Foxconn Has a Plan to Upend the Electric Vehicle Industry

last decade. Oh boy, where to start? Well, first of all, um, a cynic might say that Elon Musk courts that kind of controversy quite actively and that maybe if he wanted the focus to be on what Tesla was doing, um, he could go about it a different way. But anyway, Yeah, Tesla, Tesla, I mean, just looking at the share price, it's down obviously from its peak, but over its history it's you know, a very successful company from a purely financial basis or

just looking at the share price. Yeah, And you know, like when I think about the last decade, obviously it was about the rise of software. Software is eating the world, Uh, cryptocurrency, all these sort of things that just like existing code. And here's a company that became the biggest car company in the world at least by market cap, by actually manufacturing something that is actually built. And so this was a decade in which people weren't really into manufacturing and

really weren't into capital intensive businesses. And yet during that decade, this one company is sort of like just extraordinarily well at a time when that wasn't really that cool. Right, Okay, so this is possibly one of the few things that you cannot fault elon must for it. But he certainly likes to make things right. And you can debate whether or not those things are realistic, but everything from electric cars to flame throwers to you know, tunnels underground satellite

launching equipment that starlink. Yeah. Um, he makes things at a time when the emphasis wasn't really on making things. It was on software, as you mentioned, and sort of the ephemeral stuff, big ideas and changing the world through

technology but not necessarily tangible technology. Right, And of course one of our themes, and it's something that we hit on with a lot of our Commodities episodes and you know, some of our conversations with Jeff Curry and all kinds of things that we've been doing over the last year has been about this sort of the revenge of the real,

the tangible economy actually putting stuff together. It's really hard, but it's sort of it feels like this sort of like physical engineering is going to be one of the huge themes of this next decade. Yeah, I think that's right. And again I think maybe we're so used to thinking about technology as like a search engine or a software company, but it feels like that might be starting to change.

And nowadays when people think about technology, when they think about technological prowess, it feels like a lot of people think about things like semiconductors and chips and the actual physical components that drive that kind of technological innovation. Yeah.

And so when you think about like manufacturing tech, right, like, okay, we're talking about who's may have acturing, you might think of Taiwan Semiconductor, which of course we've done episodes Intel, And then another name that has to come up in all of that has to be fox Con, which everybody knows is basically the company that makes the iPhones, the

company that is sim Yeah, that's right. So I think again, this is sort of one of the big themes that has come out of the past couple of years in the global pandemic, but also even the trade war before that. But we all are intensely aware now of how these tech supply chains actually work and where things are made and who is putting them together. Yeah, and so did you know, Well, I didn't know that until recently. Did you know that fox Con itself wants to get into, uh,

the electric vehicle game? I didn't know that either. I know that the head of fox Con, Terry Coo, I know he's he's a he's an ambitious guy, he has plans, But I didn't know about this specific space. So yeah, I'm interested in learning more about it. Yeah, and I think you're sort of like, it's hard to understand the world over the last several decades without understanding the trajectory of fox Con and so the fact that they want to be a player and ev is really interesting. So

I think we should talk about it. Let's do it, all right. I'm very excited because in studio with us, this is a real treat. In studio with us, we have a colpen. He has a Bloomberg opinion columnist normally based in Taipei. But he is here in studio with us, and he is going to talk He knows all about Fox count. We'd actually I think we had him on last year to talk about Taiwan semi, so he knows about the world of manufacturing, the real economy that most

people forgot over the last decade. Knows a lot about it. Plus he brought us pineapple cakes, so you know, he automatically gets an episode thanks to thanks for the pineapple cakes. To no worries, I apparently listeners. If you do want to get onto the Odds podcasts, you just have described

Tracy and Joe with with goodies, and Tracy really likes sweets. Okay, I don't know Tracy's opinion on Elon Musk, but I know that Tracy likes sweet So yes, if you want to get on odd Loads, send Tracy a pineapple cake or some other pastry and you will probably get invited. It's really that easy. Uh, Tim, Great to have you, Great to have you here. What is Fox con Oh, I didn't expect you to give me such an opening

and the question. All right, So so our producer Carmen is going to have to cut this after about three hours when you give me that question, what's interesting, I'm going to go back in time in history, if you'll indulge me. I think everyone first started to learn about fox Con. That was when the the unfortunate suicides happened and the company became famous because of it. And there's

