Waiting for Electric Buses: Competition and Complexity in the US Market

As competition for passenger electric vehicles (EVs) heats up in the US market, electric buses (e-buses) remain a largely overlooked segment. But its market dynamics are such that competition is set to intensify, particularly between a globally established Chinese player and a rapidly growing US startup.

China’s BYD, whose US subsidiary manufactures buses in California, is one of the largest e-bus makers in the world and has leveraged its experience in its home market to expand in the US market. But in North America it is currently lagging behind the American manufacturer Proterra, and the gap may widen further.

The incoming Biden administration’s plan to make all new American-built buses zero emissions by 2030 will be a boon to these manufacturers. Bus electrification is a low-hanging fruit in the path towards achieving zero-emissions transportation because it can be achieved relatively quickly through public procurement.

Federal incentives could have a significant impact on local procurement and further harden the competition between BYD and Proterra as they race to capitalize on policies to support sales. It could also hasten the electric transition of manufacturers such as Canada’s New Flyer, the leading conventional bus manufacturer in the United States.

Local government procurement choices depend on many factors, but they may be increasingly shaped by national politics. These dynamics may matter even more when factors like cost and quality are similar, which is the case for BYD and Proterra.

How the US e-bus market shakes out could serve as a leading indicator of the Biden administration’s broader intent to electrify the transportation sector, which is the largest source of greenhouse gas emissions in the United States. This analysis examines 1) the current state of the e-bus market and 2) the competition between BYD and Proterra in the US market.

The US e-bus Market: Limited Uptake So Far

The United States has long been a laggard in public transit for a number of reasons, chief among them the perennial dominance of the automobile and under-investment in infrastructure. There are only 68,264 buses owned by transit agencies that are currently in active service across US cities, far fewer than in Europe or China, and e-buses are just a fraction of that headline figure. For the foreseeable future, the US e-bus market will remain small relative to other global markets (see Figure 1).

Figure 1. Projected Municipal e-bus Fleets Worldwide
Source: Bloomberg; Statista.

Several reasons lie behind the slower adoption of e-buses. One is that if the battery range is shorter than advertised, or the charging time takes too long, then the local transit agency is stuck with a fleet of e-buses that have suboptimal performance. As a consequence, some local government buyers may be delaying adoption until the battery, which accounts for about a quarter of the cost of an e-bus, becomes more efficient and more reliable.

The other and most important reason is cost. With an average per unit price of $750,000 (cost easily goes up to $1 million with customization), an e-bus is about 50% more expensive than a standard diesel bus. In addition, multiple charging stations are needed to power an e-bus fleet, each of which costs up to $100,000 depending on the technology. In other words, if all buses in active service today were to be converted to e-buses, the price tag would be well north of $50 billion.

Cash-strapped municipal governments balancing numerous spending priorities tend to be wary of the cost differential between a traditional bus and an e-bus. This is especially so in the context of limited and often unpredictable federal funding.

For example, in 2020 the federal government’s Low or No-Emission (Low-No) Bus grants totaled just $130 million and were disbursed across 41 approved projects, including the purchase of hybrid EVs and full e-buses. Other Federal Transit Administration (FTA) grants are even more competitive since they can be used to buy buses that run on diesel and compressed natural gas. Many transit agencies have also tapped the nearly $3 billion mitigation fund set up by Volkswagen as part of its settlement after the diesel cheating scandal, with some of that money going toward purchasing Proterra and BYD e-buses.

E-buses by the Numbers
Beyond the upfront cost, however, e-buses are entirely competitive with diesel buses when comparing lifetime costs over roughly 12 years. For example, one study on public transit in Austin, Texas estimated that the adoption of e-buses would save between $73,000 and $173,000 over their lifetime when accounting for maintenance, fuel, and other costs.

Competition and Potential Growth

Political commitment can accelerate the rate of adoption of e-buses, especially at the local level. That has been the case in the state of California, which is providing generous state-level funding to help transition its entire public transit fleet to electric by 2040.

As a result, the Golden state leads the country with more than 300 e-buses on its roads, and many more orders are on their way. It is a major local market for competition between BYD and Proterra, with the former so far being the main beneficiary of California’s push to electrify. The Chinese-owned company, which has been operating a plant in Lancaster, California since 2011, accounts for two-thirds of the state’s e-buses.

Since pricing between the two manufacturers is comparable (for example, 35-foot buses for both companies cost between $750,000 and $800,000), the competition will likely fall on product diversification, reputation, relationships with municipal governments, financing models, and perhaps even US-China relations.

BYD America: Global Leader, American Laggard

Known for its passenger EVs, BYD is also the second-largest e-bus manufacturer in the world. The company benefits from its proven success in manufacturing and deploying e-buses in China, something that no US manufacturer today can claim. For instance, the city of Shenzhen where BYD is headquartered largely relied on the company to electrify its mass transit system, purchasing a fleet of 16,000 e-buses.

Compared to its leading Chinese competitor, Yutong, BYD has a better localization strategy in overseas markets. For example, BYD has already opened two factories in Europe and an assembly plant in Canada. It has also established partnerships with firms in Europe, India, and Australia. This approach has the advantage of building local political support by providing jobs. Importantly, the company has so far qualified for US federal funding under the “Buy America Act” by operating a bus and a battery plant in California.

It was not always smooth sailing for BYD, however. For one, while it is a manufacturing powerhouse in China, BYD America had to rebuild its supply chain, train US workers, and conform to new labor and procurement practices when it entered California. But after initial market entry challenges, BYD has scored some important contracts—namely a record order of nearly 200 e-buses from the city of Los Angeles—that has made it the largest e-bus manufacturer in California by number of orders and deliveries (see Figure 2).

