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Our reporter Chen Jialan reports from Guangzhou

Amid rumors that Foxconn (Foxconn Technology Group) is "withdrawing from China", news that it is increasing its investment in Zhengzhou, Henan has attracted outside attention.

Recently, Hon Hai Technology Group (hereinafter referred to as "Hon Hai") released official news that its subsidiary Foxconn signed a cooperation agreement with the Henan Provincial Government. Foxconn will invest in the construction of a new business headquarters building and seven major centers in Zhengzhou, and will deploy a new energy vehicle pilot production center and solid-state battery project in Zhengzhou.

Hon Hai said that this strategic cooperation will focus on the implementation of Foxconn's "3+3" strategic industrial transformation, namely the three emerging industries of "electric vehicles, digital health, and robots", and the three new technology fields of "artificial intelligence, semiconductors, and new generation mobile communications" as the development focus. To this end, Foxconn announced an investment of 1 billion yuan in Zhengzhou to build a new business headquarters building to carry the functions of the new business headquarters.

"Foxconn's series of actions demonstrate its emphasis on the Chinese mainland market and also show that Foxconn is actively developing new business areas, including the new energy vehicle industry." Economist and new finance expert Yu Fenghui told a reporter from China Business News that Foxconn's renewed cooperation with Henan shows 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 Apple supply chain companies may be expected to receive more orders.

Reflux Adjustment Considerations

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

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

On the one hand, we can see that Apple started producing the iPhone SE in India in 2017. Since then, it has continued to expand its manufacturing business in India, assembling models such as the iPhone 13 and iPhone 14. Apple has manufactured and sold the iPhone 15 and iPhone 15 Plus in India since their global release. Tianfeng International analyst Ming-Chi Kuo once 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, as the world's largest Apple mobile phone production base, Zhengzhou Foxconn Factory is facing the dilemma of declining mobile phone production in Zhengzhou. At its peak in 2017, Zhengzhou's mobile phone production was close to 300 million units, but by 2023 it was less than half of that in 2017, only 143 million units. The change in mobile phone production also affected Henan's export data. 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 mobile phone export value was 44.526 billion yuan, a decrease of more than 50 billion yuan compared with the same period in 2023.

Foxconn has built its new headquarters in Zhengzhou, and has set up a new energy vehicle pilot production center and solid-state battery project. These moves undoubtedly show how much Foxconn values ​​its investment in mainland China. As a result, people outside the company have said that Foxconn is "back again."

The outside world is not surprised by Foxconn's reversal of attitude. Although Foxconn has been shifting part of its supply chain to India by dispersing its supply chain layout in recent years, India's performance has not met the expectations of Apple customers, but has instead lagged behind.

It has been reported that the iPhone 15 produced in India has many quality problems, resulting in a pass rate of only 34%. Many European consumers doubted its quality and returned the products one after another.

Recently, China Times News Network in Taiwan reported that Apple is returning most of the iPhone 16 OEM business to mainland China. Foxconn has recruited a large number of new employees for this purpose, and many spare parts have also been transferred back to the mainland China supply chain for procurement. Some supply chain manufacturers that originally planned to move their factories to India have begun to waver and temporarily changed to a wait-and-see attitude. Due to the current problems with the yield rate (only about 50%) and hygiene management (exceeding the standard for E. coli) of iPhone OEM in Indian factories, the products have caused some troubles when exported to both the European and mainland Chinese markets, affecting market sales. Therefore, Apple has decided to respond with price cuts and promotions.

It is reported that Cook has gone to mainland China to readjust the supply chain layout. This year, Apple has transferred part of its production capacity back to its foundries in mainland China. Major manufacturers such as BYD and Luxshare Precision have shared the iPhone 16 supply orders. However, Apple and Hon Hai have not responded to this. Some people in the Apple supply chain also told reporters: "The news is still to be verified and the possibility is very low."

