Dyson: A British inventor pivots to Asia

By Peter Campbell and Michael Pooler in London and Stefania Palma in Sydney

With one eye on the Chinese market, the British company is set to produce electric cars in
Singapore. Will the £2bn gamble pay off?

James Dyson churned out 5,126 prototypes before perfecting the final version of the machine that
would make his name and fortune. A quarter of a century after that bagless vacuum cleaner went on
sale, his eponymous company’s attempt to enter the automotive arena with a series of electric cars
from 2021 will allow for far fewer trials.

The privately held British engineering group has bet its future on breaking into one of the world’s
most competitive markets, pitting the entrepreneur against corporations like Volkswagen, Toyota
and General Motors.

Its £2bn gamble shifted up a gear this week, with the announcement that its first automotive
manufacturing plant will be in Singapore, the city-state which has not made cars since Ford closed a
plant there in 1980.

Singapore’s trade links with China, the world’s largest electric car market, as well as its abundance of
engineering graduates, helped it overtake other shortlisted contenders that included Britain, home
to Dyson’s headquarters.

Though genuinely considered, the UK was always regarded as a long shot and the decision has
inevitably sparked questions over the country’s ability to safeguard its car industry as Britain
prepares to leave the EU.

Such is the ambition of Sir James, arguably Britain’s most famous inventor and a vocal supporter of
Brexit, that he believes Dyson cars will eventually outgrow the company’s range of hairdryers,
vacuums and air filters and come to define the brand.

‘If they make an executive decision that they will develop a product in a certain category, then they
go all in,’ says a former Dyson research engineer.
But the scale of the challenge is enormous. Established players still find making cars at a profit
fiendishly difficult. The biggest newcomer in the field, Elon Musk’s Tesla, has burnt through billions
of dollars of cash with only a handful of quarterly positive earnings to show for it.

Commercial failure, big cost overruns or even just unexpected hiccups on production lines could end
up threatening the company that Sir James has built into an empire with £3.5bn of revenue.

‘I think Dyson is underestimating the scale of the challenge, both in developing a new car and
building it successfully,’ says David Bailey, a professor of economics and industrial policy at Aston
University.

‘It is going to be a lot more expensive than they anticipate. It will gobble up a lot of resources,’ he
adds.

Dyson’s interest in cars goes back to the cyclone principle it uses in its vacuum cleaners to suck up
dirt. In the 1990s, Sir James suggested this could be used to extract fumes from diesel exhausts, but
his approaches to car makers were rebuffed.

Today, the company can boast success in almost every product category it has entered with the
notable exception of its washing machines, which sold at a loss and were discontinued.

Sceptics say there is a huge difference between high-end domestic appliances and an automotive
industry undergoing radical shifts amid the rise of electric propulsion technology, artificial
intelligence and new ownership models. Yet with far fewer moving parts than traditional internal
combustion engine cars, battery-powered vehicles are easier to design and produce, opening the
door to new entrants, from California’s Tesla to Croatia’s Rimac.
In China alone, which Dyson sees as its biggest target market, there are more than 300 registered
electric car start-ups, many with rich backers and ambitious founders. They include names such as
Lucid, Byton and Nio, which is backed by the internet group Tencent and recently listed on the New
York Stock Exchange.

‘We know it is a crowded market,’ Sir James said last year. ‘But if you produce a product that has
technology that is genuinely better, and a performance and product that people want, you can make
money.’

Tesla has sought to cement a position by attacking the inefficiencies it saw in established
manufacturers, from overreliance on suppliers to the traditional dealership model. Dyson is applying
a similar disruptive mentality.

‘Dyson thinks, like Musk, the incumbent industry doesn’t know what it’s doing,’ says one person who
has worked on the project. ‘That’s quite a risk.’

The company’s notorious secrecy – it took more than a year to agree a confidentiality agreement
with one supplier on the project – means few details have been revealed about its maiden four-
wheeler to roll off the production line in just three years. Scheduled to be the first in a planned
series of three models, it will be pitched to the upper end of the market and produced in a small
batch of several thousand, according to people familiar with the plans.

Unlike Tesla, which has suffered manufacturing problems, the British group already makes millions
of products a year, and sources around 4bn parts annually from across the globe.

