Foxconn's return to China: realistic considerations and future layout

China Business News

2024-08-02 13:26Published on the official account of Beijing China Business Daily

Reporter Chen Jialan reports from Guangzhou

In the rumors that Foxconn (Foxconn Technology Group) has fallen into the "withdrawal from China", one of its increased investment in Zhengzhou, Henan Province has attracted attention from the outside world.

A few days ago, Hon Hai Technology Group (hereinafter referred to as "Hon Hai") announced that its Foxconn signed a cooperation agreement with the Henan Provincial Government, and Foxconn will invest in the construction of a new business headquarters building and seven centers in Zhengzhou, and lay out a new energy vehicle trial production center and solid-state battery project in Zhengzhou.

Hon Hai said that the strategic cooperation will focus on the transformation of Foxconn's "3+3" strategic industries, that is, the three emerging industries of "electric vehicles, digital health, and robots", as well as the three new technology areas of "artificial intelligence, semiconductors, and new generation mobile communications" as the focus of development.

"Foxconn's series of actions shows the importance it attaches to the Chinese mainland market, and also shows that Foxconn is actively deploying new business areas, including the new energy vehicle industry." Yu Fenghui, an economist and new finance expert, told China Business News that Foxconn once again joined hands with Henan, indicating Henan's advantages in attracting foreign investment and Foxconn's confidence in the Chinese mainland market.

It is worth mentioning that there has been news recently that some iPhone 16 orders have returned to China from India, and domestic fruit chain companies may be expected to get more orders.

Reflux adjustment considerations

Previously, rumors that Foxconn was going to "run" were widely circulated.

In recent years, China's low-end manufacturing industry has gradually shifted to Viet Nam and India, and after Apple's strategic adjustment of the decentralized supply chain layout, Foxconn, as Apple's largest foundry, has gradually shifted part of its industrial chain to India and Viet Nam, which has also aroused the attention of the outside world that Foxconn is going to "run".

On the one hand, it can be seen that Apple started producing the iPhone SE in India in 2017. Since then, Apple has continued to expand its manufacturing operations in India, assembling models such as the iPhone 13 and iPhone 14, and to the iPhone 15 and iPhone 15 Plus, Apple has been manufacturing and selling in India since its global release. Tianfeng International analyst Ming-Chi Kuo has predicted that about 12%-14% of the world's iPhones will be produced in India in 2023, and this proportion will increase to 20%-25% by 2024. 

On the other hand, Zhengzhou Foxconn factory, as the world's largest production base of Apple mobile phones, is facing a decline in mobile phone production in Zhengzhou. At its peak in 2017, Zhengzhou's mobile phone production was close to 300 million units, and by 2023, it will be less than half of 2017, only 143 million units. According to Zhengzhou Customs data, from January to May 2024, Henan exported 11 million mobile phones, a decrease of about 12.5 million units compared with the same period in 2023, and the export value of mobile phones was 44.526 billion yuan, a decrease of more than 50 billion yuan compared with the same period in 2023.

Foxconn's new business headquarters building in Zhengzhou, the layout of new energy vehicle trial production center and solid-state battery project, these moves undoubtedly show Foxconn's investment in Chinese mainland. As a result, the outside world has said that Foxconn is "back".

Although Foxconn has been shifting part of its supply chain to India by diversifying its supply chain layout in recent years, India's performance has not met the expectations of Apple customers, but has dragged its feet.

It has previously been reported that the iPhone 15 produced in India has many quality problems, resulting in a pass rate of only 34%. Many European consumers have expressed doubts about its quality and have returned it.

Recently, there is a Chinese Taiwan "China Times News Network" reported that Apple is letting most of the iPhone 16 foundry business flow back to Chinese mainland, Foxconn for this large number of new employees, many spare parts are also transferred back to Chinese mainland supply chain purchases, some of the original plan to move the factory to India supply chain manufacturers began to waver, temporarily changed to a wait-and-see attitude. Due to the current yield rate (only about 50%) and hygiene management (E. coli exceeding the standard) of the iPhone OEM in India factories still have problems, resulting in some troubles when the products are exported to Europe and Chinese mainland, affecting market sales, Apple also decided to reduce the price of promotions to deal with it.

It is reported that Cook has gone to Chinese mainland to readjust the supply chain layout, this year Apple has transferred part of its production capacity back to Chinese mainland foundries, BYD, Luxshare Precision and other large manufacturers have eaten up iPhone 16 supply orders. However, Apple and Hon Hai did not respond to this. Some people in the fruit chain industry told reporters: "The news still needs to be verified, and the possibility is very low." ”

The current situation and challenges of new energy vehicles

Although the news of the return of iPhone production capacity still needs to be further verified, Hon Hai's increase in the new energy vehicle business in Chinese mainland is certain and worth paying attention to.

