When it comes to traversing the country,
train travel is not very high on Americans' list.
In fact, the United States ranks below many
industrialized nations when it comes to ridership
on its passenger rail. Perhaps this is because
many of these countries also spend a lot more on
rail infrastructure than the U.S., with China is
spending the most out of any country.
But investment in U.S.
rail is picking up.
Railcar manufacturing revenue in the U.S.,
including for freight trains, is expected to
reach $2.9 billion by 2028.
Meanwhile, investment in passenger rolling stock,
which includes high speed rail, light rail, metro,
passenger coaches and locomotives, is expected
to increase at a rate of 4.7% per year between 2021
and 2026 across North America.
A big boost to the rail industry comes from the
Infrastructure Investment and Jobs Act, which was
passed in 2021 and designates $66 billion to
improve the nation's rail system.
This law makes it the most significant investment in
roads and bridges in the past 70 years.
It makes the most significant investment in
passenger rail in the past 50 years and in
public transit ever.
A large chunk of this money will go to Amtrak,
the federally owned U.S.
passenger train operator, which will use the money
for new trains and improvement projects.
About $36 billion will go towards intercity
passenger rail service run by individual states
in partnership with the federal government.
About $5 billion will cover rail improvements
and $3 billion will be used to eliminate railroad
crossings. Private companies like Brightline
are also hoping to get a piece of the pie.
The company has already built out its passenger
rail service in Florida, and its sister company,
Brightline West, is working on a high speed
passenger rail line between Las Vegas and
Southern California. For this project, Brightline
West is requesting $3.75 billion in federal funding
from the infrastructure bill.
We are seeing today the demand picking up as the
funds basically reach the agencies after the
allocation process.
And so we're seeing a market that's going to
grow close to 20% per year in the coming five
years.
To take advantage of this federal money,
manufacturers must abide by laws which require the
federal government to prefer U.S.
made products in its purchases. The first of
such laws was passed in 1933, but over the years,
requirements have gotten more stringent.
As a result, many of the world's largest passenger
train manufacturers are investing in their U.S.
operations. For example, since opening its U.S.
headquarters in Massachusetts in 2015,
Beijing-based CRRC has invested $135 million in
two U.S. manufacturing facilities.
Meanwhile, Japan based Hitachi is building a $70
million rail manufacturing plant in
Maryland.
Well, I think passenger rail in the United States
has been a little bit slow in years past because
of funding. And if you look at the federal
funding that other nations get, it's
tremendous. Federal funding is the one piece
that we need and now that we have it, I think you're
going to see a tremendous amount of growth in the
industry.
But whether these large investments will be enough
to convince Americans to embrace train travel is
still to be seen. CNBC visited two of the biggest
passenger rail car manufacturers operating in
the country, Siemens and Alstom, to see how they're
ramping up passenger train production and to
learn what they see as the future of passenger
rail in the U.S.
We're here at Siemens Mobility facility in
Sacramento, California, where there are 2,500
employees.
This facility is a fully vertical facility, so we
start with literally sheet metal and pieces of
metal and we build the car shells.
After the car shells are built, we also build the
bogies, they are the trucks that the vehicles
run on. Then we start the assembly process and the
assembly process is putting everything that's
needed in a railcar, whether that's seats,
sidewall liners, air conditioners, galleys and
all the amenities that go into railcars.
Headquartered in Munich, Germany, Siemens is a
multinational conglomerate with business
segments including digital industries, smart
infrastructure, medical devices and mobility.
In its latest full year financial report, the
company reported revenue of $79 billion.
Siemens Mobility makes metro cars, streetcars,
light rail vehicles, passenger coaches and
locomotives and has been manufacturing in the
United States since 1984.
Siemens has eight rail manufacturing facilities
across the country and is building a ninth in North
Carolina. It's 64 acre, 710,000 square foot
Sacramento facility serves as its North
American train manufacturing headquarters
and has been used to make more than 3,000
locomotives, passenger coaches and light rail
vehicles. The facility has the capacity to build
around 250 vehicles per year.
Customers can either buy complete train sets made
up of powered locomotives and passenger coaches or
purchase each type of vehicle separately.
About a third of our business here is in light
rail vehicles, and the other two thirds are a
combination of locomotives and passenger
cars.
Siemens' light rail vehicle customers include
transit agencies in San Francisco, Portland,
Oregon and San Diego, among others.
Siemens says it makes two thirds of the nation's
light rail cars. But Siemens mobility's largest
U.S. customer is Amtrak.
In the summer of 2021, Siemens scored a contract
worth over $3.4 billion to manufacture and
maintain 83 train sets to replace Amtrak's aging
fleet across the Northeast corridor and
across various state supported routes,
including in Oregon and Vermont.
Siemens says it's completed the design phase
for the project and that the first vehicle is in
production with deliveries starting in
2024 and finishing by 2030.
Private rail operator Brightline also tapped
Siemens to design and manufacture locomotive and
passenger cars for its rail service in Florida.
