• British company Dyson has said it will begin construction on a factory to make its first electric vehicle (EV) in Singapore. The company aims to roll out its first electric car by 2021 and has earmarked £2bil (RM10.8billion) for this purpose, which includes £200mil on R&D in the UK. Dyson is known for its high-tech household appliances such as vacuum cleaners and bladeless fans.

• Our observations below:

1) We believe the choice of Singapore is fitting for Dyson’s premium positioning. Dyson noted that the country offered a highly skilled workforce as a counter-point to its high-cost base. Singapore has no auto manufacturing plants and exerts a tight control on the growth of its auto market, mandating an annual growth rate of 0% for its auto market (from 0.25% previously) to 2020 at least. We reckon Dyson is a right fit for a country that is prioritizing on the quality rather than quantity of cars sold. All signs point to the fact that it will be a small operation with a clear emphasis on margins: the “bespoke” two-storey plant will see an increment of Dyson’s workforce in Singapore to about 2.2K.

2) Singapore could be a conducive place for electric cars to thrive. The success of electric cars in markets such as Norway and China is premised on two major factors: overt government support and adequate infrastructure in the form of charging stations. Singapore made moves for the EV market as early as 2010 when it partnered with German’s Bosch to build charging stations. More recently, SP Group — the country’s energy utilities provider — said in June that it will build 500 charging points by 2020. Singapore’s relatively small size of less than 6 million and limited land (warranting concerns for congestion) means it can have a more centralized EV framework built on a clear policy and incentives.

3) Singapore as a link to China. Bloomberg emphasized that Singapore has a free trade agreement with China (the world’s biggest EV market) and Dyson may have opted out from building in China due to concerns of IP (intellectual property) security. This year alone, Tesla and Volkswagen made moves to build their own EV factories in Shanghai, China. China has aggressively pushed for EV adoption since 2009 with various subsidies and policies due to concerns of pollution and dependence on foreign oil.

4) Any incremental business to domestic auto players would be minimal given the small scale. Malaysian suppliers such as MBM Resources and Pecca Group already derived some of their revenue overseas, from exports to Europe and Singapore respectively. UMW Holdings is a tier-1 supplier of fan cases for Rolls Royce, which has a plant in Singapore that makes engines for civil planes. We believe these three companies have the potential to play a small role in the value chain for Dyson’s EV.

• We maintain a NEUTRAL rating on the sector and a TIV projection of 2-3% for 2018. We have BUYs on Bermaz Auto (BAuto), Pecca Group, MBM Resources and Tan Chong Motor. We have HOLDs on Sime Darby, APM Automotive, UMW Holdings and DRB-Hicom.

Source: AmInvest Research - 24 Oct 2018