Current situation and challenges of new energy vehicle layout

Although the news of the return of iPhone production capacity still needs further verification, it is certain that Hon Hai will increase its new energy vehicle business in mainland China, which is also worthy of attention.

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 recruiting in Zhengzhou around the two major business segments of EV (electric vehicles) and batteries. Most of the EV recruitment positions involve the entire vehicle manufacturing chain, covering multiple links including brakes, power circuits, steering, power batteries, interior styling, power motors, vehicle cooling, suspension, gears and transmission. In the battery business sector, Foxconn's new business headquarters also set up multiple positions including factory construction supervisors, energy storage and passenger car battery pack business managers.

"The new energy vehicle trial production 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 design drawings and conduct a series of tests and verifications to ensure the performance, safety and reliability of the vehicle." Yu Fenghui analyzed to reporters that at present, the new energy vehicle market is developing rapidly, and the trial production center business has broad market prospects. However, this also requires a lot of financial, technical and talent support, and also faces the challenges of market competition and technical difficulties.

Talking about Foxconn's entry into the solid-state battery market, 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 research and development stage, and many technical and commercial difficulties need to be overcome. Therefore, Hon Hai's layout of the new energy vehicle pilot production center and solid-state battery business also needs to face technical and commercial challenges." Yu Fenghui said.

In fact, Foxconn, which is famous for its OEM business for Apple, has been involved in the automotive industry for many years.

As early as 2005, Foxconn acquired the automotive wiring harness company Antai Electric and officially entered the automotive business. In November 2019, it officially announced the layout of three major innovative industries and three core technologies as the next stage of growth momentum for Hon Hai. The three major 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 panels, connectors, and covers, and began to enter the field of new energy vehicles. In 2020, Foxconn and Yulon established Hon Hua Advanced Company in a joint venture, and released three independently developed electric vehicles within a year: Model C SUV, Model E sedan, and Model T electric bus.

As for Foxconn, it does not seem to have the idea of ​​creating a new car brand. Instead, it wants to go the route of OEM production of new energy vehicles for car companies, selling Foxconn's MIH pure electric platform and a complete set of standard solutions from design and development to production OEM to all car manufacturers.

"Foxconn will eventually return to the OEM model when it comes to making cars." In the view of Lin Shi, an automotive analyst and secretary-general of the China-Europe Association for Intelligent Connected Vehicles, electric cars will actually tend to become more and more electronic products in the future, and Foxconn has inherent advantages and mature experience in OEM. In addition, Foxconn has considerable bargaining power in the electronics industry chain due to its scale.

It is worth noting that Foxconn's competitor Luxshare Precision is also entering the electric vehicle field in the form of ODM. Hon Hai Chairman Liu Yangwei said that Hon Hai has four major advantages: localized operations, 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 pilot production center project will plan and build a high-end demonstration production line for new energy vehicles, create a display platform and a factory in the field of complete vehicles to provide manufacturing services to well-known domestic and foreign automobile brands, and lay the foundation for the subsequent mass production of new energy vehicles. The goal is to build Zhengzhou Airport into the core production base of Foxconn's new energy vehicle sector.

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

"In the past, NIO and Xpeng adopted the OEM model, but now there are very few domestic car companies that do OEM." In Zhang Xiang's view, OEM of new energy vehicles may be the trend of the future, but in the next four or five years, there may be very few market customers, mainly because there are too many car companies in the Chinese market and the market is very crowded, making it difficult to accommodate the OEM business model. For vehicle OEM factories, they face the risks of few customer orders and difficulty in recovering investment after the factory is built, as well as the challenges of new energy vehicle technology being updated very quickly, requiring high investment, and failing to generate benefits in a timely manner.

Whether Foxconn’s renewed cooperation with Zhengzhou will allow it to replicate its success in iPhone manufacturing in Zhengzhou and further accelerate its “car-making dream” remains to be seen.

(Editor: Wu Qing, Reviewer: Li Zhenghao, Proofreader: Yan Jingning)