‘He’s not a Silicon Valley start-up, he understands manufacturing,’ says one supplier.

Dyson believes that its specialisms, in areas such as electric motors, batteries and aerodynamics, will
give it the edge over companies with a century’s worth of experience in car making. But to succeed,
it will need to cast off some of its reluctance to collaborate with component providers.

Its fans and air purifiers have given Dyson knowledge in the physics of air flow, an important area for
electric vehicles because drag is a key factor in battery range, the distance that an electric vehicle
can eke out of its ‘tank’ before needing to recharge.

For instance, a Tesla Model S can travel 300 miles on a full battery, in part because of its sleek
design. But when carrying bicycles, the distance falls significantly.

Most established car brands have distinctive grills, which allow cooling air to flow into the hot
engines. Keeping the same design for their electric cars allows models to be recognised by the
motoring public – an Audi electric car will still look like an Audi – but it will bring aerodynamic trade-
offs that will hamper the cars’ range.

That should give those starting from scratch an automatic head start.

Dyson’s other forte is batteries. It already makes 7 per cent of the world’s lithium ion cells, to power
devices such as its cordless floor cleaners.

However, it may be forced to scale back the extent of its technological ambitions – at least for now.
The company originally intended for its cars to be powered by cells developed in-house as part of a
£1bn investment, but has now admitted that it could buy them from an external supplier.
Many car makers already buy-in their batteries to avoid being locked into a single battery type and
the huge expense of building a cell production site, says Chris Robinson, a senior analyst at Lux
Research.

‘One alternative [for Dyson] could be licensing its [battery] material to have someone else make it
for them – a contract manufacture,’ he adds. ‘There are a lot of battery factories in China and
elsewhere in Asia.’

Dyson’s reluctance to collaborate with other companies – borne out of years of defending its
intellectual property – makes this approach unlikely.

This mindset played a crucial role in its decision not to build in Britain, because many of the UK
government-funding channels require collaboration with smaller partners, an approach designed to
foster a domestic supply chain. Britain may need to change this approach to win future work.

‘Where we are falling down is not having any capital money to put into these things,’ says one
government figure. ‘Other states cheat the system and find ways around that, but we don’t.’

Singapore’s incentives include tax breaks for five years, which can be extended, and R&D grants that
can cover up to 30 per cent of the cost of projects that involve product, application or process
development, according to the Singapore Economic Development Board. They also offer expensive
land at discounted rates, says a person with experience of Singapore’s economic planning. ‘They
definitely would have given [Dyson] a favourable tax break,’ they add.
Dyson refuses to reveal the scale of its investment, though the EDB’s Kiren Kumar says the company
would double its 1,000-strong workforce in the country through the investment.

Advanced manufacturing is a priority for Singapore, which deems it a way to raise productivity at a
time when the city-state has struggled to maintain high levels of efficiency.

For Dyson, which says its Singapore investment was premised on market access rather than
incentives, no amount of government support can remove the need to pour its own resources into
the venture.

Sir James has ruled out an initial public offering to fund the project. Earnings before tax at
Weybourne Group, the holding entity for Dyson’s commercial interests, rose 27 per cent to £801m
last year, while revenue jumped two-fifths to £3.5bn.

Its debt levels are low by the standards of industrial companies, giving it room to borrow
significantly, while the core business generates cash.

But still, Sir James is acutely aware of the challenge he has taken on. ‘Investing in new technologies
requires many leaps of faith and huge financial commitment over long periods,’ he told a Financial
Times dinner this year. ‘En route, there can be multiple sleepless nights and lots of frustration,’ he
said before adding that, at heart, ‘Dyson was never a vacuum cleaner company’.
Source: from ‘Dyson: A British inventor pivots to Asia’, Financial Times, 26/10/18 (Campbell P, Pooler, M. and Palma, S.).

Question 1
What environmental factors are behind Dyson’s move into the electric car market and its decision to
move its operations to Singapore?

Question 2
What does Sir James means by ‘Dyson was never a vacuum cleaner company’?

Question 3
Use the Five Forces model to establish how competitive the electric car industry sector is.