BYD is making steady strikes into the clean transportation field. The company, which is owned in part by Warren Buffett (8%), recently launched SkyRail, its first commercial monorail, in the city of Yinchuan in Northwest China’s Gansu Province on September 1, 2017.
SkyRail is an above-street monorail system constructed to provide a commuting alternative in Yinchuan’s urban area. SkyRail is BYD’s first multi-million yuan R&D project in the mass transit market, and its debut marks BYD as the first private company to enter the Chinese market. Analysis from Ping An Securities shows a very positive return on investment for SkyRail. An estimated RMB 5 to 6 billion (USD 756 – 907 million) in revenue this year and 30 billion yuan next year is expected to help diversify BYD’s business.
SkyRail does not intend to replace Yinchuan’s existing rapid transit subway system but hopes to provide an additional option for short-distance commuters, as it connects major transit stations, offices, home, and schools. SkyRail functions much like the MetroMover in the United States. MetroMover is a publicly owned monorail system that offers services in downtown Miami for free. Nearly 10 million passengers take the MetroMover each year. Why it is free? Voters approved a half-percent sales tax increase for local transit in exchange for the promise of free MetroMover ridership. But recently, the city of Miami announced the end to the free ridership program, partially due to financial hardships.
The initial phase of SkyRail in Yinchuan is 5.7 km (3.5 mile) long with eight stations. Its trains run at speeds up to 80 km/h (50 mph) and carry around 170 passengers per car. It took only four months to build and cost approximately RMB 600 million. Compared to a typical subway, SkyRail requires only 1/5 of the construction costs and only 1/3 of the construction time.
BYD spent five years and RMB 5 billion in R&D and owns the intellectual property rights to the design of the straddle-type monorail system. BYD contracted two overseas SkyRail orders this year. The first, a 20-kilometer SkyRail in Iloilo, Philippines, is scheduled to be operational in 2019. The second will be built in Alexandria, Egypt according to the recent signing of a Memorandum of Understanding between BYD and the Egyptian government on Oct 21. Alexandria, a city that suffers from frequent traffic jams, expects the 128-kilometer monorail to offer a clean, affordable, and safe means of transportation to the public.
Photo from Sohu.
Why should you care about BYD’s involvement in mass transit? The simple answer is money. Construction and O&M costs for the majority of mass transit in China rely on ticket fare revenue and government funding. Is this a sustainable business model to run mass transit system?
The world’s largest subway system in New York City requires significant government grants and capital market bonds for system expansions, upgrades, and repairs if it hopes to solve the constant, multitudinous problems that arise in a system of its size, such as train delays. In fact, NYC Subway ticket fares cover only 45% of day-to-day operation costs. NYC’s Mayor and New York’s Governor have long since debated who should take the hot potato of fixing the deteriorating subway system. Of course, policy makers might tax the rich or automobile drivers in order to cover public transit costs, but such legislation will likewise prove difficult to get passed.
While the NYC Subway spent $2.5 billion in 2015 to service its debt, Hong Kong’s subway system actually produces $2 billion in annual profit. Ticket fares cover 185% of its operational costs, the world’s highest. Yet, the fare remains quite cheap and ranges from HK $4 to HK$20 ($0.50 to $3). The Mass Transit Railway (MTR) Corporation, which runs the Hong Kong subway, understands the value that mass transportation can bring to the local economy, and local businesses clearly benefit from the tides of customers ferried by subway.
MTR partners with businesses to bring shops, stalls, and eateries to its subway stations. These businesses give a portion of their profits to MTR, which also owns many properties in Hong Kong including shopping malls, office buildings, and residential buildings. Many of these are conveniently connected to or built into subway station entrances. In greatly diversifying its revenue stream, MTR allows for capital expansion as well as upgrades. The city’s transportation network is completely driven by this private company, a company with the freedom to make decisions.
Yinchuan’s SkyRail runs on dedicated tracks and alleviates traffic congestion in an affordable and safe way. It aligns with many cities’ agenda to provide a reliable, affordable, and environmentally conscious mass transportation option. As a private company, BYD will likely enjoy the same flexibility MTR has had to create innovative business strategies alongside advances in technology.
As the first private company to enter mass transit in China, let’s hope SkyRail can learn lessons from both public and private spheres, remain profitable, and grow to make a positive impact on the local environment and economy.
(Top photo from Sohu.)
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