Bus, stopped? Why BYD’s electric bus operations may be cut short in the US

Mark Magnier

BYD – a Shenzhen-based electric vehicle maker whose name is short for Build Your Dreams – opened its US bus factory in Lancaster, California, in 2013. Six years later, those dreams risk becoming nightmares as anti-China sentiment in Washington grows.

The way BYD sees it, it’s been a model corporate citizen. It has invested US$250 million in a small American community; created 800 unionised manufacturing jobs; built environmentally friendly products; and followed “Buy America” requirements by sourcing 70 per cent of its components from US companies.

“If BYD was a Danish company, we’d be held up as an example of what the US wants us to do,” said Zachary Kahn, the company’s US director of government relations. “We’ve come in, manufacturing in the US for the benefit of union labour and the community.”

But the way critics see it, BYD is a tool of the Chinese Communist Party that’s gaming a free-market system, poised to spy on bus riders and activate kill switches remotely to block intersections, spewing chaos.

Workers assembling an electric bus at the BYD factory in Lancaster, California. Photo: Xinhua

It’s a story that epitomises the deepening distrust between Washington and Beijing fuelled by economic nationalism, technological rivalry, alleged espionage and data theft.

BYD’s US fate now depends on a single word in the 2020 National Defence Authorisation Act. The Senate and the House have each passed versions and are now ironing out differences in conference.

Both bills effectively block federal funding for all “rolling stock” made by the Chinese state-owned railcar maker CRRC Corp, based in Beijing and the world’s largest maker of trains. But the reference to “rail rolling stock” in the House version would allow BYD to continue operating. President Donald Trump has said he favours the more sweeping restrictions in the Senate version.

However crucial the outcome for the Chinese companies, the provisions are a mere footnote in a bill outlining spending priorities for America’s massive military machine. BYD is helped – at least temporarily – by dysfunctional US politics; the act also includes US$6.1 billion to fund Trump’s controversial wall for the US southern border, sparking outrage and delay.

Romero Duran, a 45-year-old welder, ends his shift on the production line and heads to his car along “BYD Boulevard” in Lancaster, a struggling southern California community of 160,000 in the Mojave Desert, about 75 miles north of Los Angeles. Listless US and California state flags droop as late-afternoon shadows lengthen; there’s no Chinese flag around the expansive white building or other outward sign of its ownership.

Duran enjoys the work and meeting colleagues visiting from Shenzhen. But BYD’s mounting political problems leave him worried about his job. “We’ve heard rumours,” he said. “There’s nothing else out here.”

BYD’s arrival has helped reduce unemployment, and Lancaster’s main street now boasts an art museum and upscale stores. But a few blocks away, an elderly man with a walker trundles past shuttered shops kicking up sand near the “Power of Praise” Ministry, which shares space with a pawnshop.

After the 2009 financial crisis, BYD expanded globally – backed by US investor Warren Buffett – and chose Lancaster. Tesla founder Elon Musk scoffed in 2011 during a television interview, advising BYD to focus on “making sure they don’t die in China”. In the first half of 2019, BYD produced 145,000 battery, hybrid and fuel-cell vehicles, mostly in China, solidifying its status as the world’s largest electric-vehicle maker.

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But in addition to its US political problems, the US$18 billion company now finds itself under growing financial pressure. Third-quarter profits fell by 89 per cent on reduced government subsidies and lower demand, mirroring China’s wobbly economy. Buffet’s Berkshire Hathaway declined to comment.

US critics say that it’s fine that BYD built a US plant, hired union workers and enjoys Buffett’s support. But they note that China is a master at spying on its citizens, and contend that this technology could easily slip into US-made buses and trains – without providing evidence in making the claim.

“They can hack us using a variety of devices,” said Erik Olson, vice-president of the Rail Security Alliance, a coalition of business and labour interests seeking to block CRRC and, by extension, BYD, adding that it’s advisable not to “invite your adversary in”.

Visitors last month to the China International Rail Transit and Equipment Manufacturing Industry Expo in Changsha, took in a high-speed intercity train made by CRRC. The company’s US operations are threatened by Washington’s plans to block all federal funding to CRRC projects, citing national security concerns. Photo: Xinhua

Others say that as a “national champion” cited in Beijing’s Made in China 2025 strategic blueprint, BYD benefits unfairly in global markets from lower Chinese corporate tax rates, preferential loans and subsidies. Despite being a private company, BYD enjoys close research, management and board ties with the Chinese government and military, they add.

According to research firm Radarlock, BYD received at least RMB 2.3 billion (US$327 million) in Chinese government financial support in 2018.

“The idea that it’s completely separate from the Chinese government is a fallacy. It’s just connected in different ways,” said Scott N. Paul, president of the Alliance for American Manufacturing, concerned that BYD will dominate the US market, undercutting local jobs and companies. “There’s no reason American tax dollars should be directed to BYD when its operations are subsidised by the Chinese government.”

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BYD counters that US vehicle makers enjoy similar subsidies, from local tax breaks to preferential land deals, that it’s absolutely a private company and that the espionage allegations are absurd. Routes now using BYD buses include drives through Edwards Air Force Base – unthinkable if authorities detected any risk, it adds.

“The whole national security issue is a red herring,” said Frank Girardot, BYD’s North American communications director. “We’re not a state-owned entity. We’re not owned by the government of China. There are no Communist Party officials sitting in our offices telling us what to do.”

