Dyson Pricks the ESG Fantasy

Dyson Pricks the ESG Fantasy

Take a bow, James Dyson. You know the man I mean — he of the famous vacuum cleaner. His memoir just came out — what a story.

He’s a man who quit his job, despite three kids and a mortgage, to take on the established players. He was armed with a brain, a loan, and an old shed. Mr Dyson damn well beat them too!

Now he heads a billion-dollar global company…and his family owns the lot.

But why do you care? Because Dyson, the company, invested £500 million into developing an electric car.

And they did it. They had everything designed. He drove the prototype. Then Dyson pulled the plug on putting the car into production.

No one will ever own one despite the fact he said it was a fantastic vehicle.

Let me emphasise that again. He wrote off half a billion in capital spending.

Why?

He couldn’t find a way to make the car profitably.

Does that jar you, as it does to me, with the current narrative we’ve all been sold where the car market is headed?

Here’s the background to his decision from his book…

What was not immediately clear, though, was that those traditional automotive companies turning to the production of electric cars were making huge losses on them.

This was because you simply cannot make them for a reasonable price, although the reason existing car companies were willing to make them is that electric cars help achieved specified exhaust emissions across their product range.

So, if they make a loss on electric cars, they make a profit on polluting cars while appearing virtuous.

It’s not often you get insight from the top like that in such a direct way.

And yet we are all being sold on the idea that electric cars are going to steal a huge market share. In fact, governments are practically mandating it.

How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.

But how can they be if they cannot be made at a reasonable cost? You could argue Dyson was always going to be a niche and small volume producer, so was never going to be cheap anyway.

But it does make you wonder if the world is betting on an outcome that’s not deliverable, at least without massive government subsidies.

One nagging question is where the needed supply of copper, nickel, and graphite is; where will the supply come from to meet the battery demand?

The second is whether technology can reduce the battery costs, as the market predicts will happen?

Here is the eternal debate and enigma of Tesla.

On one hand, it offers to sweep out the old car manufacturers based off brand power, automation, and data.

But it also chews through staggering amounts of money. Do you dare take a substantial position?

I’ll leave that up to you. The contrarian mindset might look to oil shares instead, on the assumption the ICE engine is not quite dead yet and may not be for a while.

There is certainly value, if not popularity.

Contrarian is the way to describe the approach my colleague Greg Canavan takes. For the last 12 months he advocated looking at the energy sector such as coal and oil.

His subscribers are now reaping the benefit via stocks like Whitehaven Coal and Origin Energy. Whitehaven is up nearly 150% since May.

But is it too late to profit? You can tune into Greg’s latest thoughts via our podcast, for free, here.

One of the questions I asked him is how to handle a commodity bull market when the biggest customer — China — is determined to cut Australia out of the action as much as possible?

The good news, for the moment, is that it’s probably not possible to cut Australia out of the picture. The demand is too big, relative to supply and geopolitical concerns elsewhere.

But Greg calls the frosty relations between China and Australia the ‘divorce’. This issue will simmer for a long time to come.

It cannot be any other way because Australia can never square a circle where security comes from the US but trade from China.

It’s a nasty position with no easy answer, and it certainly won’t be found amongst Australia’s current crop of unimpressive politicians.

So what DO we do about it? Don’t listen to me. Check out what Greg has to say here.

Regards,

Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.