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Monday, July 22, 2024

Foxconn, the iPhone Manufacturer, Shifting Focus to Automobiles Amid Deteriorating US-China Relations

Foxconn, the prominent iPhone manufacturer, is making a significant bet on electric cars and reconfiguring its supply chains as it navigates a new era of strained relations between the United States and China.

Chairman and CEO Young Liu shared insights into the future direction of the Taiwanese company. Despite shifting some of its supply chains away from China, Foxconn anticipates that electric vehicles (EVs) will drive its growth in the coming decades.

Amid escalating tensions between the US and China, Mr. Liu stated that Foxconn must be prepared for the worst-case scenarios. While expressing hopes for peace and stability, he acknowledged the need to consider potential challenges as a business and CEO.

Already engaged in “business continuity planning,” Foxconn is actively moving certain production lines, particularly those related to “national security products,” from China to Mexico and Vietnam. This shift likely includes the production of data center servers that may contain sensitive information.

Established in 1974 as a manufacturer of TV knobs, Foxconn, officially known as Hon Hai Technology Group, has evolved into one of the world’s most influential technology companies, with an annual revenue of $200 billion (£158.2 billion). While renowned for producing over half of Apple’s products, including iPhones and iMacs, it also serves other tech giants such as Microsoft, Sony, Dell, and Amazon.

For years, Foxconn has thrived on a well-established playbook employed by multinational corporations: designing products in the US, manufacturing them in China, and distributing them worldwide. This strategy propelled the company from a small component-making business to the consumer electronics behemoth it is today.

However, as global supply chains adapt to the deteriorating relations between Washington and Beijing, Foxconn finds itself in a challenging position—caught between the world’s two largest economies, which have been instrumental in its growth thus far.

While trade disputes and conflicts such as the situation in Ukraine contribute to the discord between the US and China, Taiwan—Foxconn’s headquarters—emerges as one of the most significant potential flashpoints.

Caught in the middle

Taiwan has long been a contentious issue, but Chinese leader Xi Jinping’s repeated calls for “reunification” have disrupted the delicate status quo. Meanwhile, the United States, under President Joe Biden, has been more vocal in expressing support for Taiwan in the event of an attack.

Certain voices in the US have crossed China’s red line by advocating for Taiwan’s independence, although the White House has reiterated its position of maintaining diplomatic relations with Beijing rather than Taipei.

There are hopes of a thaw in relations, with US Secretary of State Antony Blinken planning a visit to China this weekend. However, there are also concerns about the possibility of a conflict, with one US general estimating that it could occur within the next few years.

Shihoko Goto, the deputy director for the Asia program at the Wilson Center in Washington DC, stated, “The United States and China are engaged in what we see as strategic competition. Foxconn wants to do business with both, but there can only be one winner.”

However, Mr. Liu does not view the situation as that straightforward. He highlighted that Foxconn’s business model, which relies on US designs and Chinese manufacturing, is far from over.

“We employ a significant number of workers, and most countries, including China, want to support their workforce,” Mr. Liu stated. He further mentioned that the Chinese government desires companies like Foxconn to continue operating due to the substantial employment opportunities they generate.

Regarding whether rising tensions are exerting pressure on the current business model, Mr. Liu expressed that, so far, they have not observed such effects.

Nonetheless, Western countries and their allies have urged nations and companies to “de-risk” from China—a long-term shift aimed at reducing global dependence on China that is yet to fully unfold.

When questioned about the impact on business, Mr. Liu responded cautiously. He acknowledged that some international clients had expressed the desire to relocate production outside of China but emphasized that this decision rests with the clients themselves.

“They receive pressure from their governments regarding de-risking, and then they will inform us,” he explained.

The Covid challenge

In addition to geopolitical factors, the COVID-19 pandemic has emerged as another reason why companies may consider “de-risking” from China.

In late 2022, a combination of stringent COVID-19 policies, limited quarantine facilities, and the contagious nature of the Omicron variant triggered protests and riots at Foxconn’s Zhengzhou factory, the largest iPhone manufacturing plant globally. Fearing the virus’s spread, hundreds of workers fled the campus on foot.

Mr. Liu attributed the chaotic scenes witnessed worldwide to the lack of transportation caused by Beijing’s unwavering zero-COVID policy. However, upon further inquiry, he admitted that he should have handled the situation differently.

“If a similar situation were to occur again, I would halt production entirely,” he stated, emphasizing his willingness to make that decision even if it risked displeasing clients like Apple.

While Foxconn’s success undoubtedly hinges on its esteemed client base, the company is equally indispensable to those clients. To comprehend its significance to Apple, for instance, one only needs to examine the extent to which Foxconn contributes to iPhone production—an estimated 60% by some accounts. The factories in China manufacture crucial components of the device, including camera modules, connectors, and even the back casing of the phone.

iPhone on wheels

Capitalizing on its expertise, Mr. Liu envisions that Foxconn’s next significant venture, electric cars, will be fueled by the same ingenuity that propelled its success in the electronics industry.

Pointing to a control panel in a car he took us for a drive-in, Mr. Liu highlighted, “Look at this – it’s like a large iPhone, so we’re very familiar with this.” This sleek white SUV, designed for families and priced to appeal to the burgeoning global middle class, is one of the multiple car models manufactured by Foxconn.

Explaining the rationale behind their foray into electric vehicles (EVs), Mr. Liu emphasized, “We think this is a great opportunity for us because, with traditional gas engines, you have mostly mechanical components. But with EVs, it’s all about batteries and motors.” This language of technology resonates with a company like Foxconn.

Despite having produced only a handful of models thus far, Foxconn aspires to capture approximately 5% of the global electric vehicle market in the coming years—an ambitious target. Mr. Liu, however, exudes confidence that this gamble will pay off.

“It doesn’t make sense to manufacture EVs in just one location, so regionalized production for cars is a natural approach,” he remarked. Foxconn plans to establish car factories in various locations, including Ohio in the US, Thailand, Indonesia, and potentially India.

Currently, the company will continue to focus on its core strength—manufacturing electronic products for clients. However, in the not-too-distant future, Foxconn intends to venture into selling its own cars.

By diversifying its production and supply lines through the expansion into electric cars, Mr. Liu believes that Foxconn secures the key to its future success.

John Collins
John Collins
John is an esteemed journalist and author renowned for their incisive reporting and deep insights into global affairs. As a prominent contributor to City Telegraph, John brings over 5 years of experience covering diverse geopolitical landscapes, from the corridors of power in major capitals to the frontlines of conflict zones.

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