BYD gets eBus contract in California; how will it meet the local content requirement?

BYD www.bydauto.com has finally gotten its foot in the door in the U.S., with its electric bus.  The mystery around the deal, at least for me, is where it will source the components.  That is because the bus must have 60% Made in the USA content, and I’m sure its most of its components are Made in China right now.

I wonder if BYD can duplicate the method foreign automakers in China used to get around local sourcing requirements when they first began producing there.  They shipped most of the car in from the U.S. or Europe then put the wheels and a few other things on in China.    Seriously, I don’t think BYD would be able to get away with that nor would it try.  This bus deal is under a lot of scrutiny.  But, I eagerly await the day when I find out how it does meet the local content requirements.

First, some background.

The southern California city of Long Beach will buy 10 all-electric buses from Chinese automaker BYD. http://www.lbbusinessjournal.com/long-beach-business-journal-newswatch/1433-long-beach-transit-sides-with-byd-motors-for-future-buses.html  The details are still being worked out, but “we are expecting to have the buses in service during the first half of 2014,” Kevin Lee, spokesman for Long Beach Transit,  www.lbtransit.com told me.

BYD submitted a bid in October of 2012 for the contract along with some purely American companies such as Proterra.  www.proterra.com Based in South Carolina, Proterra also produces electric buses. It bitterly protested the recommendation of BYD.  http://green.autoblog.com/2013/03/26/proterra-slams-long-beach-electric-bus-contract-china-byd/ But let’s face it; BYD’s eBus is pretty nice.  At least one is already in operation here, as a shuttle bus for Hertz at LAX.  Many more are on the road in Shenzhen.  Plus, BYD makes charging stations and the like.  It had more to offer.

Long Beach Transit recommended in February of 2013 that the BYD bid be accepted.  The criteria Long Beach Transit used to select the BYD ebus included pricing and life cycle cost, charging station operational considerations, coach operational considerations, and the experience of the firm and its response to inquiries, said Lee.

Lee confirmed that the Transit Board approved awarding the contract to BYD on March 24, 2013.  It is for $11.5 million, which includes the 10 all-electric buses, charging equipment, diagnostic tools, training and spare parts.

Some of the money to purchase the 10 buses will come from federal funding, hence the 60% Made in American requirement.  Lee said before awarding the contract to BYD, Long Beach Transit hired third party consultants to audit BYD to verify they would meet the requirement.  “The results of that audit showed that they would meet the requirements, if not exceed them,” said Lee.  Long Beach Transit will continue to audit BYD to ensure the local content requirement is met, he added.

BYD also produces gasoline-powered cars and electric cars and buses in China.  It produces many of the components used in the cars itself, said an executive at a multinational supplier with significant sales in China.  BYD VP Michael Austin said that BYD will produce some components for the Long Beach buses at a plant in Lancaster, CA.   “Though BYD prides itself on our vertical integration for many components … there are still components we buy from third parties,” he added.  For example, the customer stipulates (his word) a “vast majority of components in the bus” such as seating, HVAC system, and even the types of rims and tires, he said.  “BYD must source these components from third parties for the Chinese and Lancaster plants and does not and will not be manufacturing these in house,” he said in an e-mail.

As for the Lancaster reference, BYD will produce the buses in an underutilized recreational vehicle plant in Lancaster, California, a southern California city about an hour from Los Angeles.  The plant was owned by recreational vehicle maker Rexhall Industries, Chenin Dow, projects assistant in the Lancaster’s Economic Development Office told me. www.cityoflancasterca.org

Currently, the buses are only produced in China, and the supplier base is in China.  BYD declined to comment on what steps it is taking to develop a supplier base here in the U.S.  That’s the burning question I will ask BYD execs at the Auto Show in Shanghai on April 20 (press day) and probably again at the Lancaster plant’s grand opening on May 1.