Buy American Or Buy Chinese? It’s Not That Simple
George Economides - Publisher
March 25, 2013 – Long Beach Transit Boardmembers are expected to vote today on whether to accept a staff recommendation to award a $12.1 million contract for the purchase of 10 zero-emission, all-electric buses to an American subsidiary of a Chinese-owned company, BYD Motors, rather than to an American firm, Proterra. They may also decide to delay the decision until their April board meeting.
The item, first reported by the Business Journal, has caused controversy due to incorrect information in a transit staff report (claiming two of BYD’s current zero-emission bus buyers were Apple in Cupertino and Hertz in Los Angeles, when in fact they were not) along with other questions that needed attention.
The issue for some boils down to buy American or buy Chinese, although it’s not that simple. Reliability, cost, maintenance and flexibility are among the many factors to be considered by the board. The majority of the funding for the buses has been secured from the U.S. Federal Transit Administration’s Transit Investments for Greenhouse Gas and Energy Reduction Program.
After the Business Journal ran the story online on Friday, March 8, it received an email March 11 from a BYD America executive who was critical of the story and asked for a correction.
“You published an online article on Long Beach Transit plans to purchase zero-emissions electric buses, inaccurately criticizing them for selecting a Chinese [his emphasis] company to deliver these buses (implying that they were coming from China). Your piece promoted an out-of-state company, Proterra (with factory in Greenville, South Carolina) for these purchases,” wrote Micheal Austin, vice president, BYD America, in Arlington Heights, Illinois.
“I am hoping to inform your team on this very important topic and ask for a correction in your piece before California jobs to manufacture these Electric Buses are lost,” he continued. . . . “The State of California has been key in bringing BYD to California and we have been in negotiations with several local municipalities for over 6 months to place several factories in California.” Austin copied Alexis Podesta, director of external affairs for Gov. Jerry Brown. The Business Journal was unable to reach Podesta for comment and to learn precisely what the state had done to “bring BYD to California.”
However, the Business Journal learned that as far back as 2009, Long Beach city officials had been wooing BYD to locate its American headquarters at the then-new Douglas Park project. A powerpoint presentation was made to BYD Chairman Wang Chuan-Fu on May 9, 2009.
One of the complaints by Proterra executives is that BYD has continually made promises to build manufacturing facilities in California and has not. What BYD did do in October 2011 is open its BYD America offices in Los Angeles “about a year behind schedule with fewer workers than first targeted,” according to a story that year by Bloomberg. The office, which received some $2 million in incentives from the city, according to Bloomberg, opened with 20 employees when the original plans called for 150 employees at opening.
Austin told the Business Journal the L.A. office currently has 40 employees. He added in a later phone interview, “I think we kind of made a mistake the first time with the headquarters,” indicating that BYD was pushed to open sooner than it had wished and that it should have communicated better with other cities that were interested. “Instead, we just kind of let the media announce it . . . and it hurt some relationships.”
Austin’s March 11 e-mail continued: “The fact that our parent company is spending large amounts of Chinese money to invest in Southern California to build up the region is a thing to be commended, not criticized.”
Following the Business Journal March 8 article, Congressman Alan Lowenthal shot off a brief letter the same day to transit boardmembers stating, in part: “Although the choice of all-electric vehicles is a positive step and should be a point of pride for Long Beach, outsourcing their manufacturing to China raises serious concerns. I would hope that the transit board would reconsider purchasing American-made alternatives, such as those currently being used by local transit authorities like Foothill Transit. It is important to consider that helping the American economy and American workers is as important as helping the environment.”
A 17-page powerpoint presentation transit staff prepared for the board does not indicate that the manufacturing must occur in the U.S. On Page 13, it states that for BYD, the chassis would be manufactured in China and “CA (proposed - 2014).” Proterra buses are built in Greenville.
However, in a March 18 phone interview with the Business Journal, Austin said the plan is to manufacture the buses here in California and that BYD is in “the midst of negotiations” for a manufacturing facility and “we don’t want it to play out in the media.” He said the goal is for the facility to be operational and producing its first bus by the end of this year. Some rumors have been floated that the City of Lancaster may be selected for the first manufacturing facility. BYD is also a bidder on the L.A. County Metropolitan Transit Authority contract calling for at least 30 low-emission buses. There has been speculation from competing bus companies that BYD may get that bid if it agrees to build its manufacturing facility in the City of Los Angeles.