Brightline has completed phase two of its project
connecting Miami to Orlando and eventually
plans to expand service to Tampa.
Siemens has delivered a total of 10 train sets for
the company and is working on 20 more coaches
for Brightline.
Part of the design that we did with Brightline was
bright interiors, big large windows to enable
that, a comfortable ride and running at speeds of
up to 125 mph.
Siemens is also building 32 train sets for Canadian
passenger railroad operator Via Rail under a
$989 million contract.
So far, the company has delivered five of those
train sets. To keep up with demand and buy
America provisions, Siemens is building a new
$220 million manufacturing plant that
will sit on 200 acres in Lexington, North Carolina.
The new plant is expected to be completed in 2024
and will initially be able to manufacture about
12 vehicles per month.
Siemens is not receiving any money directly from
the Biden infrastructure bill, but I can tell you
that it's fantastic for the rail industry.
$66 billion going into our specific customers.
And so we expect that to feed its way down to us.
And that's part of the reason that we're opening
the facility is the investment in the country.
The trains that you see behind me here are 100%
Buy America, so we basically source from
suppliers on the North American continent.
With the supplies being sourced locally, it makes
it easier for the customers as well to
maintain them.
Aside from train manufacturing, Siemens
also specializes in rail signaling,
communication-based train control and refurbishing
old train cars.
Over 2,600 miles away, on the other side of the
country, sits Alstom's train manufacturing
facility in Hornell, New York.
So this site comprises four different buildings,
four different campuses, if you will, and it's
about 885,000ft² under roof of manufacturing in
those different buildings. And today we
have just about 800 people working here.
Like Siemens, Alstom is a multinational company
headquartered just outside of Paris, France.
In its latest full year report, Alstom reported
total revenues of $18 billion
Worldwide, I would say 50% of the company revenue is
generated by trains, rolling stock, as we call
it. The rest of the activity, as I mentioned,
signaling activity, service activity where we
do everything from spare parts to full overhaul of
trains, including maintenance and operation.
All of that represents the other 50%.
In the Americas, it's a little bit less of trains,
a little bit more of services because we're a
big operator, but we spread our revenue across
these different product lines.
Alstom has been operating in Hornell since the late
'90s and has faced some tough times.
This facility was almost shut down.
It was down to 30 people in 2011 and we restarted
the activity by overhauling some equipment
and some fleets coming from Boston, from MBTA or
from Maryland.
Now, I would say the demand is much higher on
the new trains, although there is demand as well on
overhaul, which is something that we are
repositioning in our network.
Overall, the company says it's delivered more than
12,000 new or renovated vehicles for U.S.
customers and does more than 50% of signaling for
North American railroads.
Alstom, which acquired rail manufacturer
Bombardier Transportation in 2021, builds everything
from high speed to commuter trains, light
rail vehicles, metros and the automated trains that
take passengers between airport terminals.
So the manufacturing process for trains really
depends on the specific type of train that you're
building. The way to think about it is
everything's custom. So it starts with design
engineering of the train sets, then moves into a
prototype phase, then moves into prototype
testing, then into serial production.
Typically, it'll take anywhere from 36 to 42
months to get the first prototype cars.
And then once you have prototype cars into serial
production, depending on the quantity of cars,
you'll have a program that'll run anywhere from
4 to 6 years.
Some of the company's projects include building
subway cars for the New York City Metro and San
Francisco's Bay Area Rapid Transit System, as
well as commuter cars for Chicago's Metro Transit
Agency. Most recently, Alstom landed a $718
million contract to supply 130 streetcars for
the Southeastern Pennsylvania
Transportation Authority.
The cars will be built in the Hornell facility.
Amtrak is another big customer.
In 2016, Amtrak chose Alstom to build 28 train
sets to replace its aging Acela fleet in the
Northeast corridor. The contract is worth $2
billion. Alstom says it has so far delivered eight
of those train sets, which are scheduled to
begin service in 2024.
In the past six years, we've invested about $60
million in this site and plant one.
A large part of that was to be able to support the
Amtrak program and have the capabilities to build
high speed trains in the U.S. We also got really
strong support from New York State and Empire
State Development, who helped provided grants to
be able to drive that activity.
95% of the components and workmanship is done here
in the U.S. We developed a tremendous supply base.
Today, you probably have about a half dozen
different rolling stock suppliers in the U.S.
that are building trains.
The challenge had always been the fragility of the
supply chain behind them.
And what we've seen with the investment that Amtrak
has made in these next generation high speed
trains is we've brought about a dozen different
suppliers from primarily Europe that have set up
and done foreign direct investment in the U.S.
and have set up factories and have set up
capability.
Alstom is also close to opening a new $50 million
manufacturing facility at its site in Hornell.
The new facility will be used for making the
stainless steel shells for its train cars, which
the company has been making in Brazil.
As the U.S. government and U.S. DOT has increased Buy
America requirements, in order for us to be able to
meet the thresholds, we had to be able to increase
the content we were building in the U.S.
