Buffett-Backed Carmaker Arrives in L.A. Late With Fewer Jobs
Los Angeles touted landing the North American headquarters of Chinese carmaker BYD Co. as a win that would generate jobs for the second-biggest U.S. city and make it a center for the growing market for electric autos.
BYD America opened today about a year behind schedule with fewer workers than first targeted. The company, partly owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), has delayed plans to sell electric cars to retail buyers, citing limited availability of public chargers. Instead, it’s focusing on solar panels, batteries, LED lighting and rechargeable buses.
“Things like this are about planting seeds,” said Austin Beutner, the former Los Angeles deputy mayor who engineered the deal to bring BYD to the city, including more than $2 million in incentives. “Some grow fast, some grow slow, but you’ve got to plant them.”
Initial goals for the Shenzhen, China-based company’s California arrival haven’t been met either in BYD jobs or indirect business created. The delays reflect a combination of construction obstacles and an electric-car market that hasn’t developed as rapidly as first expected.
In April 2010 when the deal was announced, BYD said it would open the office by the end of 2010, and have 150 employees by the end of this year. It now has 20 employees in Los Angeles, with plans to reach 30 by year-end and 100 by the end of 2012, according to Micheal Austin, the company’s U.S. vice president.
BYD America will eventually grow to at least 150 people, Austin said.
Jobs were a key selling point for the city. Los Angeles County had an unemployment rate of 12.2 percent in September, topping the 9.1 percent national rate and California’s rate of 11.9 percent, according to the U.S. Bureau of Labor Statistics.
While it will take longer than planned for BYD to establish itself and the manufacturer’s business model has shifted, city officials said they continue to believe the project will be a driver for the regional economy.
“It means more job opportunities but it also sends a powerful message to other companies that L.A. is the place to do business,” Los Angeles Mayor Antonio Villaraigosa said at today’s headquarters opening.
Xu Qin, mayor of Shenzhen, and Berkshire Hathaway Vice Chairman Charles Munger also attended today’s ceremony.
Los Angeles and BYD “are going to accomplish great things in the world,” Munger said. “BYD, with its 20,000 engineers -- maybe more by now -- is really trying to change the world.”
BYD’s delays in starting retail auto sales mirror earlier difficulties China’s Geely Automobile Holdings Ltd. and Chery Automobile Co. had entering the U.S. Neither company has begun selling Chinese-made autos in the country.
“It takes a lot of work to get an automobile to be suitable for retail sale in the U.S.,” said Ed Kim, an analyst at AutoPacific Inc., an industry researcher in Tustin, California. “The world of Chinese automakers is the wild west, since it’s all so new there.”
Delays in opening the North American headquarters arose from the age and condition of the building, BYD’s Austin said in a telephone interview.
“We had anticipated getting through all the permitting processes a little sooner,” he said. “The renovation also took longer.”
Money From China
Los Angeles put together a package of incentives that included $2 million in federal grants for blighted areas. The money was used to help renovate BYD’s offices in a building dating from 1918 south of the city’s center and the surrounding area, said Ben Stapleton, the Jones Lang LaSalle Inc. (JLL) broker who helped negotiate the deal. The landlord and BYD contributed other funds to the renovation.
Los Angeles promised to back up much of BYD’s 10-year lease in the event the company does not pay its rent, according to Darryl Holter, chief executive of Shammas Group, which owns the building.
“Whenever we do leases with people we need to have them guaranteed,” Holter said in a telephone interview. “If there was a default, I can’t go to China to get my money.”
To encourage local sales of electric cars, the city reduced port tariffs on all zero-emission vehicles by 15 percent, promised to facilitate the installation of charging stations at auto buyers’ homes within seven days and has been testing BYD’s cars and buses for municipal uses.
Benefits for the city will come from “thousands” of indirect jobs created by expanded sales of BYD’s solar power products, energy-efficient lighting systems and rechargeable buses and cars, according to Austin.
“Jobs at the ports processing shipments, trucking, panel installation, vehicle sales and service -- all kinds of jobs -- are going to happen as a result of this business,” he said.
