Google, Apple, now Foxconn…

Foxconn, the Taiwanese-headquartered contract manufacturer of a range of consumer electronics products, with a client list that includes Amazon, Apple, Dell, Google and Lenovo, announced last October a new electric car platform, called ‘MIH’, which they said would be the “android system of the EV industry”.  Their intention was that this would reduce the entry barriers for new brands in the car industry, providing not only the platform itself, but technologies and tools that allowed them to develop their own products on the MIH platform.  They are not lacking ambition, with the objective of underpinning a 10% share of the BEV market in five years, or around 3 million cars annually.  That’s around midway between the global output of Daimler and the former PSA Group.

The latter is relevant, as tomorrow (Tuesday 18th) an announcement is expected from Stellantis and Foxconn that they will collaborate on the production of BEVs and internet-connected vehicles, mainly for the Chinese market.  This was a deal originally put together by FCA prior to the creation of Stellantis, but has survived the undoubtedly tough scrutiny of Carlos Tavares and his team, though the scope may be more limited than creating complete vehicles for Stellantis brands using the MIH platform.  Given the challenges that both FCA and PSA independently experienced in the Chinese market however, the promise of a lower (re-)entry cost and being able to leverage Foxconn’s undoubted local knowledge and skills in supply chain management make a lot of sense if you apply hard-nosed business judgement rather than adopt a more defensive ‘not invented here’ stance which has led to many failed standalone product launches and market entries over the years.

Foxconn also claims to be on track to launch a solid-state battery for BEVs by 2024, has signed up Byton and Fisker as potential customers for sub-contract manufacture, and may switch an existing plant in Wisconsin, USA, to BEV production in 2023.  Their role could be compared to that enjoyed by Magna over many years, producing vehicles for multiple OEMs at their plant in Graz, as well as managing much of the former smart operation in Hambach, and producing major systems and components as a leading Tier 1 supplier.

I have some sympathy for Foxconn’s argument that they have skills in electronics and the efficient management of suppliers and plants producing complex consumer electronics products to demanding quality, volume and cost targets, which are absent in the traditional OEMs.  It is worth acknowledging that some of their employment practices and the company culture have come under scrutiny in the past, and that is definitely not something that an established OEM brand would want to be associated with, but gaining the knowledge that Foxconn already has, and doing so more effectively than your direct competitors in order to gain an advantage will be tough.  The current challenges that the auto industry faces as the result of semi-conductor shortages may be a reflection in part of the fact that OEMs do not yet have the same understanding in the electronics sector of upstream supply constraints and how to secure their requirements, as they have in other commodities where they have decades of experience and relationships to fall back on.  That does not bode well for the future as we enter the age of the ‘internet of things’ and there will be even more demand from multiple sectors for smart devices to manage everything from traffic signals to your domestic refrigerator.

The other argument in favour of collaboration is that OEMs also have the ambition of getting closer to customers and offering not only the vehicle they drive, but also an array of digital services, perhaps offered as part of an ongoing subscription service.  They are effectively fighting battles on two fronts – to secure a larger part of the retail market with millions of consumers and in parallel to master engineering, sourcing and manufacturing of radically different products, that will continue to evolve quickly over the coming years.  Just as quickly as they have mastered sourcing, assembly and application of Lithium-Ion batteries, the game will move onto solid state, and then potentially onto fuel cells.  Suppliers, skills and facilities could change with each cycle.

Whether we want to admit it or not, consumer electronics companies and digital players like Google have grown up in a highly dynamic environment, and the established auto industry has not.  At a time when we need to be responsive, we are still dragging our house along on our backs like a snail, and that must affect agility and competitiveness, particularly in markets where brand loyalty is elusive like China.