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.
