Dyson’s shock withdrawal from car manufacturing makes sense

Sheer cost of creating electric vehicles proves to be too daunting to British brand

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Iconic British manufacturer Dyson has pulled the plug on its plans to manufacture electric cars in Singapore in a shock move which appears at first blush to be something of a humiliating U-turn for the marque brand.

There are perhaps two takeaways from this decision: one is that the business of making electronic vehicles (EVs) is profoundly challenging; the other is that the company remains in business in Singapore, will produce other items linked to the EV business, and that the move this year of its headquarters from the UK to the city state underlines the growing significance of Singapore as a regional trading hub.

The narrative for this sudden withdrawal from the original plan to construct an EV manufacturer from scratch - which had been portrayed by billionaire founder James Dyson as a venture which would redefine his business - was that it was no longer commercially viable, with Dyson having failed to find a buyer for its designs.

Dyson’s pulling of the plug resonates within an industry which is struggling to fund the migration from internal combustion engine (ICE) driven vehicles to those powered by electricity.

I have written here before about the significant sell-off which has occurred in the secondary market for debt issued by car-makers and ancillary entities due to the structural change which faces an industry which is plagued by overcapacity, a slump in demand for vehicles, and the need to invest in EV capability.

Still, Dyson’s eyeballing of Asia for the production of EVs, unveiled two years ago with the label of a “radically different”promised electronic car, was on point: the region is expected to experience the fastest penetration of electronic vehicles, with the industry targeting that by 2025 around 10% of new vehicle sales in Asia will be EVs.

The underlying dynamic is being pushed by government regulation which aims to meet the Paris Climate Accord strictures to keep global heating within 1.5 degrees of pre-industrial levels.

Dyson had hoped to leverage the intellectual property of his group in diverse areas such as hi-tech manufacturing, batteries and aerodynamics to steal a march into a highly competitive industry, where neophytes such as Tesla and China’s Nio are struggling to find market share in the face of competition from incumbent brands such as BMW and Toyota.

Dyson had set aside 2 billion pounds (US$2.6 billion) to invest in the proposed EV project, with 1 billion pounds to be devoted to vehicle production and 1 billion pounds to batteries, with a further 500 million pounds to go towards investments in artificial intelligence and robotics. The problem was that Dyson was to shoulder the heft of the initial investment out of its existing business which is focused on the manufacture of household appliances.

Despite its abrupt withdrawal from the EV project, Dyson’s relocation of its global headquarters from the UK to Singapore earlier this year remains highly relevant in the context of increasingly contentious global trade flows.

Via its relocation, Dyson enjoys a low 17% corporate tax rate, state-of-the-art infrastructure, and Singapore’s free trade agreements with ASEAN and China. Against the uncertainty surrounding Brexit and the trading conditions which will be imposed on the UK on its withdrawal from the EU, Dyson’s relocation makes eminent sense - electronic car production or not.

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Date

14 Oct 2019

Channel

Capital Markets

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