Yesterday, we wrote about the potential for cars to shift to manufacturing systems that resemble those used in electronics today. In thinking about this we have found it useful to look more closely at what the flagship of that model is doing in automotive today. Foxconn, or Honhai, has been incredibly active in expanding its reach into the auto supply chain. The company has built in-house capabilities and invested in start-ups that cover everything in automotive from vehicle communications systems and software to assembly plants, and taken stakes in multiple electric vehicle (EV) makers around the world. And they have now launched prototypes for five different vehicles
Where is all of this headed?
At their recent analyst event the company stated that its goal was to capture 5% of the vehicle production market. They compared this to the ~40% share they have of the electronics market. The CEO went so far as to say he hoped the company would someday produce cars for Tesla, a company which has already invested heavily in its own manufacturing systems.
One of the most tantalizing aspects of the “electronic-ification” of auto manufacture is the potential for this to throw open the doors to new manufacturers. This is exactly what happened in the electronics industry where various forms of manufacturing abstraction allowed for an explosion in the number of companies making consumer electronics, computers and semis. Remove the need to build a capital-intensive manufacturing facility and the number of participants in a market chain reacts. Foxconn has furthered this by investing in auto makers around Asia, presumably with the goal of becoming the assembler of choice for these new brands. Foxconn has the scale, and bank balance, to promote this model.
If the industry does move in this direction, Foxconn is in a position to win a very large share of this business. This will take a very long time to develop, especially as Foxconn is unlikely to win any orders from incumbent auto makers for the foreseeable future, and so will have to grow with the many start-ups entering the field. This may take a decade to become a significant revenue driver for the company, but they are sending strong signals about their determination.
That being said, we have to wonder if they have other elements to their plan.
The most obvious question is Apple. Foxconn has a very strong relationship with Apple going back decades. Apple is of course rumored to be building a car (and here and here). Those rumors have actually gotten very quiet recently, and perhaps not coincidentally Foxconn has gotten even more vocal about cars since the rumors died down. Nonetheless, we have to think Foxconn is doing everything they can to enable Apple to enter the market. A few years ago, we could have dismissed Foxconn’s talk about automotive as an elaborate signaling mechanism to demonstrate their commitment to Apple. But the company’s efforts have gone far beyond that and they are building an auto business regardless of Apple’s ultimate plans.
The other big question is will Foxconn build its own car brand? This rumor percolates up frequently. They have everything they need to sell their own vehicles, except experience in marketing and delivering cars to consumers. At some point, we have to think this is a possibility, but for now the company can keep that as an option scheduled for ‘someday’.
For the time being, they look to be very well positioned to usher in dozens of new car makers to the business. It may take years, but the size of the opportunity could be massive.