The recent news of Dyson’s plan to build its new electric car in Singapore was met with substantial eyebrow raising around the world, and nowhere more so than on this tiny dot of a city-state.
After all, if Singapore is well-known for anything, it’s the highly restrictive purchasing structure and exorbitant cost of vehicle ownership in the city state.
For those not familiar with Singapore’s strategy, a clever, but not all together popular, market-based quota system caps the number of vehicles on Singapore’s road network – a cap whose growth has been cut from 0.25 per cent per year, to zero.
Indeed a sensible move for the tiny island-state, but one which makes Dyson’s electric car announcement seemingly even more bizarre. And while Singapore would seem an ideal market for clean energy electric cars, the market is clearly very limited. Indeed, Tesla CEO Elon Musk has previously criticised Singapore for not being supportive of electric vehicles.
And if there is scant demand in the developed economy of Singapore, the rest of region offers even smaller hope. LMC Automotive, an automotive-focused forecasting and market intelligence services provider estimates that a paltry 142 electric vehicles will be sold this year in Southeast Asia. There is however the China market, where electric vehicles are being promoted in part, to deal with the country’s massive pollution problems. But more on China later.
As for automotive manufacturing, Singapore boasts none… as in zero. In fact, it’s been nearly 40 years since Ford closed its factory doors here.
The land-starved city state also has a number of other features seemingly in opposition to Dyson’s decision. These include high real estate prices, one of the highest average salaries in the world after tax and a generally high cost of living.
In its announcement Dyson gave a few nuggets of its rationale for choosing Singapore, which when linked to the bigger picture in this region, begin to coalesce into a more coherent view.
“The decision of where to make our car is complex,” said Dyson chief executive, Jim Rowan, adding that it was, “based on supply chains, access to markets and the availability of the expertise that will help us achieve our ambitions”.
He also highlighted the availability of engineering talent in Singapore, in spite of its “comparatively high cost base”, as well as the Southeast Asian country’s proximity to “high-growth markets” in Asia. “Our existing footprint and team in Singapore, combined with the nation’s significant advanced manufacturing expertise, made it a frontrunner,” he added.
Much of the rationale is easily understandable, such as the fact Dyson already has facilities in Singapore where it manufactures its sophisticated, high-speed, digital electric motors for its vacuum cleaners and hair dryers, feeding these key components to Malaysia where the final products are assembled. Philippines likewise has assembly facilities.
It seems logical to scale up in an environment where you already have some degree of sophisticated manufacturing and a local organisation and workforce in tune with corporate imperatives. And of course, operating in an environment which offers a stable economic, political and legal framework – particularly on issues of intellectual property – as well as one where English is the primary language, all offer substantial advantages.
The availability of engineering talent is another easily taken point, as Singapore has a top-notch higher education system and widely educated population.
Singapore is also a major petrochemical refining hub, capable of producing a variety of bulk chemicals that would be needed in the production of the vehicles. The pundits suggest Dyson may use a substantial amount of high-strength, light-weight plastics in the car, including the body, which would enable Dyson to deliver on its promise of a “radical” design.
Enter the sales team
All of these are worthy factors in helping offset the “comparatively high cost base” Rowan cited, but there is also another key factor on the cost front. Singapore has been very successful over the years at attracting foreign investment ranging from everything from regional head offices, to logistics facilities, high-end manufacturing and R&D.
In particular one key organisation leads the charge: International Enterprise Singapore (IE Singapore). Tasked with wooing foreign enterprises to Singapore, the government body has both access to very deep pockets of incentives and leverage with all the other key government entities in the city-state.
It would be inconceivable for Dyson to have not gobbled up some of the goodies from that buffet spread. These incentives could be anything from rent-free land or tax breaks, to direct investments, any of which could be worth hundreds of millions of dollars.
