Electric School Bus Funds ‘Flowing’ Positive for Blue Bird, Says Barclays

The race to electrify school buses is gaining momentum, and Blue Bird Corporation (BLBD) stands at the forefront of this transformation. Recent analysis from Barclays highlights how federal funding streams, particularly the EPA’s Clean School Bus Program, are fueling Blue Bird’s growth trajectory in 2025—and why investors should pay close attention.

A Niche Market with Tailwinds
Blue Bird, a century-old manufacturer specializing in school buses, has pivoted aggressively to electric vehicles (EVs) over the past decade. This shift is now paying off, as demand for zero-emission buses surges due to federal and state incentives. Barclays notes that electric buses now account for 9% of Blue Bird’s revenue—up from 6% in 2024—and are driving a 15% year-over-year revenue increase to $346 million in Q2 2025.

The financial upside of this transition is stark. Electric school buses, which sell for over $300,000 (triple the price of diesel buses), have boosted Blue Bird’s average selling prices (ASPs) and profit margins. CEO Phil Horlock emphasized in recent earnings calls that this marks a “new revenue and gross margin structure” for the company. Net profits tripled to $0.89 per share in Q2, while the backlog of electric bus orders hit 500 units, a 56% year-over-year jump.

The EPA’s Role in Driving Demand
At the heart of this growth is the EPA’s Clean School Bus Program, a $5 billion initiative under the 2021 Bipartisan Infrastructure Law. The program aims to replace 50,000 diesel buses with zero-emission alternatives by 2030. Barclays underscores that this funding is Blue Bird’s lifeblood: school districts often receive grants covering up to 80% of purchase costs, making electric buses economically feasible despite their higher upfront price.

Recent developments have further buoyed confidence. Barclays reported that Round 3 of the EPA’s program, which had been frozen, was unfrozen in late 2024, with 10% of its $900 million allocation approved in just one week. This “incrementally positive” move has helped Blue Bird secure orders, contributing to its record 210 electric buses sold in Q2 2025.

Outperforming in a Challenging EV Landscape
While broader EV stocks like Tesla (TSLA) and Rivian (RIVN) have struggled in 2025, Blue Bird has surged 116% year-to-date, defying sector headwinds. Barclays attributes this to Blue Bird’s niche focus and the program’s entrenched funding. Unlike passenger EVs, school buses are a “mission-critical” asset for districts, making them less susceptible to consumer spending fluctuations.

Barclays maintains an Overweight rating on Blue Bird with a $54 price target, citing the program’s long-term potential. The firm estimates that even if future funding rounds face delays, existing commitments—such as Round 2 awards—provide a “contractual safety net” for growth through 2026.

Risks on the Horizon
Despite the optimism, risks remain. Barclays warns that Rounds 3 and 4 of the EPA’s program face regulatory uncertainty under shifting administrative priorities. While Round 3 approvals have started, Round 4 (slated for late 2025) has been delayed, and future rounds could be contentious. A slowdown in funding could temper Blue Bird’s ability to scale production and hit its long-term goal of 15%+ Adjusted EBITDA margins on $2 billion in annual revenue.

Conclusion: A Strategic Bet on Sustainability
Blue Bird’s story in 2025 is a microcosm of the broader transition to sustainable transportation. With $346 million in revenue and $0.89 per share in profits in Q2—both well above expectations—the company has demonstrated its ability to leverage federal funding effectively. Barclays’ analysis underscores that the Clean School Bus Program’s $5 billion commitment is not just a tailwind but a strategic pillar for Blue Bird’s growth.

Investors should note, however, that the stock’s valuation now reflects optimism. At current levels, the $54 price target implies a ~40% upside from its recent close, which may require continued funding approvals and execution. Still, for those willing to accept regulatory risks, Blue Bird offers a compelling play on a sector with $5 billion in federal backing and a societal imperative to reduce emissions. In a market starved for EV winners, Blue Bird’s niche dominance—and the government’s checkbook—make it a rare bright spot.

As the EPA inches closer to its 50,000-bus goal, Blue Bird’s success will hinge on two factors: the steady flow of funding and its ability to keep costs in check as it scales. For now, the funds are flowing—and investors are taking notice.