Austin stressed that the publicly-traded company is listed on the Hong Kong Exchange (1211.HKE), Warren Buffet is its largest shareholder and there is nothing to hide, saying, “We’re more transparent than most of our competitors that are privately held.”
Long Beach Transit spokesman Kevin Lee told the Business Journal that buses have to be built in the U.S. to meet the Buy America provisions. He said the federal rule for using grant monies requires at least 60 percent of parts put into a bus must be manufactured in U.S., and that final assembly must be in the U.S.
Asked about the mistakes in the staff report showing that BYD had sold five zero-emission buses to Apple and that two had been delivered, and that another bus was in service for Hertz in Los Angeles, Lee wrote in an email: “Long Beach Transit staff prepared our board report utilizing information from BYD’s response to our RFP [request for proposal]. Prior to making any suggestion to the board, we did conduct company reference checks with some of the larger purchasers of BYD vehicles, such as those in China and Milan.” The Business Journal also learned that Hertz was provided a bus to use for a brief period and that it had since been returned.
Austin told the Business Journal that Apple is a target customer and that BYD did not say the firm had purchased buses. “We did a poor job communicating what was confidential and proprietary,” Austin said regarding the RFP. In a second online story on March 8, the Business Journal had confirmed with an Apple executive that the company was not operating BYD buses nor was he aware of any purchase.
As of this date, BYD has no orders in the U.S. for its zero-emission, all-electric buses. This is a major argument for advocates of Proterra, who claim BYD will not invest in a facility – thus no risk – unless it gets orders, a fact Austin does not deny. “We wouldn’t throw money at a market we don’t have orders for,” he said. “Absolutely,” building a manufacturing plant is dependent on receiving contracts.
“Proterra has a manufacturing facility in place, they have delivered buses in the U.S., and they’re the type of growing, green company everyone is pushing to succeed,” said a spokesman for Proterra, who did not want his name used. He also noted that Proterra, in February 2012, passed what is known as “Altoona” testing – a comprehensive U.S. Federal Transit Administration (FTA) bus certification program – for the buses, and that BYD has yet to begin the process, which, according to Proterra, averages about 290 days.
Proterra does have its buses operating in San Antonio and with Foothill Transit, which serves the City of Pomona. Two buses are being delivered to Stockton in May and three to Tallahassee by June. Another six begin rolling out in August for Worcester, Massachusetts, and other cities such as Reno begin receiving buses in the fall.
Felicia Friesema, a spokesperson for Foothill, said the firm acquired three buses from Proterra, that they’ve been “seemless in service” and have required “routine maintenance only.” She said Foothill has $10.2 million in federal grants to purchase nine more buses and that an RFP is coming out later this year. She also said BYD has expressed interest.
The Business Journal reached out to Mark Gottschalk, chief business development officer and general counsel for Proterra.
In a phone conversation last week, Gottschalk stated: “At the highest level, the issue is that we got an American company that has gone through federal testing, that is in service in U.S. transit, that has U.S. manufacturing, that has the highest Buy America U.S. made content that we’re aware of any other manufacturer. So there’s that choice on one side, which is Proterra. And on the other side you have a company that’s made a lot of promises, that doesn’t have U.S. manufacturing, that doesn’t Buy America bus, doesn’t have buses in transit service in the United States, that is essentially seeking to use U.S. taxpayer dollars to allow itself to establish in the U.S. market and take market share away from U.S.-based companies. And to us, that’s just not right.”
He added, “It’s not a matter of pure competition when the competition isn’t on an even playing field. . . . It’s not like we have the same ability to go to China to compete with BYD. China is a protected market.”
In related news, the Long Beach Board of Harbor Commissioners, on March 18, tabled an item calling for the city’s harbor department to pay Long Beach Transit $700,000 to assist in the purchase of the zero-emission, all-electric buses and related equipment.