For both the city and the company, the project may be more about brand enhancement and indirect jobs. Operating from the U.S. entertainment capital boosts BYD’s image with customers in China while making Los Angeles, which lost the headquarters of Hilton Worldwide Inc. and Northrop Grumman Corp. (NOC) in the past three years, appear friendlier to business.
“Los Angeles has long been a headquarters desert, especially of marquee companies, and becoming even more so in recent years,” said Rob DeRocker, a Tarrytown, New York-based economic-development consultant. “This company will give the city much-welcomed bragging rights.”
‘Hollywood Is Sexy’
Attracting BYD was especially appealing given its ties to billionaire investor Buffett, whose Omaha, Nebraska-based Berkshire Hathaway bought a 9.9 percent stake in 2009.
Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer.
The public relations value flows both ways, according to BYD’s Austin.
“Our move to L.A. is about branding,” he said. “Every Chinese person knows Hollywood is sexy, and if we’re successful here, that is very important for the company’s image back in the home market.”
MidAmerican Energy Holdings Co., a unit of Omaha, Nebraska- based Berkshire, paid HK$1.8 billion ($232 million) for its 225 million BYD shares. The Hong Kong-traded stock declined 66 percent this year through Oct. 21.
When BYD’s U.S. project was announced, the company said it would begin retail sales of its e6 electric hatchbacks by the end of 2011. Now its focus is on sales to corporate and municipal customers, particularly of its all-electric buses.
‘Very Good Business’
Even in Los Angeles, which carmakers expect to be the biggest U.S. market for electric vehicles, it will take time to build up the required charging infrastructure, Austin said. BYD won’t start U.S. retail sales of electric cars for at least 18 months, according to Stella Li, president of the U.S. unit.
“We don’t need to rush,” she said in an interview today. “Fleet sales can be a very good business for us.”
BYD plans to sell buses using its lithium-iron phosphate batteries to U.S. transit agencies, including the Los Angeles County Metropolitan Transportation Authority, Austin said. The company says its 40-passenger buses travel 180 miles per charge and are likely to sell for about $500,000 each.
The Los Angeles MTA in August tested the electric bus for a week, said John Drayton, the agency’s manager for vehicle technology. While it performed well, averaging more than 100 miles in city driving, the agency also is evaluating other vehicles and has yet to make a purchasing decision. The first electric shuttle bus at Los Angeles International Airport, part of a BYD partnership with Hertz Global Holdings Inc. (HTZ), will take Chinese leaders to today’s opening.
Housing Authority Cars
The Los Angeles Housing Authority leased 10 of BYD’s F3DM plug-in hybrid sedans at $400 a month for a year, according to Eric Brown, an agency spokesman. The cars are charged at night and use gasoline if they run out of battery power. Housing inspectors like the cars and the authority may renew the leases if rates are lowered, he said.
BYD’s gasoline version F3 sedan was China’s best-selling car in 2009. This year, BYD’s sales declined 15 percent through September even as the overall Chinese auto market grew.
BYD will announce its first two California dealerships soon, Austin said without elaborating. They will offer the full range of BYD products, including electric vehicles, solar panels, LED-lighting systems, vehicle-charging equipment and energy-storage systems -- large-scale batteries powered by solar panels.
‘Communist, Planned Economy’
Sales of solar panels are the biggest source of revenue for BYD in the U.S. Since last year, the company has signed contracts to supply 280 megawatts of “private label” panels sold by Johns Manville and Solar Power Inc., Austin said. Johns Manville, a maker of insulation and building products, was acquired by Berkshire Hathaway in 2001.
BYD last week announced a contract to supply 1.2 megawatts of solar panels and inverters to New York-based Samba Energy, the first such sale under its own brand name. The agreement will expand in the first quarter of 2012, with BYD supplying an additional 10 megawatts of panels for installation on schools and commercial buildings, the companies said in a statement.
BYD isn’t providing additional details of U.S. sales, Austin said.
After announcing the Samba deal, Li said the company also plans to “eventually” build a U.S. solar panel plant.
Beutner, who is running for mayor in 2013, said landing BYD was more important than the company’s business focus.
“Whether they’re selling cars to fleets, batteries, solar panels, bring it on,” he said. “We didn’t look at it to say, ‘We want retail car sales.’ We’re not some communist, planned economy.”