For all the progress that's being made in the
development of passenger rail in the U.S., a lot of
challenges remain. For one, even though the
government's $66 billion may sound like a lot of
money, experts say it's a drop in the bucket.
The $66 billion that the federal government has put
forth for passenger rail is a huge boost, but it's
probably half to get to where we need to be to be
on par with the rest of the world.
In 2021, a federally appointed commission
estimated that it would cost $117 billion to make
the necessary improvements to the
Northeast Corridor alone.
Vantuono points out that even the $66 billion is
not guaranteed as a new administration could
curtail funding.
The biggest challenges facing passenger rail are
unfortunately political.
They're institutional, systemic.
It's this mindset that passenger rail is not
worth investing in.
There's a misperception that passenger rail needs
to "be profitable." Well, that's ridiculous.
It doesn't have to be profitable.
It's transportation.
It's public service.
Passenger trains in the U.S. run along the same
tracks as commuter and freight trains.
And unlike in China and countries in Europe, where
the majority of train infrastructure is
nationalized, most of the U.S.
rail infrastructure is owned by private freight
companies, which means that freight trains are
usually given priority over passenger trains.
Despite a legal mandate to prioritize passenger
travel, Amtrak estimates that freight trains caused
Amtrak passengers 1.1 million minutes or about
two years of delays in 2022.
This is something that passengers may not be
willing to put up with. A recent study shows that
for North American travelers, price
convenience and reliability top the list
of factors they consider when choosing what
transportation to take.
The level of service, reliability and
efficiency, the level of frequency and therefore
journey time and some level of disruption that
customers see have been holding many customers
back from from shifting to public transportation.
America's aging track system is also not well
suited to support the newest train technology.
Although the new trains that Alstom is building
for Amtrak's Acela service are capable of
reaching speeds of 186 mph, the trains will
likely top out at 160 mph on small sections of the
Northeast corridor because the infrastructure
is so old. This is just ten miles faster than the
current Acela fleet's top speed.
If there was infrastructure today in
the U.S. that would allow it, these trains behind
you can go 186 mph.
If we change two things on the train, it can go
220 mph.
We don't have high speed infrastructure to really
show what they can do.
The ideal tracks for high speed rail have long
segments that run in a straight line, have no
grade crossings and are completely isolated from
slower freight and commuter rail, aspects
currently missing from the U.S.
rail infrastructure. But rail manufacturers are
adapting.
One thing that the U.S.
can really leverage with this train and a lot of
other countries have done is tilting capability.
You can save and not have to invest in brand new
tracks and brand new infrastructure. You can
leverage the existing infrastructure, which is
what Amtrak has done. This train is going to
have a geo-fenced, active tilting system, so it's
anticipating the turn that's coming ahead of it.
So as it's approaching it, the cars at the front
of the train will start tilting in anticipation of
the curve, and then the train will progressively,
in an intentional way, curve at the precise level
all the way through the curve to be able to
maintain maximum speed and maximum passenger
comfort, which is a significant difference
compared to what exists in the current Acelas.
Aside from legacy customers, Alstom and
Siemens hope that demand for passenger rail
vehicles will continue to grow with the development
of high speed rail. Several high speed
projects are at different stages of development in
the country. On the West Coast, California High
Speed Rail aims to connect Los Angeles to
California's Central Valley and San Francisco
in phase one, while phase two will connect
Sacramento to San Diego.
The project would encompass over 800 miles
of rail. Private company Brightline West plans to
build 218 miles of track from Las Vegas to Southern
California, and the Cascadia High Speed Rail
project aims to connect Eugene, Oregon, to
Vancouver, Canada. Brightline West has said
that Alstom and Siemens are both top contenders to
build the company's high speed trains for its West
Coast project. But progress on high speed
train projects is slow.
So far, the California high speed rail project is
the only one under construction. High speed
rail projects in the U.S.
often face ballooning costs and endless delays
over things like property rights disputes and
environmental reviews.
Still, some experts believe that all the U.S.
needs is just one successful high speed
train project to pave the way.
If California gets built, then others will say, Oh,
we want a high speed rail system.
Anywhere that a system has been built, it's
created jobs, it's created economic growth.
There's far less pollution caused by
passenger rail than by automobiles.
And it's a lot safer.
Once the new generation of trains come, people will
realize that it's actually faster, it's more
convenient to hop on a train than to actually
drive, some how fast the traffic.
We've seen exactly the same in Europe.
Most of the short distance planes have been
replaced by trains.
Whether Americans will embrace train travel as
eagerly as their European neighbors is yet to be
seen. But train manufacturers are
optimistic.
If you look at our future growth rates on the
market, it's only like 4% or 5% compound annual
growth rate. But if you go back and look at the
market from 2020 to say 2030, it's almost a 10%
compound annual growth rate. So these these
recent last couple of years have just been great
for the industry, both for us and for our
competitors.