids, expects a sixfold jump in the number of vehicles it will equip next year with its own gasoline-electric systems as more automakers embrace the technology to meet a deadline for lowering fuel consumption.

Four Chinese assemblers including Anhui Jianghuai Automobile Co., Haima Automobile Group Co. and Chongqing Changan Automobile Co. have agreed to buy the company’s hybrid powertrains for as many as 30,000 vehicles in 2017, Corun Chairman Zhong Faping said in an interview. Corun likely swung to a profit last year as demand for its battery components rose from customers such as Toyota, he said.

China has excluded hybrids from the subsidies doled out to electric-car buyers and plug-in autos as part of its strategy to reduce tailpipe emissions and dependence on imported oil. The government also requires automakers to lower the average fuel consumption of their vehicles to 5 liters per 100 kilometers (62 miles) by 2020, from the current 6.9 liters/100 km. 

Government ‘Carrots’

“We didn’t really enjoy any carrots the government offers to the industry,” Zhong said last week in Beijing, where he was attending the annual meeting of the National People’s Congress. “But it’s the stick the government has been waving that has helped us.”

Corun shares rose 4.4 percent to 17.12 yuan in Shanghai, the highest since Jan. 8. The stock has declined 22 percent this year, compared with a 15 percent drop for rival BYD Co. in Shanghai trading.

Zhong, who founded Corun in 1998 after quitting his job as a researcher at the Chinese Academy of Sciences, said he has been proposing to the government to put hybrids on an equal footing with plug-in hybrids and pure electric cars for the past 14 years in his role as a member of the NPC.

While the government has yet to respond to the calls, Tianjin and Guangzhou have become the first cities to let buyers of new hybrids enter lotteries usually restricted to plug-in cars. That has given Toyota an opportunity to woo buyers for its locally produced Corolla and Levin hybrids.

‘Missing Piece’

“China’s NEV subsidy policies are actively promoting battery electric vehicles and plug-in hybrid electric vehicles,” said Zheng Hu, a Beijing-based analyst at Bloomberg New Energy Finance, referring to new-energy vehicles. Supporting conventional hybrids is the “missing piece” of the policy, he said.

Corun this year won a contract to supply Geely Automobile Holdings Ltd.’s Emgrand cars with 5,000 of its hybrid systems, which it says can cut fuel consumption by more than 35 percent.

Zhong estimates Corun posted a profit of at least 5 million yuan ($771,000) last year. Earnings for 2015 haven’t been announced. The company gets more than half its revenue making battery components and posted operating losses in each of the three years through 2014.

“The most difficult time is behind us,” he said. “This year and next year will be the turning point for our company.”

— With assistance by Tian Ying, and Nick Wadhams

Before it's here, it's on the Bloomberg Terminal.