As US-China relations deteriorate, iPhone manufacturer Foxconn will transition to the automotive industry.

As it navigates a new era of chilly Washington-Beijing ties, iPhone manufacturer Foxconn is placing significant bets on electric automobiles and reorganizing some of its supply networks. Young Liu, the chairman and CEO, discussed the potential future of the Taiwanese company with the BBC in an exclusive interview. Electric vehicles (EVs), according to him, will be the company's development engine in the ensuing decades, despite the fact that Foxconn is moving some supply chains out of China. Foxconn needs to be prepared for the worst as US-China tensions rise, according to Mr. Liu. In his offices in Taipei, Taiwan's capital, 67-year-old Mr. Liu told us, "We hope the leaders of these two countries will keep in mind peace and stability." But I have to consider the worst-case scenario as a CEO of a company. Possible outcomes include Beijing's attempts to encircle Taiwan, which it believes is a part of China, or even worse, to invade the autonomous island. Business continuity planning, according to Mr. Liu, is already in progress. He also said that several production lines, notably those connected to "national security products," have already been relocated from China to Mexico and Vietnam. He was probably talking to servers Foxconn produces for data centers, which might house sensitive information. In 1974, Foxconn, or Hon Hai Technology Group as it is formally known, began manufacturing TV knobs. With an annual revenue of $200 billion (£158.2 billion), it is now among the most powerful technology businesses in the world. It is most known for producing more than half of Apple's devices, including the iPhone and iMac, but it also works with companies like Microsoft, Sony, Dell, and Amazon. It has prospered for years on a strategy developed by multinational firms, where things are designed in the US, produced in China, and then sold all over the world. That is how it developed into the huge consumer electronics company it is today from a modest component manufacturing company. However, Foxconn finds itself in an unfortunate situation - stuck between the world's two biggest economies, the exact ones that have driven its rise up until this point. As global supply chains adapt to soured relations between Washington and Beijing. Trade and the conflict in Ukraine are only two of the numerous issues that the US and China disagree on. The largest potential flashpoint, though, is Taiwan, where Foxconn is based. positioned at the center Long a contentious subject, "reunification" promises made by Chinese leader Xi Jinping have upended the uneasy status quo. Under President Joe Biden, the US has been more outspoken about its support for Taiwan in the event of an attack. Although the White House has reiterated its position that it retains diplomatic relations with Beijing and not Taipei, certain US voices have breached China's red line and called for independence. With US Secretary of State Antony Blinken visiting China this weekend, there are expectations for a thaw. However, there are also concerns of a conflict; according to one US general, it may occur as soon as the following few years. Shihoko Goto, the deputy director for the Asia program at the Wilson Center in Washington, DC, stated that "the United States and China are engaged in what we see as strategic competition." There can only be one winner, but Foxconn wants to do business with both. However, Mr. Liu does not believe it to be so easy. He pointed out that Foxconn's business strategy, which depends on American designs and Chinese manufacturing, is still very much viable. According to Mr. Liu, "we hire a lot of workers and most countries, including China, want to support their workers," adding that the Chinese government wants businesses like Foxconn to continue operating due to the significant number of jobs they generate. Does the model face pressure from escalating conflict? "So far? He said, "We haven't seen it. But the West and its allies have urged nations and businesses to "de-risk" from China, signaling a longer-term change to reduce the world's reliance on China. When asked if that was having an effect on business, Mr. Liu cautiously said. He claimed that while certain international customers had urged Foxconn to shift production out of China, this was their choice and not Foxconn's. "They will let us know once their government gives them the go-ahead to de-risk." The Covid problem Aside from geopolitics, Covid-19 is another reason businesses may think about "de-risking" from China. At Foxconn's factory in Zhengzhou, the largest iPhone manufacturing facility in the world, riots broke out in late 2022 as a result of a combination of strict Covid restrictions, a shortage of room for quarantine, and the contagiousness of the Omicron version. Fearing the illness would spread, hundreds of employees fled the site on foot. Mr. Liu claimed that the scenes that were on display for the entire world were brought about by a lack of transportation as a result of Beijing's rigid zero-Covid policy. But when prodded harder, he acknowledged that he ought to have handled things otherwise. He continued, "If the same thing happens again, I would stop production completely," adding that he would have made that choice even at the risk of upsetting customers like Apple. The company's success undoubtedly depends on its illustrious clientele, but Foxconn is also crucial to those customers. For instance, you only need to consider how much of the iPhone is produced by Foxconn – over 60%, according to some estimates – to realize how crucial it is to Apple. Some of the most crucial components of the gadget, like the camera modules, connections, and even the rear of the phone case, are made in Chinese manufacturers. iPhone on wheels Additionally, Mr. Liu is hopeful that Foxconn's newest big wager—electric vehicles—will be fueled by that experience. He pointed to a panel that controlled the vehicle he had taken us for a ride in and remarked, "Look at this — this is a big iPhone, so we're very familiar with this." The gleaming white SUV is one of many models produced by Foxconn and is designed for families and priced for a growing global middle class. "The standard gas engine has engines that are primarily mechanical, therefore we believe this is a tremendous potential for us. However, with EVs, it's just the motors and batteries, he explains. He continued, "That is a language that a technology company like Foxconn is familiar with." In the coming years, Foxconn intends to take 5% of the global electric car market, which is an ambitious goal given that the company has only produced a small number of vehicles so far. But Mr. Liu is certain that the gamble will be profitable. "Regionalized production for cars is very natural," he continued. "You can't make [EVs] in one place." According to him, Foxconn will have automotive plants in Ohio, Thailand, Indonesia, and possibly even India. For the time being, the business will continue to concentrate on creating electrical items for customers. Foxconn will likely offer the same services to customers who drive electric vehicles in the not too distant future. In any case, Mr. Liu believes that Foxconn's push into electric automobiles would help it diversify its production and supply chains, which are both crucial to the company's future. 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