Figure 2. BYD and Proterra Presence in California
Note: This chart shows best estimates from public sources on e-buses ordered and delivered.
Source: Author’s calculations.

Several reasons explain BYD’s attractiveness. Until recently, BYD’s e-buses boasted some of the longest ranges in the market, up to 215 miles for its 35-foot model, and it was the first to offer a 60-foot articulated electric model. Agencies like Antelope Valley Transit Authority have publicly praised their BYD fleet, giving the company validation. Since 2018, BYD has also partnered with Generate Capital on a leasing program that lowers upfront costs to transit agencies.

But whether that initial success in California can be translated to the national market is unclear. For one, BYD has had some reputational damage due to complaints of its products’ performance in California, as well as canceled or returned orders from the cities of Indianapolis and Albuquerque.

The main problems have to do with the battery range and charging, which are common challenges for EVs. But some reports suggest that BYD batteries may be particularly sensitive to extreme temperatures, though the company disputes this. Improvements in technology may solve some of these issues: the company has recently unveiled a new battery that does not include cobalt and is claimed to be one of the safest on the market.

In a highly competitive environment, reputational damage can make a big impact. For instance, Florida’s Broward County Commission in 2018 bought five BYD e-buses with the intent to order 15 more. But the commission soon reversed that decision, citing “media reports detailing problems with the awarded contract vendor.” Instead, Proterra won the contract to supply 12 e-buses at a lower price the following year.

A final challenge is the 2020 National Defense Authorization Act that prohibits FTA funding from being used to purchase buses from suppliers from “nonmarket economies” (e.g. China) after 2021. Since BYD America is a Chinese-owned company, it will no longer qualify for FTA grants, which have been an important source of funding for bus electrification programs at the local level. Going forward, this certainly disadvantages BYD America in local government bidding, even though its buses are manufactured in the United States.

To the extent heightened US-China tension spills over into local procurement decisions, it will likely dim the prospects of BYD’s growth in the rest of the US market. Despite BYD’s strong position in California, at a minimum, the company will have to compete much harder against Proterra, which currently leads in sales in the US market.

Proterra: Home Court Advantage

Proterra established its first manufacturing plant in Greenville, South Carolina in 2011, the same year that BYD America entered the US market. It is now estimated to have delivered more than 470 e-buses in the United States and claims to have 1,000 units on order, making it the largest e-bus manufacturer in North America (see Figures 3 & 4).

In 2017, Proterra also opened a second factory in California to fulfill orders on the West Coast. Like BYD, Proterra has a vertically integrated business model and develops its battery packs in-house, though it has also cooperated with battery maker LG to design battery cells.

Figure 3. Market Share of Top US e-bus Manufacturers
Note: Based on best estimates from public sources on e-buses delivered (includes BYD buses delivered to Albuquerque that were later returned).
Source: Author’s calculations.

The firm has so far failed to secure contracts as large as those signed by BYD in California, but the US startup has done much better beyond the state. This means that in practice Proterra could easily snatch up larger contracts as more cities decide to “go electric” in the next couple of years.

Figure 4. Total BYD and Proterra Orders and Deliveries in US Market

Note 1: Based on best estimates from public sources on e-buses delivered (includes BYD buses delivered to Albuquerque that were later returned).
Source: Author’s calculations.

Recent developments are likely to support Proterra’s continued expansion. On technology, the company’s 40-foot ZX5 model was released in 2020, boasting more than 300 miles of range. On financing, Proterra launched a battery leasing program in 2019, similar to BYD America’s financing program, to lower the upfront cost of its e-bus and to spread out payments.

Proterra’s products, however, are not perfect, suggesting that it will also have to work to win over consumer confidence. For example, the Southeastern Pennsylvania Transportation Authority reportedly paused usage of Philadelphia’s 25 Proterra buses due to chassis issues. The city of Duluth, Minnesota also reported multiple mechanical and range issues with the seven Proterra e-buses it purchased in 2018.

Beyond transit buses, Proterra has been partnering with other heavy-duty vehicle manufacturers. In particular, it has collaborated with an established school bus manufacturer, Thomas Built Buses (owned by Daimler Trucks), to develop a new model and supply battery and drivetrain technologies.

School buses represent a much larger market compared to transit buses, but the sector is even more underdeveloped when it comes to electrification. The biggest challenge is the cost gap: the price of electric school buses can be three times that of conventional ones, but savings accrued over time are more limited because the vehicles are used far less than transit buses and thus consume less fuel.

This makes the new Biden administration’s commitment on public transit even more significant if it were to support funding to purchase electric school buses. Proterra would be much better positioned than BYD to capitalize on such a policy.

Fast Charging Towards the Future

Although still nascent, the e-bus industry looks poised to grow quickly in the United States over the next few years. It will likely be bolstered by the green infrastructure initiatives that the Biden-Harris administration plans to undertake.

As such, the current Proterra and BYD duopoly could be shaken, as established players like New Flyer become more invested in the e-bus market. What’s more, at the federal level, national security concerns surrounding Chinese firms could lead to more protectionist policies.

It is unclear whether reducing competition in the industry will ultimately benefit the broader goal of electrifying transit. Among other things, having more competitors could benefit cost reduction and technology innovation.

How much US-China tensions, and the distinction between “American built” and “Chinese-owned,” will ultimately shape local procurement decisions remains to be seen. Even so, BYD is unlikely to retreat from the US market anytime soon, especially since e-buses remain their flagship product in North America. But if the company increasingly finds itself limited to the California market, in part because it is less dependent than other states on federal funding for e-buses, it will likely need to diversify in the US market.

Ilaria Mazzocco is a Senior Research Associate at MacroPolo. You can find her work on energy and climate here.