The race to build the United States’ first bullet train line is afoot in California, and the number of companies looking to get in on the ground floor is telling of the massive potential of the developing market.
California’s initial $1 billion contract to supply train cars for its emerging high-speed rail line has spurred international interest based on expectations that this could be the first step in an American manufacturing boom worth far more.
The state’s High-Speed Rail Authority is currently seeking bids to manufacture 16 trains, each capable of carrying 450 passengers and traveling at speeds greater than 200 miles an hour.
Germany’s Siemens AG (OTC: SIEGY) and Canada’s Bombardier Inc. (TSX: BBD-B) are two of the top companies jockeying for position among nine foreign manufacturers that have made their interests known. The contract will be awarded in early 2016.
Other countries have long seen the U.S. as an untapped market for a high-speed rail system. However, opposition in Washington, D.C. has hindered progress at the national level and left California as the only state currently pursuing a bullet train system.
The United States is one of the few industrialized nations without any bullet trains to call its own, but once construction gets fully underway, the expectation is that the market will grow exponentially as more states realize the benefits of high-speed transit and more overseas companies see the potential of this nascent American market.
California’s rail authority plans to order as many as 95 trains over the next 14 years, raising the value of the purchase to more than $3 billion.
Jerry Brown, the Governor of California, asserts that high-speed rail is less expensive and better for the environment than building additional roads or airports. Brown plans to build the full $68 billion system, despite conservative opposition at the federal and state levels, with the help of private investors.
The state already has about $13 billion towards the total needed to build the network, including $3.3 billion in federal stimulus funding awarded before the Republicans took control of the House of Representatives in 2011.
Buy American
The Federal Railroad Administration mandates that any project on U.S. soil receiving federal funding must use equipment that has been entirely made in this country.
This stipulation not only serves to stimulate the local economies but also eliminates some contenders for the contract. Any company that is unable to begin operations within American borders soon enough will no longer be in the running.
Some overseas manufacturers interested in the contract would have to build or expand their current facilities in the U.S. in order to do the work. As an added incentive, Californian officials have said they will award preference to companies that are willing to build in the state.
Chinese train makers CSR Corp. (HK: 1766) and China CNR Corp. (HK: 6199), which are in the process of merging, could have an advantage because they may be able to help arrange financing for California’s project sooner than the rest.
China has been aggressively pushing its high-speed rail technology internationally, as European manufacturers face constrained public spending along their home fronts.
This past October, CNR won a $567 million contract to build trains for Boston’s subway system, the first rail-related deal for a Chinese company in the United States.
Depending on how that contract works out, the CSR/CNR powerhouse might have enough steam to win the California contract and continue building on U.S. soil from there.
The first section of California’s high-speed rail will run 130 miles down the state’s inner Central Valley. The route will connect some of the least-populated parts of the state, making the location an ideal proving ground for transit that will eventually become ubiquitous within our borders.
The entire line is scheduled to be fully operational by 2029, with tracks totaling a distance of 800 miles and including as many as 24 stops.
Faster Than a Speeding Bullet (Train)
While federal and state egos clash on whether or not some of our country’s most populated areas deserve better public transportation, Elon Musk is getting closer to realizing one of his more ambitious pet projects: the Hyperloop.
Described as “a cross between a Concorde, a rail gun and a bullet train,” the Hyperloop will be able to get you from Los Angeles to Las Vegas in 20 minutes and to San Francisco in 35.
Maxing out at 760 mph, the Hyperloop will use a “vacuum tube transportation network,” able to travel both on land and underwater.
The team working on it consists of engineers from both Tesla Motors (NASDAQ: TSLA) and SpaceX, with a repertoire including design work on the second-stage engine of SpaceX’s Falcon 1 and the heat shield of the Dragon capsule.
Hyperloop’s preliminary round of financing netted it $8.5 million, and an additional round is expected to raise $80 million later this year.
