News Analysis: James Dyson shows it’s too easy to make electric cars
The reason it was even conceivable for Dyson 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 $2.5-billion plan to branch out and take on the likes of Tesla Inc. and Volkswagen.
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.
EV sales rose 65% in California in the first half of the year, led by Tesla. But that doesn’t mean consumers are suddenly in love with electric cars.
Dozens of start-ups have entered the fray over the last few years, including Tesla and Lucid Motors Inc. in the U.S. and Byton Ltd. and Nio Inc. in China. Since 2011, electric vehicle start-ups have raised $18 billion in funding and announced 43 models and the capacity to make 3.9 million vehicles a year, according to Bloomberg New Energy Finance. That’s a lot of competition.
Although Dyson’s $1.37 billion of earnings before interest, taxes, depreciation and amortization 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 with the wealth of the automotive giants that 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 2 million electric vehicles a year by 2025. Its existing network of dealerships in 153 countries will make it considerably easier to sell those cars.
Dyson 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% of the overall automotive market.
Tesla has expanded its preeminence over the electric-vehicle market despite the arrival of two new battery-powered luxury SUVs in U.S. showrooms, Jaguar’s I-Pace and Audi’s e-tron.
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% from a post-IPO peak last year as the company’s 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, James Dyson admitted he saw no way to make a car “commercially viable.” Better to concentrate resources on core competencies. A failure at a later date would have been much more painful, and potentially ruinous.
Webb writes a column for Bloomberg.
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.