The China factor
But with little to no market in Singapore and the immediate region, where exactly is Dyson planning on selling these new cars? China would be the obvious choice and certainly fits the bill in terms of being a “high growth market” in Asia. Indeed, sales in that vast market are forecast to reach nearly 700,000 vehicles this year – more than double that of the combined US and European demand.
But competition in the China market will be stiff and likely compounded by the fact Dyson isn’t manufacturing there. Intellectual property concerns could be one factor in that decision. Tesla on the other hand, has in October signed a deal with the Shanghai government for an 860,000 sqm plot of land to build its first overseas ‘Gigafactory’. And BMW took a majority stake in its China joint venture earlier in October, with other giants including General Motors, Volkswagen and Nissan all pouring billions into making electric vehicles in China.
And then there are of course a whole raft of Chinese electric car companies with strong backing – both regulatory and financial – from Beijing. Dyson’s focus on the premium end of the market will help insulate it from the bulk of the mainstream, but it will still be competing with the other, in many cases far more experienced and larger, foreign players.
Important in the China equation is the fact Singapore has extensive free trade agreements with China, including the bi-lateral China-Singapore Free Trade Agreement (CSFTA), as well as the multi-lateral ASEAN–China Free Trade Area (ACFTA). Singapore’s Ministry of Trade and Industry has confirmed that electric vehicles are indeed covered under the bi-lateral agreement with China, something that was surely not lost on Dyson.
The supply chain advantage
Rowan cited supply chain advantages as a key factor in Dyson’s Singapore choice. And for good reason, being as it is one of the most efficient logistics hubs in the world.
Among its physical infrastructure is one of the busiest shipping ports in the world, making it a snap to produce e-vehicles and ship them off to China, or points elsewhere. Similarly Changi Airport boasts robust global connectivity and a thriving air cargo sector, placing it in the top ten of the world’s busiest air cargo hubs. And road networks are now growing throughout the region, with for instance, the ability to ship by road between Singapore and China. All of this is greased by substantial and sophisticated logistics operations run by all of the big global brands.
This ‘supply chain advantage’ of Singapore has been a key driver behind much of its manufacturing evolution over the years, from the early days of hard-drive manufacturing to today’s high-end semi-conductor and pharmaceutical manufacturing.
The efficiency of Singapore’s logistics sector, well-connected both globally and throughout the region, will be a key factor for Dyson. The complex supply chains of traditional vehicle production are surely more complicated for electric vehicles. Certainly Elon Musk discovered the immense challenges posed by supply chain needs.
Batteries are obviously a key aspect of electric car manufacturing and the pundits have again weighed in on this, with the general belief that Dyson will turn to third-party suppliers of Lithium-ion batteries, as most of the industry does, for obvious practical reasons. Tesla on the other hand, manufacturers its own batteries in-house in cooperation with Panasonic.
With the rise of electric vehicle manufacturing in China, it only makes sense that electric vehicle battery production in China will grow in step. And as in other areas, there is a likelihood this specialised battery manufacturing will spread to other parts of Asia, beyond South Korea which is already a substantial manufacturer.
Again, being located in Singapore makes the supply chain issues for this and the sourcing of many other electric and electronic components an easier proposition than many other locations.
Changing manufacturing patterns
Another important aspect to this discussion is the changing nature of manufacturing in the region. Quite simply, it’s not ALL about China anymore. Southeast Asia has long been a key supporter of China’s ‘factory of the world’ role, providing sub-components to China-based manufacturers. And this capability has been growing in scale and sophistication in recent years.
The region’s manufacturing capabilities have also been impacted by the creep of manufacturing out of China to lower cost bases around the region. And with this, the logistics industry has also adapted, although in some cases like Vietnam, the infrastructure is still catching up.
As for Dyson, its choice of Singapore still strikes a curious chord, but one that clearly has its merits for so many reasons. Certainly a great many people will be watching the developments to see if the decision was a case of ‘crash test dummy’, or ‘stroke of brilliance’.