Chinese electric car maker BYD will invest 5 billion yuan (US$742.2 million) in China’s monorail market.
The move has been applauded by a number of investment banks such as Goldman Sachs and Credit Suisse, prompting a jump in BYD’s share price.
Unlike an ordinary double-track railway, a monorail is literally a railway that consists of a single rail.
The world’s first monorail was built in Sonoma Valley in the US in 1876 and ran for 5.6 kilometers.
A monorail can be used to transport cargo and passengers.
However, it has never become a mainstream mode of transport due to limitations in speed, capacity and stability.
Despite the drawbacks, a monorail has a few key advantages.
It costs much less money and space to build and the construction work is much faster, making them an ideal complement to principal public transport systems such as underground railways or high-speed railways.
The Hong Kong government is planning to build a nine-kilometer monorail in Kai Tak with an investment of HK$12 billion.
The average speed of a monorail train is about 26 kilometers per hour, much slower than the 40 kph of light rail trains in the New Territories.
BYD‘s first monorail system, installed at its headquarters in Shenzhen, is already up and running, branded as Skyrail.
The carmaker will spend 5 billion yuan to ramp up production of its monorail systems and market them to smaller cities in the mainland.
It takes about two years to build a monorail, compared with an average of six years for a subway system. The cost will be about 200 million yuan per kilometer, 80 percent cheaper than a subway.
A monorail has a capacity of 10,000 to 30,000 passengers per hour, far fewer than the 40,000 to 70,000 passenger carried on a subway system.
Still, the monorail market has vast untapped potential in China.
First of all, the infrastructure industry is highly policy-driven.
Major cities in China have been racing against each other to build subways and high-speed railways in recent years.
Monorails will be a useful complement.
As a means to improve transit systems that is both cheap and quick to build, the monorail is also a handy solution to encourage more people to move away from city centers, thereby cooling the red-hot property market.
BYD is known for its good relationship with the government.
It has already obtained 60 billion yuan of credit from China Development Bank and won an order for a 250-kilometer monorail system from the nearby city of Shantou.
Other cities such as Shenzhen and Zhongshan also expressed interest in introducing Skyrail.
Goldman Sachs says Skyrail would boost BYD’s operating profit by 87 percent by 2020.
And Credit Suisse estimates Skyrail could bring 1 billion-yuan profit for BYD next year.
It revised the target price upward to HK$80. BYD’s share price is up 19 percent this year to HK$51.95, giving the company a market cap of HK$131.6 billion.
This article appeared in the Hong Kong Economic Journal on Oct. 19
Translation by Julie Zhu
[Chinese version 中文版]
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