Published: January 17, 2020 4:38:31 pm
Hon Hai Precision Industry Co, the main assembler of Apple Inc’s iPhones, will establish a joint venture with Fiat Chrysler Automobiles NV to develop and make electric vehicles in China.
Hon Hai and its subsidiaries will hold 50% of the venture and Fiat Chrysler the rest, the two companies said in separate statements. A formal agreement will be signed as soon as the first quarter, according to a person familiar with the matter. The initial focus will be on the Chinese market, with exports coming later, according to Fiat Chrysler.
Shares of Hon Hai were up as much as 2.7% in Taipei trading Friday, their biggest intraday rise since mid-November and the main driver behind the benchmark Taiex’s gain. Hon Hai’s Hong Kong-listed unit FIT Hon Teng will also be involved.
Hon Hai, the primary listed vehicle for Terry Gou’s Foxconn Technology Group, is looking to diversify from its role as the assembler of a swath of the world’s electronics from Macbooks to Sony Playstations. The company aims to employ its expertise in precision manufacturing and supply chain management to grow the automotive business to 10% of revenue in the long run, Chairman Young Liu told Bloomberg News.
“Hon Hai will be responsible for design, components and supply chain management,” he said in a text message, adding that the company will not get into car assembly. Hon Hai and Fiat Chrysler are focusing on the Chinese market because of sheer volume, the executive said. While consumers in the country buy more electric vehicles than anywhere else in the world, sales have slumped since the government pared back subsidies amid a broader market downturn in demand.
Hon Hai relies on Apple for about half of sales. Past attempts to diversify its product lines haven’t been entirely successful. The company has tried to invest in a number of electric-vehicle ventures but none has borne fruit. Hon Hai, which competes globally with the likes of Flex Ltd. and Jabil Inc., may now be counting on transferring years of consumer electronics production experience to an automotive arena that’s increasingly going high-tech.
“As autos get more and more electrified and more and more digital components replace mechanical ones — especially with EVs but also just traditional vehicles — there’s scope for a real opportunity here,” said Matthew Kanterman, an analyst with Bloomberg Intelligence. “Vertical expertise is key in auto, and so a deal like FCA — if it proves successful — can help unlock doors for Hon Hai as that would be a strong reference account.”
While Hon Hai has limited automotive experience, it does bring enormous supply-chain understanding to the table, said Michael Dunne, chief executive officer of consultant ZoZo Go. Tesla Inc. CEO Elon Musk told shareholders in 2014 that Foxconn was supplying some components to the electric-vehicle pioneer.
From Fiat Chrysler’s perspective, the automaker has struggled to crack the Chinese market for years, and tightening fuel-economy standards and electric-vehicle mandates make the task even more challenging. Its market share in the world’s largest car market was less than 1% in 2018, well behind Ford Motor Co’s 2.3% and General Motors Co’s 13.8%.
The collaboration will “bring together the capabilities of two established global leaders across the spectrum of automobile design, engineering and manufacturing and mobile software technology,” Fiat Chrysler said in its statement. The aim is to reach a binding agreement in the next few months, though there’s no guarantee of that timeframe, it added.
Chief Executive Officer Mike Manley is trying to reboot Fiat Chrysler’s money-losing Chinese operations. He restructured the automaker’s decade-old joint venture with Guangzhou Automobile Group in April, calling the shakeup an attempt to “more rapidly respond to changes in the Chinese market.”