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Dyson pulls plug on electric cars, but the project was doomed to fail

Dyson would also have needed a faster return on its investment than the established carmakers to keep the project going

Alex Webb | Bloomberg 

Representative image
Representative image

The reason it was even conceivable for Ltd. to make an electric car may also have been why its project was doomed to fail: They’re simply too easy to make. The British company, best known for its expensive vacuum cleaners, has now abandoned its 2 billion-pound ($2.5 billion) plan to branch out and take on the likes of Tesla Inc. and Volkswagen AG.

Whereas cars with a combustion engine need about 30,000 components, an electric vehicle needs just 11,000 parts, according to research from Goldman Sachs Group Inc. That reduction in complexity has lowered the barriers to entry for the automotive market, and caused a surge in the number of new carmakers.

Dozens of startups have entered the fray over the past few years, from Tesla and Lucid Motors Inc. in the U.S., to Byton Ltd. and NIO Inc. in China. Since 2011, electric vehicle startups have raised $18 billion in funding, and announced 43 models and the capacity to make 39 lakh vehicles a year, according to Bloomberg New Energy Finance. That’s a lot of competition.

While Dyson’s 1.1 billion pounds of Ebitda in 2018 gave the relatively small British manufacturer some money to play with, standing out from the electric vehicle crowd would have been quite the challenge.

And those earnings are a drop in the ocean compared to the wealth of the automotive giants who are waking up to the epochal shift away from dirty combustion engines. Volkswagen alone has announced plans to invest $52 billion in electrification as it targets production of at least 20 lakh electric vehicles a year by 2025. Its existing network of dealerships in 153 countries will make it considerably easier to sell those cars.

would also have needed a faster return on its investment than the established carmakers to keep the project going. The small size and embryonic nature of this market would have made that difficult. Just 575,000 electric vehicles were sold globally in the three months through June. That’s 3.7 per cent of the overall automotive market.

The ambitions of the British company, controlled by the billionaire inventor James Dyson, won’t be the last to fall by the wayside. Others are struggling. Shares in NIO, a Shanghai-based firm backed by Tencent Holdings Ltd. and Baidu Inc., have fallen 86 per cent from a post-IPO peak last year as its losses have deepened. Faraday Future, a Chinese-backed, U.S.-based rival, teetered on the brink of insolvency before clawing itself back from the edge.

Given the brutal environment, Dyson’s retreat looks wise. Such projects often have a detrimental effect on the rest of the business, which in Dyson’s case includes hand- and hairdryers. After Apple Inc. started its own project to build a car back in 2015, it had to carefully control how many software engineers moved from its iOS team (which makes the all-important operating system for iPhones and iPads) to join the secretive project.

For Dyson, the car risked becoming a similar distraction. In a letter to employees, he admitted he saw no way to make a car “commercially viable.” Better to concentrate resources on his core competencies. A failure at a later date would have been much more painful, and potentially ruinous.

First Published: Fri, October 11 2019. 09:41 IST
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