For Tesla CEO Elon Musk, he had no idea that consumer electronics manufacturers like Foxconn could make cars, according tomedia reports. In an interview with the German business newspaper Handelsblatt five years ago, Mr Musk said that making cars is a very complex matter that is not something that any company can do.
“Compared to mobile phones or smartwatches, cars are very complex, ” he says. You can’t go to a supplier like Foxconn and say, ‘Build me a car.’ “
But Mr Musk’s comments now seem to be wrong. Foxconn will form a joint venture with Fiat Chrysler to jointly develop electric vehicles, the Nikkei Asia Review website reported last night.
The move is also part of Foxconn’s plan to expand its revenue stream. Initially, the two companies planned to make electric cars in China and sell them to the Chinese market. In addition to developing electric vehicles, the joint venture will focus on “car networking”.
Fiat Chrysler will own more than 50 per cent of the joint venture, while Foxconn will not own more than 40 per cent. In response, Foxconn Chairman Liu Yangwei told the media today that Foxconn will be responsible for design, parts and supply chain management.
If you’ve ever visited Foxconn’s global headquarters on the outskirts of Taipei, you’ll know that the company’s prospects for designing cars are unsettling, and it could be said to be one of the ugliest office buildings in the world, according to Bloomberg. So let’s hope Fiat Chrysler will dominate this.
But parts, supply chain management and manufacturing are Foxconn’s strengths. The company makes most of Apple’s iPhones and iPads, as well as many electronics for cars, including tesla cars.
In February 2018, Doug Field, then Tesla’s head of automotive engineering, subtly “taunted” Foxconn’s relationship with Apple. “Foxconn’s model is very different to Tesla’s because it uses manual labor to quickly achieve economies of scale, ” Mr Field said at the time. In addition, the iPad is a very simple product, its complexity is several orders of magnitude lower than our products. But later that year, Field, who worked for Apple and Ford, returned to Apple.
Indeed, cars are more complex than tablets or smartphones. But it’s worth noting that Musk can’t do that, producing half a million phones a day on a continuous, high-quality basis.
By contrast, it is because of Mr Field’s list that Foxconn may be in a strong position to use its 40 years of manufacturing, scale and manual experience to allow Fiat Chrysler to mass produce electric cars faster than almost any other manufacturer in the world. After all, Foxconn’s huge workforce and size mean it is the only company in the past decade to produce 5m iPhones a week at the time of its launch.
Scale brings not only cost advantages, but also supply chain leverage, which is an important factor in companies’ search for components that may be out of stock. Batteries, for example, have been a bottleneck in Tesla’s delivery in the past. But when your customer list includes Apple, Dell, HEWlett-Packard, and a dozen other companies that need a lot of batteries (to be loaded in containers), the vendor is likely to prioritize you. Given that they are the biggest cost of electric vehicles, solving supply problems and then using scale to keep costs low could give Foxconn and Fiat Chrysler an advantage.
Making electric cars more accessible and delivered on time may even overshadow Tesla’s admiration, in part because it’s hard to get a Tesla car.
Of course, fiat Chrysler needs to make sure Foxconn doesn’t mess it up. Foxconn is known to seek dominance in its partnership and is obsessed with efficiency and cost-cutting rather than value-added brands.
The initial joint venture between Foxconn and HMD Global to revive the Nokia brand looks promising. But then Foxconn executives began to abuse their power, pointing fingers at those who really knew how to design and market mobile phones. Now that many talented members have left, the brand seems unlikely to see the expected recovery.
As a result, Fiat Chrysler’s bet on Foxconn is also risky. But Fiat Chrysler now seems to have little to lose, and it knows it has little time to waste. Mike Manley, the company’s chief executive, wants a merger with France’s PSA Group and told investors in October that electrification could take place on a large scale after the merger.
There are also reports that Fiat Chrysler may also join the self-driving car joint venture that BMW and Daimler are building. Such a plan would require Fiat Chrysler to have electric-electric-related technology, which the company does not currently have, nor does Foxconn. But now the two companies have every chance to develop or acquire what they need.
If Foxconn really wants to succeed in electric cars, it needs to learn from Fiat Chrysler the importance of good design, marketing acumen and brand mystery. In other words, to have a little bit like Musk, just not too much.