While Beijing is hardly a wallflower in global espionage, the idea of using buses is a bit absurd, adds Camron Gorguinpour, senior global electrical vehicle manager at the World Resources Institute, a research group focused on sustainability.

“There are a lot simpler ways than listening in our bus conversations,” Gorguinpour, a former Defence Department official, said, recalling the 2015 hacking of some 4 million US federal personnel records – that, he noted, probably included his own data. “It’s kind of a senseless notion.”

The National Interest magazine put it another way. “There is simply no national security threat inherent to the Chinese government knowing whether your bus is going to be late,” it said.

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BYD is a major player in a growing US electric-bus market; it accounted for a third of an estimated US$745 million in sales in 2018, supplying municipalities in EV hotbeds northern and southern California, but also in such heartland municipalities as Indianapolis.

The company faces criticism from US industry groups that its electric buses are underpowered and don’t go as far on a charge as advertised. But most new technologies have teething problems, counters Dan Raudebaugh, executive director of the Centre for Transportation and the Environment civic group.

“They’re still more reliable than diesel,” he said, referring to EV buses. “And you don’t have the noise pollution or exhaust coming out of the tailpipe when you’re sitting on the sidewalk eating a meal.”

BYD and its supporters argue that the critics’ real aim is economic: namely, to exclude a viable competitor, which would lead to higher prices, delay conversion to zero-emission vehicles and undercut the fight against global warming just as cities are ramping up orders.

BYD’s plant in Lancaster, California, has created 800 unionised manufacturing jobs and sources 70 per cent of its components from US companies. But its future hangs in the balance over one word in legislation now being hammered out in Washington. Photo: Xinhua

Los Angeles recently ordered 40 zero-emissions buses from New Flyer of Anniston, Alabama – and 65 from BYD. “City transit agencies are starting to walk the talk,” said Jimmy O’Dea, senior vehicles analyst at the Union of Concerned Scientists. “It’s taking off.”

Paul, of the manufacturing alliance, denied that his group or other BYD opponents are motivated by protectionism. “I’ve travelled in China. This is not xenophobic in any way,” he said.

That said, China has hardly helped itself as US and European legislators react to decades of notoriously opaque rules, widespread intellectual property theft and policies in China aimed at favouring Chinese over foreign companies. BYD, for one, has benefited from massive government fleet purchases under contracts that effectively excluded foreign competition.

With distrust growing in policy circles, BYD faces some tough odds, Washington insiders say. Legislation that aligns well-entrenched economic interests and national security hawks against a perceived adversary is a winner in the capital, they note, especially during an extended period of deteriorating US-China relations.

“It’s a perfect fit,” said one Washington lobbyist, who declined to be identified in order to speak more candidly.

Arrayed against BYD and CRRC include members of the powerful Senate Armed Services Committee as well as Senator John Cornyn, Republican of Texas, and Senator Richard Shelby, chairman of the Appropriations Committee, f rom Alabama, the site of New Flyer’s factory.

US Representative Kevin McCarthy (left), the House minority leader, has kept anti-bus language out of the House bill, but US President Donald Trump has said he favours the Senate version, which includes it. Photo: AFP

Prominent on BYD’s side is Representative Kevin McCarthy, the House minority leader, whose district includes Lancaster. A strong Trump ally, McCarthy helped keep anti-bus language out of the House bill. “It was a lot better when he was in the majority,” before 2018 when Republicans lost the House, said a person close to the company.

Federal funding covers about a third of bus purchases, giving cash-strapped cities an incentive to toe the federal line. BYD has enough orders for another year but, if effectively excluded from future contracts, the company could be forced to rethink its US operation. “There's a deep irony in the way this legislation would hit BYD,” said Matt Sheehan, fellow at the Paulson Institute and author of The Transpacific Experiment: How China and California Collaborate and Compete for Our Future.

After complying with US labour, purchasing and investment laws, “to now potentially be shut out of US markets because of a new twist in those laws likely feels like a real slap in the face for the company and its American employees,” Sheehan said.

North American electric bus makers Proterra, New Flyer and Gillig di d not respond to requests for comment.

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BYD and CRRC haven’t joined forces to fight the legislation, since they are pursuing different strategies. BYD is keen to stress that it is not state-owned or part of China Inc – arguments that CRRC, as an arm of China’s railway ministry, cannot make. CRRC did not respond to a request for comment.

BYD found itself dragged into the political fray relatively late. The Rail Security Alliance has been working for years to block CRRC on espionage grounds through a different mass transit security bill. The bus industry, where the stakes are smaller, lacks a similar national alliance.

Olson of the rail alliance said that this year Senate allies advised his group to expand its focus to include restrictions on Chinese buses – reflecting the apparent interests of some powerful senators, he added – and that efforts should focus on the national defence bill rather than the mass transit security bill. One big advantage for those seeking restrictions: the defence legislation has passed annually without fail for nearly six decades, making it all but guaranteed.

“It’s not like we were plotting, they said this is the way to do it. BYD obviously comes up when you go up to the Hill,” said Olson.

“We’ll support them, but we’re not going to lie on the tracks for this,” he added. “We’re the rail security alliance, not the bus security alliance.”

Illustration: Lau Ka-kuen

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