When Chinese electric-vehicle maker BYD Motors Inc. first came to the United States in 2011, executives said they would create up to 150 jobs at its downtown L.A. headquarters.
Those plans, backed by a hefty investment from the city of Los Angeles, never connected – only 39 people work there today, a number of them transfers from BYD’s Chinese operations. And the company hasn’t come up with an electric car that will sell in the United States.
But now, the U.S. subsidiary of Shenzhen, China’s BYD Co. Ltd. plans to build electric buses for the U.S. transit market. The company last month landed a $14 million contract to sell 10 electric buses to Long Beach Transit; BYD said that it will start building them in Lancaster this year.
John O’Dell, a senior editor with Santa Monica vehicle review site Edmunds.com, said that the switch to buses was obviously the right move.
“It doesn’t look like they’ll ever do much job creation in terms of passenger vehicles,” said O’Dell. “They may be able to do it with electric buses.”
The company has secured two Lancaster buildings, one for assembling buses and another for making batteries, said Micheal Austin, vice president of BYD America.
The main plant, he said, was formerly used by a recreational vehicle maker and has much of the infrastructure needed for building buses and all the necessary permits.
Austin acknowledged that setting up a manufacturing facility in California turned out to be more difficult than expected because of permitting issues.
“We came to California really naive about the time it takes to put this in place,” he said. “With Lancaster, we were very lucky to find a site that had exactly what we need.”
Nevertheless, now BYD will have to move fast. The Long Beach buses, which at $1 million each cost twice as much as conventional buses – the contract also includes the cost of charging stations and other infrastructure – must be in service by June 2014. A groundbreaking event for the factory is set for May 1.
Austin would not say how much the company paid for the buildings.
BYD, which counts billionaire Warren Buffett as an investor, is bidding for other contracts and plans to build 50 to 100 buses in the plant’s first year. Austin said the number of employees at the site would roughly correspond to the number of buses produced annually but would not give an exact figure.
Kevin Lee, spokesman for Long Beach Transit, said BYD got the contract because the company’s bus offers lower maintenance costs. He also credited the company’s experience. BYD’s Chinese parent has delivered more than 700 electric buses to customers worldwide.
The Long Beach Transit Board voted March 25 to award the 10-bus contract to the company, using a $6.7 million federal grant for all-electric buses. Long Beach will kick in the rest to bring the contract’s total cost to nearly $14 million.
The buses will be evaluated at the Federal Transit Administration’s Bus Research and Testing Center in Altoona, Pa., to make sure they meet U.S. safety standards. The company will have to verify that 60 percent of the components are made in America.
The contract includes a $14 million performance bond. If BYD fails to meet its obligations, it could face reduced payments.
The company’s move to building buses comes after it failed to meet initial hopes for its L.A.-based passenger vehicle after opening its 30,000-square-foot headquarters and showroom at 1800 S. Figueroa St. in October 2011.
An April 2010 press release from the city of Los Angeles said the company would create at least 150 jobs through 2011, but those estimates were revised as the demand for electric vehicles failed to live up to expectations. In July 2010, the Community Development Department projected BYD would create 102 jobs by 2013.
All those predictions have so far come up short. The headquarters now employs 39 people, many of them are transfers from other locations, including China. Austin, whose office is in Arlington Heights, Ill., would not say how many of the employees at the downtown L.A. headquarters were local hires.
Los Angeles attracted BYD to downtown with an incentive package totaling about $5.2 million over five years.
Austin Beutner, the former deputy mayor who led the effort to bring the company to Los Angeles, still believes the incentives were worth it because the company will create manufacturing jobs and help cities reduce emissions from their transit systems.
“It’s the sort of business you want to attract and you hope that will be successful,” he said.
BYD beat out several U.S. bus makers for the Long Beach contract, including Greenville, S.C., startup Proterra Inc., which has 160 employees and has delivered 10 electric buses to cities such as Pomona and Tallahassee, Fla.
Proterra issued a scathing letter to Long Beach Transit after the agency first recommended BYD. Marc Gottschalk, general counsel for Proterra, hammered Long Beach for granting the award to a company with “a history of overpromising and underdelivering.”
He argued that giving federal money to a subsidiary of a Chinese company creates an unfair advantage over U.S. manufacturers and questioned BYD’s claims about the performance of its buses.
“What I am concerned about is a foreign company using U.S. federal dollars to come here and compete,” he told the Business Journal last week.
BYD’s Austin dismissed the criticism.
“I think it was malicious,” he said.
Kevin Klowden, managing economist at Santa Monica think tank the Milken Institute, said BYD might now finally make good on its promises to build vehicles here.
“It gives them a jump-start in manufacturing in the U.S. which will help them, quite honestly, with their credibility issues,” Klowden said.
Still, there are risks. The company still has to attract many more customers to make the plant worthwhile, he said.
Add to that the tight turnaround for BYD. The company has to open the plant and deliver the buses to Long Beach by early 2014. The company is saying it can put some into operation by the end of this year. Klowden is skeptical.
“BYD has certainly talked big,” he said. “If they are able to deliver this thing, and do it on time, that’ll reflect well on them and that’s the most important thing by far.”
BYD’s switch to electric buses comes after the company’s troubles in the consumer vehicle market.
Tim Dunne, who covers Asia-Pacific automakers for J.D. Power & Associates in Westlake Village, said BYD ranks third in sales among Chinese automakers and 11th in sales to Chinese customers against all competitors. Consumer surveys register relatively low ratings for Chinese cars.
“We can safely say that Chinese domestic automakers are not yet competitive with global automakers in terms of vehicle quality and refinement,” Dunne said.
BYD’s new emphasis on electric buses presents an opportunity to gain name recognition in the world’s most competitive vehicle market, said Edmunds’ O’Dell. And the change in focus comes as U.S. cities are starting to adopt electric transit fleets thanks to federal subsidies.
“They want to sell buses everywhere and America’s a big market,” he said. “We’re just now coming to the table in terms of greening up our transit system.”
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