Explaining Southern California's economy

Chinese carmaker BYD opens shop in Downtown LA

BYD-DowntownLA-MDB

Matthew DeBord

BYD — it stands for "Build Your Dreams" — is building a future in Downtown LA, new home to its North American HQ. Unfortunately, it's enduring something of a nightmare with its business at home in China, even with billionaire Warren Buffett invested.

In business, timing is everything. So what to make of a dignitary heavy ribbon cutting this morning at the new North American headquarters of Chinese carmaker BYD ("Build Your Dreams"), at a time when the company is facing business challenges at home — and challenges to deliver on ecomomic promises in LA?

This is from Bloomberg:

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., 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.

[...]

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.

No one should be surprised by BYD's mighty, morphing business model. The company started out as a battery maker, then transformed itself into an electric car company just as EVs were starting to look like the wave of the future in the 2006-08 period. I first made its acquaintance in 2008, when BYD became the unlikely renegade star of the Detroit Auto Show, providing an impromptu test drive on the floor of the event for my then-colleague Matt Hardigree of Jalopnik. The driver? BYD's Chairman, Wang Chaunfu.

As the EV market has stumbled along, primarily in the face of relatively cheap gas prices, BYD is again re-inventing, this time as a provider of green power and manufacturing solutions, as well as fleet-scale alternative transportation, such as an all-electric shuttle bus that Hertz will soon begin using at LAX.

What does it all mean for LA? Effectively, a fairly good ad for LA's committment to green jobs; a shout to the globally engaged economy, with LA facing the future in the Pacific Rim; and an excellent opportunity to ally the City of Angels with uber-investor Buffett, whose Berkshire Hathaway owns a significant stake in BYD. Buffett's longtime partner, Charles Munger, was at today's event and explained that he and Buffett were interested in BYD before it became an aspirant to electric car greatness. 

There's been some debate about that — specifically, whether Munger was invested in BYD before he convinced Buffett to pony up $230 million for a 10-percent stake in 2008 and was therefore in conflict. There's also the question of whether Munger and disgrace Buffett heir apparent David Sokol used their enthusiasm for BYD to break down Buffett's innate resistance to investing in a company that, as I point out above, was up to that point perhaps best known for driving a blogger around Cobo Hall in Detroit in the middle of winter.

Munger and Buffett seem to be fully committed to their position in BYD, although Berkshire has trimmed its stake somewhat over the past few years.

However, the BYD ribbon-cutting also provided a chance for former Deputy Mayor Austin Beutner, now a mayoral candidate, to burnish his job-creation cred: He led a team that sealed the deal with BYD, beating out numerous other Southland suitors (if the legend of BYD's courtship is to be believed). And Mayor Antonio Villaraigosa was certainly happy to give Beutner some props.

On balance, the BYD deal didn't really even cost that much. The city is on the hook for BYD's lease, but that guarantee was a condition of the owner of the building that BYD now occupies. In any case, it's a long-term risk, as BYD is a reasonably successful company in China, outside the electric car indsutry, which is obviously in its early stages.

As Blog Downtown reported, the other main candidate to take over the space, before the city pitched BYD, was South Korean automaker Hyundai.

BYD HQ is located between the Staples Center and LA Live to the north and the University of Southern California to the South. This stretch of Figueroa — dubbed the "Figueroa Corridor" by City Hall — is fairly desolate. If you work at BYD, your closest neighbor will be the 10 freeway. 

The labor will be of the white-collar variety: engineering, R&D, communications, management, and probably dealer relations. And even though the company is only estimating 150 jobs, that's still...143 more than Honda had when it established itself as a motorcycle dealer in Los Angeles in 1959.

BYD might be going through some growing pains now, but the Chinese are determined to establish their auto industry, to eventually lead on technology and innovation, and to do business, like the Japanese before them, in the USA. They may be off to a bumpy start. But it's still a start.

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