Five years ago, in a routine display of trash talking, Tesla Inc.’s Elon Musk made a now infamous quip about how hard it is to manufacture automobiles.
“Cars are very complex compared to phones or smartwatches,’’ he told German newspaper Handelsblatt. “You can’t just go to a supplier like Foxconn and say: Build me a car.”
He may be proved wrong.
Foxconn Technology Group, through its Hon Hai Precision Industry Co. unit, will establish a joint venture with Fiat Chrysler Automobiles NV, the Taiwanese company said in an exchange filing Thursday. While the deal is not yet signed, they expect their 50-50 enterprise will “develop and manufacture electric vehicles and engage in IOV (internet of vehicles) business,” referencing a growing ecosystem of connected cars that share location, weather, traffic and vehicle information.
Hon Hai would be responsible for design, components and supply chain management, Chairman Young Liu told Debby Wu of Bloomberg News. Foxconn might not actually do final assembly, he said.
If you’ve ever visited Foxconn’s global headquarters on the outskirts of Taipei, you’d know that the prospect of the company designing cars is disconcerting. It truly is one of the ugliest office buildings in the world. So let’s hope Fiat Chrysler takes the driver’s seat on that.
However, components, supply chain management and manufacturing are right up Foxconn’s alley. The company makes most of Apple Inc.’s iPhones and iPads, as well as a lot of the electronics that go into cars, including Teslas.
Tesla’s then-head of vehicle engineering, Doug Field, whose resume includes Apple and Ford Motor Co., in February 2018 subtly dissed the Foxconn-Apple relationship. “The model at Foxconn was very different” from Tesla, Field said, because the Taiwanese company uses manual labor to achieve economies of scale quickly. The iPad is a product “whose simplicity is orders of magnitude below ours,” he said. Field returned to Apple later that year.
Let’s agree, cars are, indeed, more complicated than tablets or smartphones. But I’ll say that there’s no way Elon Musk could churn out half a million handsets per day, consistently, with quality and on time.
By contrast, Foxconn, because of the reasons Field outlined, could be well placed to leverage its 40 years of experience in manufacturing, scale and manual processes to get Fiat Chrysler to mass production of electric vehicles quicker than almost anyone in the world. After all, Foxconn’s giant workforce and scale mean it’s the only company that can churn out 5 million iPhones a week at launch every year for the past decade.
With scale comes not just cost advantages but supply-chain leverage, an important element when you’re hunting down parts that may be in short stock. Batteries, for example, have been a bottleneck for Tesla deliveries in the past. But when your client list includes Apple, Dell Inc., HP Inc. and a dozen other companies that need batteries by the container, suppliers are likely to put you higher on the priority list. Given that they’re the largest cost of an electric vehicle, solving both the supply problem and then using scale to force costs down could give Foxconn and Fiat Chrysler an edge.
Having electric vehicles more readily available and delivered on time might even take the gloss off the cult of Tesla, which is driven in part by the difficulty of getting your hands on one. (So far, Tesla is outpacing the rest of the EV field by a mile. U.S. sales of the Model 3 grew by 14% in 2019, to 159,000, according to InsideEVs. Global Model 3 deliveries more than doubled, to 300,600.)
Yet Fiat Chrysler needs to ensure that Foxconn doesn’t mess it up. It’s known to be domineering in partnerships, with an obsession toward efficiency and cutting costs, rather than value-added branding. Its venture with HMD Global Oyj to revive the Nokia name looked promising until Foxconn executives started pulling rank, overruling those who truly knew how to design and market phones. Many of the talented members of the consortium left, and the brand is unlikely to see the revival that many had expected.
Sure, Fiat Chrysler is taking a risk by betting on Foxconn. But the U.S.-Italian car company doesn’t have much to lose and knows that it has little time to waste. Chief Executive Officer Mike Manley is hoping to merge with France’s PSA Group and told investors in October that electrification could happen on a grand scale after that.
It’s also likely to join a self-driving car venture being set up by BMW AG and Daimler AG, Bloomberg reported this month. Such plans necessitate the kind of electric vehicle technologies it doesn’t currently have. Foxconn doesn’t, either, but between them there’s every chance the two companies can develop or acquire what’s needed.
If Foxconn really wants to make it in electric vehicles, it will need to learn from Fiat Chrysler the importance of good design, marketing savvy and brand mystique. In other words, a little bit of Elon Musk.
Just not too much.
Culpan writes a column for Bloomberg.