SINGAPORE (Oct 29): In his Facebook post about British company Dyson’s decision to set up an electric car manufacturing facility in Singapore, Prime Minister Lee Hsien Loong wrote that when he met inventor James Dyson last month, James told him that it was Singapore’s expertise in advanced manufacturing, global connectivity and talented workforce that helped him make up his mind. In fact, Singapore used to assemble cars, up to the 1980s, Lee said. “Now, we will manufacture cars again, except this time, greener, better and more high tech!”

Despite the focus on Singapore as a hub for technology and financial services, manufacturing — albeit the higher-value segments — is still a major contributor to the local economy. The industry still contributes about 20% of GDP annually and also accounted for 14% of total employment in 2016.

Dyson first invested in Singapore 11 years ago, with a small engineering team developing high-speed, digital, electric motors, which are used in its range of products, from vacuum cleaners to hair dryers. The company now employs 1,100 people and has so far made more than 50 million of the motors here. The company also has assembly facilities in Singapore, Malaysia and the Philippines.

Dyson’s upcoming facility in Singapore will leverage its motor and battery expertise. Scheduled for completion in 2020, the purpose-built factory will be part of Dyson’s plans to have its first electric car ready for launch in 2021. Dyson is also collaborating with the College of Engineering at Nanyang Technological University. In August, the Dyson-NTU Studio opened, giving engineering students, who are also mentored by Dyson engineers, access to advanced prototyping equipment to help them develop their ideas into viable projects.

Dyson is probably the first of many more high-profile firms moving their operations to Singapore, according to Alex Capri, visiting senior fellow at NUS Business School. Capri points to Singapore’s numerous free trade agreements (FTAs), including with the European Union, as a key draw. “Singapore is a very attractive location, given the whole issue with Brexit, and the US-China trade war,” says Capri.

He adds that Singapore’s FTAs are progressive and go beyond lower tariffs. The agreements typically include intellectual property and data privacy protections, and attention to environmental sustainability and labour standards. They make Singapore very attractive, from a connectivity and trading standpoint, Capri says.

Still, it may seem counter-intuitive to set up a factory to make cars in a city that has a comparatively high cost of doing business, is short on space and makes owning cars prohibitively expensive. But Singapore’s strengths in infrastructure and support for business might make it worth the while. “It is no longer about labour-intensive processes but highly automated ones, [and] where you are very close to your key suppliers, and [it] can be cost-efficient that way,” says Song Seng Wun, economist at CIMB Private Banking.

Singapore also offers the advantage of being a test bed for manufacturers to refine their processes, Song adds. “Apple was testing their manufacturing in their Ang Mo Kio facility here before it was refined and sent to China to scale,” he says.

Song also reckons that the new plant here will not be the only investment in time to come. Dyson’s non-executive director Ian Robertson has let on that there will be more than one car factory, and the current preparations are for the first phase of the manufacturing. “Dyson can take advantage of the supply chain and Singapore’s FTA to put something together,” Song says. “The bottom line is: You won’t get economies of scale from a Singapore plant.”

Still, Dyson’s decision has received much flak from commentators in the UK, who point out that James Dyson was one of the most prominent business leaders in the country to publicly support Brexit before the referendum in June 2016. He had said that leaving the single market would “liberate” the British economy. Last year, Dyson opened a new campus at Hullavington Airfield in the UK, where a team of 400 is developing the electric car.

Ultimately, it is Singapore’s long-term policy visibility and stability that won Dyson over. “When you plan something like this and you have committed large amounts of money, the last thing you want to worry about is a change in government, where there might be a policy change,” says CIMB’s Song. “Policy visibility, consistency and execution are the advantages that Singapore offers for companies beyond dollars and cents.”

Dyson is unlikely to be counting on its electric cars selling in big volumes here. After all, Singapore has a pretty consistent policy of a society that is car-light, electric or otherwise.

This story appears in The Edge Singapore (Issue 854, week of Oct 29) which is on sale now. Subscribe here