Is Foxconn Preparing to Build an Apple Car?

The Taiwan-based company that manufactures iPhones for Apple Inc. (NASDAQ: AAPL | AAPL Price Prediction) has agreed to mass-produce an electric vehicle (EV) for Chinese carmaker Byton. Hon Hai Precision Industry, better known as Foxconn, has agreed to invest roughly $200 million in a joint effort to begin building Byton’s M-Byte sedan in the first quarter of 2022.

According to a report at Bloomberg, citing unnamed sources, Foxconn and the Nanjing Economic and Technological Development Zone will be partners in the project. Foxconn is expected to supply Byton with “advanced manufacturing technology, operation management expertise and supply chain resources.” Foxconn also is reportedly talking to other Chinese EV makers about potential manufacturing collaboration.

Last January, Foxconn and Fiat Chrysler announced a joint venture to develop and build EVs in China and run networks of connected wireless vehicles. That venture is still in the planning stages and is not expected to be up and running until 2022.

The Taiwanese company launched a technology platform in October to help EV makers reduce costs and launch new vehicles more quickly as the market for EVs appears to be on track for explosive growth. Foxconn’s CEO said at the time that the company wants to become the “Android of EVs.”

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That leads us to Apple’s rumored plans to build an EV of its own. Foxconn currently derives about half its revenues from the contract manufacturing work it does for Apple. Diversifying is going to be necessary, and what better way to diversify than to get into the EV business. According to a report in the Financial Times, “Foxconn aims to eventually make EVs for Apple and Amazon.”

But Foxconn’s strength is component manufacturing and, it now hopes, offering an open platform for EV makers to use. Becoming the Android of EVs is not likely to be part of Apple’s plan if it does eventually enter the EV market. That, in itself, may not be the best idea that Apple and Tim Cook ever had.

Foxconn, like Apple and maybe even Amazon, are not going to want to invest the billions it will take to get new EV assembly lines up and running. New entrants are facing Tesla’s demonstrated capability to build more than half a million cars a year. That capacity will double or triple when Gigafactories in Germany and Texas reach full production over the next couple of years. Legacy carmakers like Volkswagen, GM and Ford also have begun converting assembly lines to accommodate EVs, but this takes time and a lot of cash.

What Foxconn wants to do is move up the value chain. That’s what the Android-like platform is meant to do. If the platform is widely adopted, then Foxconn can build the platform’s components at scale and at higher margins than it is probably realizing from building iPhones.

While Apple may want to use Foxconn’s component manufacturing expertise, it is virtually certain that the one-size-fits-all platform is not something Apple will be interested in adopting. That’s not the Apple Way.

Hon Hai (Foxconn) stock closed up more than 4% in Taiwan Tuesday at T$104.00 (US$3.72). The company’s market cap is around $52 billion, and the shares reached a 52-week week high of T$105.00 in Tuesday trading. The stock’s 52-week low is T$65.70 (US$2.35).

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