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iPhone maker Foxconn to switch to cars as US-China ties sour

* Published
2 days ago

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Foxconn chairman and CEO Young Liu. Image source, Getty Images
Image caption,
Foxconn chairman and CEO Young Liu
By Karishma Vaswani and Lionel Lim
in Taipei, Taiwan

iPhone maker Foxconn is betting big on electric cars and redrawing some
of its supply chains as it navigates a new era of icy
Washington-Beijing relations.

In an exclusive interview, chairman and boss Young Liu told the BBC
what the future may hold for the Taiwanese firm.

He said even as Foxconn shifts some supply chains away from China,
electric vehicles (EVs) are what will drive its growth in the coming
decades.

As US-China tensions soar, Mr Liu said, Foxconn must prepare for the
worst.

"We hope peace and stability will be something the leaders of these two
countries will keep in mind," 67-year-old Mr Liu told us, in his
offices in Taipei, Taiwan's capital.

"But as a business, as a CEO, I have to think about what if the worst
case happens?"

The scenarios could include attempts by Beijing to blockade Taiwan,
which it claims as part of China, or worse, to invade the self-ruled
island.

Mr Liu said "business continuity planning" was already under way, and
pointed out that some production lines, particularly those linked to
"national security products" were already being moved from China to
Mexico and Vietnam.

He was likely to be referring to servers Foxconn makes that are used in
data centres, and can contain sensitive information.

Foxconn, or Hon Hai Technology Group as it is officially known, started
off in 1974, making knobs for TVs. Now it is one of the world's most
powerful technology companies, with an annual revenue of $200bn
(£158.2bn).

It is best known for making more than half of Apple's products - from
iPhones to iMacs - but it also counts Microsoft, Sony, Dell and Amazon
among its clients.

For decades, it has thrived on a playbook perfected by multinational
corporations - they design products in the US, manufacture them in
China and then sell them to the world. That is how it grew from a small
component-making business to the consumer electronics giant it is
today.

But as global supply chains adjust to souring ties between Washington
and Beijing, Foxconn finds itself in an unenviable spot - caught
between the world's two biggest economies, the very nations that have
powered its growth until now.

The US and China are at loggerheads over many things, from trade to the
war in Ukraine. But one of the biggest potential flashpoints is Taiwan,
where Foxconn is headquartered.

Caught in the middle

Taiwan has been a thorny issue for a long time but Chinese leader Xi
Jinping's [60]repeated pledges of "reunification" have upset the uneasy
status quo. Meanwhile, the US, under President Joe Biden, has been more
vocal in its support for Taiwan in case of an attack.

Some US voices have crossed China's red line, calling for independence,
although [61]the White House has reaffirmed its position that it
maintains diplomatic relations with Beijing and not Taipei.

There are hopes of a thaw with US Secretary of State Antony Blinken
visiting China this weekend. But there are also fears of a conflict -
one US general has estimated it could happen as soon as the next few
years.

"The United States and China are engaged in what we see as strategic
competition," said Shihoko Goto, the deputy director for the Asia
programme at the Wilson Center in Washington DC.

"Foxconn wants to do business with both, but there can only be one
winner."

But Mr Liu does not think it is that simple. For one, he said,
Foxconn's business model, which relies on US designs and Chinese
manufacturing, is far from over.

"We hire a lot of workers and most countries, including China, want to
support their workers," Mr Liu said, adding that the Chinese government
wants companies like Foxconn to keep going because of the huge number
of jobs they create.
A worker in personal protective equipment disinfecting Foxconn factory
in Zhengzhou, China in November 2022. Image source, Getty Images
Image caption,
Foxconn's manufacturing plant in Zhengzhou, China, was hit hard by
Covid restrictions

Are rising tensions putting pressure on the model? "So far? We haven't
seen it," he told us.

But the West and its allies have called for countries and companies to
"de-risk" from China - a long-term shift to curb global reliance on
China that is yet to play out.

When asked if that was impacting business, Mr Liu responded cautiously.

Some overseas clients had pushed to move production out of China, he
said, but this was their decision to make, not Foxconn's.

"They get the push from their government about de-risking, and then
they will let us know."

The Covid challenge

Geopolitics aside, Covid-19 is another reason companies might consider
"de-risking" from China.

A mix of harsh Covid policies, a lack of space for quarantine and the
infectiousness of the Omicron variant led to [62]protests and riots at
Foxconn's factory in Zhengzhou - the world's biggest iPhone plant - in
late 2022. Hundreds of workers, who feared the spread of the virus,
fled the campus on foot.

Mr Liu said the scenes that played out for the world to see were caused
by a lack of transportation due to Beijing's unyielding zero-Covid
policy.

But when pressed further, he admitted that he should have handled
things differently.

"If the same situation occurs again, I would stop production
altogether," he said, reiterating that he would have made that decision
even at the risk of irking clients like Apple.

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Media caption,

WATCH: Chinese protesters clash with riot police at giant iPhone
factory

The company's success certainly rests on its impressive client base,
but Foxconn is just as indispensable to those clients.

To understand how essential it is to Apple, for instance, you just need
to look at how much of the iPhone is made by Foxconn - around 60%, by
some estimates. The factories in China make some of the most essential
parts of the device - camera modules, connectors, even the back of the
phone casing.

iPhone on wheels

That expertise is also what Mr Liu is hoping will fuel Foxconn's next
big bet: electric cars.

"Look at this - this is a big iPhone, so we're very familiar with
this," he said, pointing to a panel that controlled the car he had
taken us for a drive in.

Built for families and priced for an aspiring global middle class, the
shiny white SUV is one of several models manufactured by Foxconn.

"The reason why we think this is a great opportunity for us is that
with the traditional gas engine, you have engines which are mostly
mechanical. But with EVs, it's batteries and motors," he explains.
Foxconn chairman Young Liu with one of the company's electric cars.
Image caption,
Foxconn chairman Young Liu with one of the firm's electric cars

That is a familiar language for a technology company like Foxconn, he
added.

Foxconn's hopes to capture about 5% of the global electric vehicle
market in the next few years - an ambitious target given the firm has
only made a handful of models so far. But it is a gamble that Mr Liu is
confident will pay off.

"It doesn't make sense for you to make [EVs] in one place, so
regionalised production for cars is very natural," he added. Foxconn
car factories will be based in Ohio in the US, in Thailand, Indonesia
and perhaps even in India, he said.

For now, the company will keep focusing on what it does best - making
electronic products for clients. But perhaps not too far in the future,
Foxconn will do the same for clients with electric cars.

Either way, with the foray into electric cars, Foxconn is diversifying
not just production but also supply lines - both of which, Mr Liu
believes, hold the key to the company's future.
Presentational grey line

Read more about US-China tensions:

* [63]How US Marines are being reshaped for China threat
* [64]How China calibrates its Taiwan response
* [65]The paradise islands caught in the US-China crosshairs
* [66]Balloon saga deflates efforts to mend US-China relations

Presentational grey line

Related Topics

* [67]Taiwan
* [68]Apple
* [69]China-US relations
* [70]iPhones

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Employees work on the assembly line at Hon Hai Group's Foxconn
plant in Shenzhen, China.

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