The reporter noticed that Foxconn's new business headquarters was unveiled in Zhengzhou in April 2023. In June of the same year, Foxconn's new business headquarters began to recruit in Zhengzhou around the two major business segments of EV (electric vehicle) and battery. Among them, most of the EV recruitment positions involve the vehicle manufacturing chain, covering multiple links including brakes, power circuits, steering, power batteries, interior styling, power motors, vehicle cooling, suspension, gears and transmissions. In the battery business segment, Foxconn's new business headquarters has also set up a number of positions, including factory construction supervisor, energy storage and passenger car battery pack business manager.

"The new energy vehicle trial center business is an important part of the research and development and testing of new energy vehicles, the trial production center can manufacture prototype vehicles according to the design drawings, and conduct a series of tests and verifications to ensure the performance, safety and reliability of the vehicle." Yu Fenghui told reporters that at present, the new energy vehicle market is developing rapidly, and the market prospect of the trial production center business is broad, however, it also requires a lot of capital, technology and talent support, and it is also facing the challenges of market competition and technical difficulties.

Talking about the views on the solid-state battery market that Foxconn has entered, Yu Fenghui said that the solid-state battery market is also in its infancy, but the market prospects are broad. "However, solid-state battery technology is still in the R&D stage, and there are many technical hurdles and commercialization challenges to overcome. Therefore, Hon Hai's deployment of new energy vehicle trial production center and solid-state battery business also needs to face technical and commercialization challenges. Yu Fenghui said.

In fact, Foxconn, which is famous for Apple's foundry, has been in the car field for many years.

As early as 2005, Foxconn acquired Antai Electric, an automotive wiring harness company, and officially entered the automotive business field. In November 2019, Hon Hai officially announced the layout of three innovative industries and three core technologies, the next stage of growth momentum of Hon Hai, of which the three future industries are "electric vehicles, digital health, and robots". In 2010, Foxconn became a supplier of parts such as Tesla's central control touch screen panel, connectors, and covers, and began to set foot in the field of new energy vehicles. In 2020, Foxconn established a joint venture with Yulon to establish Hon Wah Advanced Company, and within a year, it released three self-developed electric vehicles: Model C SUV, Model E sedan and Model T electric bus.

For Foxconn, it seems that it does not want to build a new car brand, but to take the route of OEM new energy model production for car companies, sell Foxconn's MIH pure electric platform to all car manufacturers, and a set of standard solutions from design and development to production OEM.

"Foxconn will eventually return to the OEM mode when it makes cars." In the view of Lin Xi, an automotive analyst and secretary-general of the China-Europe Association of Intelligent Connected Vehicles, electric vehicles in the future will actually become more and more inclined to become electronic products, and Foxconn has inherent advantages and mature experience in foundry, and Foxconn has considerable bargaining power in the electronics industry chain in terms of scale.

It is worth noting that Foxconn's competitor Luxshare Precision is also entering the field of electric vehicles in the form of ODM, and Liu Yangwei, chairman of Hon Hai, said that Hon Hai has four major advantages of business localization, software and hardware design, vertical integration and MIH open system, and competitors do not have such complete capabilities.

According to the official description, the new energy vehicle trial production center project will plan to build a high-end demonstration production line for new energy vehicles, build a display platform and a factory in the field of vehicles to provide manufacturing services to well-known automobile brands at home and abroad, and lay the foundation for the subsequent mass production of new energy vehicles, with the goal of building Zhengzhou Airport into the core production base of Foxconn's new energy vehicle sector.

"Foxconn wants to replicate the previous mobile phone OEM model to new energy vehicle OEM in Zhengzhou." Zhang Xiang, director of the Vodaf Digital Vehicle International Cooperation Research Center, told reporters that the new energy vehicle trial production center project is not high-tech, mainly to verify the performance indicators of the car, but it is indeed an important part of the OEM of new energy vehicles, and Foxconn may also land more new energy vehicle OEM industrial chain links in Zhengzhou in the future.

"In the past, Weilai and Xiaopeng were foundry models, but now there are very few domestic car companies OEM." In Zhang Xiang's view, new energy vehicle foundry may be the trend of the future, but in the last four or five years, the market customers may be few, mainly because the number of car companies in the Chinese market is too much, the track is very crowded, it is difficult to accommodate the business model of foundry, for the vehicle foundry, need to face the risk of few customer orders after the establishment of the factory, the risk of difficult to recover the investment, and the new energy vehicle technology update is very fast, the investment is high, and the challenge of not producing benefits in a timely manner.

It remains to be seen whether Foxconn can replicate the glory of iPhone OEM in Zhengzhou and further accelerate its "car-making dream" by holding hands with Zhengzhou again.

(Editor: Wu Qing Review: Li Zhenghao Proofreader: Yan Jingning)