A Chinese car maker is setting up shop in the U.S., with small ambitions but a clear goal: Get the federal government to subsidize the sales of the company's American-made electric buses.
A Chinese car maker is setting up shop in the
U.S.
, with
small ambitions but a clear goal: Get the federal government to subsidize the
sales of the company's American-made electric buses.
BYD Co. (002594.SZ, 1211.HK) , an electric-car and battery maker that counts
Warren Buffett among its investors, will open an electric-bus assembly facility
in
Lancaster
,
Calif.
, on
Wednesday.
The company's
U.S.
expansion won't create many jobs yet. The new plant will employ a few dozen
people at the outset, according to Stella Li, BYD senior vice president. "We
are starting small," she said.
But the benefits of BYD's move will be immediate, allowing it to sell its buses
to local transit companies at a huge discount--with the federal government
picking up the rest of the tab.
BYD spokesman Micheal Austin said the company's U.S. production facility meets
"Buy America" procurement guidelines, enabling its customers to tap
federal subsidies that cover as much as 80% of the cost of the electric buses
they buy. The availability of government aid was one of the main motivations
behind BYD's move to the
U.S.
, he
said.
The Federal Transit Administration said transit agencies, state departments of
transportation and other public entities are eligible for such grants.
Buy
America
provisions are designed to ensure that government-sponsored transportation
infrastructure projects in the
U.S.
use
products made in the country. When it comes to buses, the rules stipulate that
U.S.-made parts should account for more than 60% of the cost of all components.
Final assembly must take place in the U.S.
Long Beach Transit, an agency serving a cluster of communities south of Los
Angeles, said last month it would buy 10 BYD electric buses for $12.1 million,
and spend a further $2 million to design and build a charging facility for the
vehicles.
About half of the project's total cost will be funded through a federal grant,
the agency said. The rest will be funded with state bond funds that were
approved by
California
voters in 2006, and a smaller grant. The deal complies with Buy America
requirements, Long Beach Transit officials said.
The BYD buses--which should be in service a year from now--will be
Long
Beach
's first all-electric vehicles. The agency is
employing different technologies as it phases out its diesel fleet. Right now,
around 70% of the agency's fleet of 223 buses is made up of hybrid gas-electric
vehicles and compressed-natural-gas vehicles.
"This is our ticket to the
U.S.
market," BYD's Ms. Li said, referring to the
Long
Beach
deal. "But the hard work is just
starting."
The market for electric buses in the
U.S.
is
still minuscule--Ms. Li estimates that fewer than 100 buses a year are sold
nationwide--and the majority of those are for demonstration or experimental
purposes.
Only a handful of
U.S.
cities operate all-electric buses--as opposed to hybrid-electric ones--as part
of their transit networks, according to the American Public Transportation
Association.
San Antonio
's Via
Metropolitan Transit this year rolled out three all-electric buses made by
Proterra Inc., which is based in
Greenville
,
S.C.
Ms. Li said she expected BYD to deliver between 200 and 300 electric buses to
customers in the
U.S.
by
the end of next year. BYD also is targeting private companies such as
car-for-hire firms and institutions such as universities to supply electric
shuttle buses, she said.
Shenzhen-based BYD bought two premises in
Lancaster
,
located 70 miles north of
Los Angeles
. The
main bus assembly will take place in the location previously occupied by
recreation-vehicle maker Rexhall Industries Inc. (REXLQ) Ms. Li said the
Lancaster
plant, which officially will open May 1, is expected to produce 1,500 buses a
year and generate as many as 1,500 jobs when at full capacity.
Harry Chen, a transportation analyst at securities firm Guotai Junan
International, expressed skepticism about BYD's plans. "It's kind of a marketing
gimmick to publicize its electric vehicles there, and I don't expect the
investment to pay off in the near term," he said. "The plan is more
symbolic than substantive to the company's electric-car push."
"It makes more economical sense to produce in
China
and
have the products exported overseas," he said.
BYD's Mr. Austin said assembling a bus in the
U.S.
would
cost $100,000 more than doing so in
China
. He
said an electric bus could sell for up to $800,000. "But the economic
value of having a plant there far outweighs the costs," he said, since the
buses would qualify for government funding.
BYD said the battery of a bus makes up more than half the total cost. The
company said its batteries are assembled in
China
but
use "a number" of important components that are manufactured in the
U.S.
The
bus's two in-wheel motors would also be made in
China
, Mr.
Austin said. Body manufacture and assembly would take place in the
U.S.
, he
said.
Mr. Austin said he believed that there is a market for electric buses--even
without incentives. An electric bus's total cost of ownership over a 12-year
period is lower than for a diesel-fueled one, he said.
But Michael Beck, a senior executive adviser at consulting firm Booz & Co.,
said low current and future natural-gas prices in the
U.S.
likely would make natural gas-powered buses, or possibly natural gas-powered
hybrids, the eventual winners for transit-bus applications. "Electric
buses may be able to compete against conventional diesel buses. But they will
not be able to compete against natural-gas-powered buses, because the cost of
natural gas is less than one-third the cost of diesel," he said.
Kevin Lee, a spokesman for Long Beach Transit, said the agency chose to buy BYD
buses because they "made the most sense for Long Beach Transit and our
community in many respects." The buses, which will serve an eight-mile
route that passes through downtown Long Beach, come with a battery that only
has to be charged once a day, he said--an option that rival electric-bus makers
didn't offer. BYD's models charge overnight, so if the city were to lose power
during the day, the buses could still run, he noted.
In addition to conventional and electric vehicles, BYD produces batteries for
mobile phones and solar-powered storage equipment. In
China
's
fast-growing passenger-car market, the company has a market share of about
3.2%, placing it just outside the top 10, according to Macquarie Research.
BYD last week reported a first-quarter net profit of 112.4 million yuan ($18.2 million),
more than four times what it made a year earlier, thanks to rising car sales
and narrower losses from the company's solar operations. Revenue rose 9.8% to
12.88 billion yuan.
MidAmerican Energy Holdings Co., a unit of Mr. Buffett's Berkshire Hathaway
Inc. (BRKA, BRKB), owns about 10% of BYD--the billionaire investor's
highest-profile Chinese investment.
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