Foxconn believes its next gold mine is in electric cars. Bad news for the low ranges

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The electric car has become, at the same time, a real headache and the new Mecca. While traditional manufacturers are immersed in a huge balancing act to balance the books, many companies hope to become the new Tesla. Including those unrelated, until now, to the automotive industry, such as Foxconn.

The changes . The electric car is easier to produce. To move the units forward it is necessary to invest less labor and less time . A substantial change that is leading to threats of layoffs in large manufacturers, such as Ford or Volkswagen , among others.

Complications . Despite this, traditional manufacturers are having real problems in the transition to this type of vehicles. The factories they have all over the world have to adapt to new production processes. The software is gaining weight and forcing them to enter a game in which, until now, they were not competitors.

The high manufacturing costs per unit produced prevent brands from offering vehicles at affordable prices, which results in greater reluctance when choosing them. Tesla is gaining the upper hand in Europe and Asia . On this last continent, BYD has also overtaken Western manufacturers and threatens to make the leap to Europe.

The new players . All these difficulties in adapting to the new context are helping new manufacturers to dare to take the leap or, at least, try to take advantage of the electric car. Tesla bet on it so hard years ago that it is now in a dominant position.

From China, manufacturers such as BYD, MG, NIO or XPeng want to make the leap to Europe with vehicles of all types . The Chinese Government’s positioning regarding the electric car allows them to access raw materials at a much cheaper price than other competitors. And state support allows them to even sell at a loss, like NIO or XPeng. The European Union wants to investigate whether all the aid received has not caused them to compete unfairly on our continent.

And a trend . Both are working with the same strategy: simplicity. Traditional manufacturers have been working on shared platforms for a long time, but the electric car is causing new alliances, such as that of Volkswagen and Ford , in which batteries are even shared. A simple way to save costs assuming the product is standardized.

But new firms also need production processes to be simpler and similar between some products and others. Tesla has fearlessly opted for this type of synergies, even assuming that they need to maintain their designs for as long as possible to get the most out of them.

Foxconn comes into play . Understanding the opportunity this represents, Foxconn, a company specialized in the construction of electronic products such as iPhones, Kindles or the Nintendo Switch, also wants to be an alternative to traditional manufacturers for the production of completely electric vehicles.

Already in December 2022 , Liu Young-way, its CEO, stated that the company’s strategy was to reach between 40 and 50% of global automobile production. The ambitious proposal involves a plan that already talks about assembling 5% of the world’s vehicles in 2025.

Foxconn knows it has an opportunity like it has never seen before to produce vehicles. The interior of cars is, increasingly, an amalgamation of microchips and cables that they can assemble in record time. At the moment, the first steps are being taken with the Yulon Group, which will put the Luxgen firm on the market with three completely electric models .

Because? According to the CEO of Foxconn, the business opportunity of manufacturing electric cars is something that occurs “once every 100 years . ” The company is seeing its profit margins on mobile phone production decline, which has strained its relationship with Apple.

At the same time, the vertical integration that can be carried out in vehicle production is an opportunity to obtain great profitability from its plants. BYD, which is growing at breakneck speed , relies on its ability to produce its own batteries, chips, motors and semiconductors to get enormous performance from its products.

“Computers of the 90s” . Bloomberg summarized Foxconn ‘s strategy with the electric car well. The Taiwanese company’s intention is to leave the design of the vehicle’s “box” in the hands of the manufacturers and let them fill the interior with their components. Modular cars, as was the case with computers in the 90s, where each manufacturer provided the packaging but whose content was very similar (or the same).

And, without a doubt, this seems to be the company’s strategy. Their great asset is that they have enormous production plants that can be used by manufacturers who observe with horror how the construction of these or the transformation of the current ones costs them hundreds, if not thousands, of millions of euros.

Leaving the construction of some of its vehicles in the hands of Foxconn can greatly alleviate its bills and even offers an opportunity for new competitors who want to enter the market. As my colleague Javier Pastor explained : “I don’t have a factory, but I make electric cars.”

The same car 15 . The famous joke that is made every year with each launch of a new iPhone could be applied in the future to a large part of the low-end range. Because ceding production to third parties that also manufacture cars for other brands forces product standardization with other companies in the industry.

However, traditional manufacturers are increasingly closer to this standardization. General Motors, Stellantis or the Volkswagen Group are true giants whose brands share platforms, components, engines, operating and autonomous driving systems … And, in addition, they are expanding new horizons to save costs in the launch of electric cars, such as the alliance between Ford and Volkswagen or the one that BYD and Toyota have for the Chinese market.

The great advantage for these companies, which find it difficult to launch electric vehicles at a competitive price , is to put cars on the market at a lower price to compete in volume at a lower cost. At the same time, the mid and high range can be developed by themselves and sold as an added value argument to increase prices.

What do we value ? The question is whether the client is really interested in this added value or, on the contrary, prefers to have better multimedia systems, load management or optimization of the same to the detriment of the use of one or another technical characteristics.

As we have said on other occasions, the movements of the European Union to guarantee a minimum level of safety have meant that cars, as standard, already have very high levels of equipment. If cars increasingly have fewer distinctive features in set-up and dynamism, it is logical that the public’s interest has changed in recent years and does not give as much importance to what components or technical solutions have been included in their car.

With leaden feet . Despite the strength of Foxconn, the approach they have for the future of the automobile industry must be taken with certain reservations. Yes, it is true that they are facing an opportunity like never before, but they also need a large manufacturer to endorse them so that other companies are encouraged and take the same path. Furthermore, they need them to guarantee a productive volume that reduces the operating costs of making the leap to electric cars.

And the automotive market is full of corpses in recent years. Producing an electric car is cheaper and easier but the Asian market is receiving new brands every day, which makes it difficult to gain a foothold in it. In Europe, although they promise to eat part of the current market of traditional manufacturers, they are having a hard time getting started and are only opening a gap between lower-priced cars .

In 2022, after years of declines (Covid-19 crisis aside), 85 million vehicles were produced worldwide . Toyota, the largest manufacturer, rolled out more than 10 million cars from its factories . Reaching 5% of global production in just over two years means producing just over four million vehicles. Tesla is expected to drive 1.8 million cars this year. It seems very complicated that, at some point, Foxconn’s presence could be present in some 40 or 50 million cars each year.

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