about a dozen suicides that year. Uh and even fox Con chairman and founder Terry Ware at first there was a couple of suicides, and he admitted to to us when we interviewed him at that time, I didn't think it was a big deal. And to put it in in in context, at the time, they had about a million employees. So if you go to any town in America and China and anywhere in the world, you know, with the million employees, it's unfortunately you're going to have,

you know, a couple of suicides. It's just an unfortunate reality. So he didn't think it was a big deal. But after about the fifth he's like, oh, we've really got an issue here. And of course it got a lot of global attention from from everybody, including US Bloomberg and Bloomberg Business Week. But that's really what put fox Con

on the radar. But they've been going since the mid seventies, Terry Gore, who was born in Taiwan, was one of the first people to embrace shen Jin in China across the other side of the Taiwan straight He went there at the time when China had decided that shen Jen would be this special economic zone and China was just starting to open up to the world, and Terry Guare

was very quick to embrace it. He saw a real potential. Obviously, cheap labor was was a real draw card, but he saw a potential for a very large labor pool and also the fact that there could be a supply chain building there. So he was one of the first people to say, you know what this this is the place to be. And so he went and set up shop there.

And one of the kind of the craziest ways or simplest ways that he could get higher he could hire employees because there was a lot of competition for for labor at the time, was that he decided to just treat them a little bit better than other employers in China. Now, people look at the Fox con scan and say, you know, they're a sweatshop and they're terrible on staff, and you know,

treat labor badly. Actually in context, um, and I sound like a bit of a Fox con apologist here, but in context, they did actually treat their employees in the early days and right through their history actually a lot better than than a lot of employees employers do in China. And so one of the first things Terry Gore did was he said, Okay, I want all of my my workers to eat well, So every single one of them would get an egg a day so they could get a bit of protein. That was kind of a bit

of a way out idea at the time. This was just to be clear, this was in the eies, seventies, and and so Terry War is not an electronics guy. Most people in the tech industry have a tech background. They have an electronics background, um, maybe electronic engineering. Terry War studied a maritime college in northern Taiwan, so he really started shipping and logistics, and then he moved into plastics. So he's he's kind of opening business was plastic injection molding.

And if you think of Taiwan in the seventies and eighties, it was known as you know, made in Taiwan, cheap plastic toys, Barbie dolls, and everything else was made in Taiwan, so that was his business. He was a plastics guy.

One of his first things was to make the little plastic tuner knobs on our c A t v s. And over time he went more and more into plastics and uh and when the electronics boom happened from you know, the eighties, he he started getting into the business and making the connectors that would connect to say, your printer to your PC, or your atari to the television. And if you remember, you know, those of us of age can remember, they are flat cables with two thirty six pins.

They were kind of difficult to make, and so if you could work out ways to make these connectors, you could get pretty fat margins. And so the name fox Con. The con in fox Con is connector. That's that's where the name comes from. And as an interesting aside, his brother runs a company called fox Link, which does the cable part, the boring cable that goes between the two connectors. Now, of course that's not as exciting anymore because pretty much

everybody's on USB and FireWire and everything else. But back then there was like sixty different types of connectors, and and since then they have basically been a component company, and so we think of them as being a company that hires a million workers, you know, at peak time

to to assemble iPhones. But if you look at the numbers um you know, back in the mid nineties when the PC boom was happening and people like Michael Dell and others decided that they want to be into the in the PC business, fox Con got into the business of just creating the components. They weren't really assembling that much. They were doing the components that went inside. And if you ever opened up a desktop PC, you'll see the motherboard inside and there's just all sorts of componentry welded

to the motherboard. That's the business that fox Con was in, and that's to this day kind of the business they're in right now. We just don't really think of it because it's not a sexy But I'll tell you one thing, guys, the margins are really, really, really good. So their gross margins were over thirty and if if anyone really kind of dives into, you know, the margins business, I knew you've had. Stacy has gone on co cover Semis is a really nice gross margin and at the time Apple

which was kind of at its worst period. INTI was doing ten percent gross margins, so they did very very well. Now in context, margins at fox Con dropped off over the next decade as they went more and more into assembly, which is not a margin business. I was going to ask, can you talk a little bit more about the difference between making components versus assembly and why what fox Con is doing, you know, was was somewhat unusual at the time, is my understanding? Yeah, no, that's I think that's a

good question. So components, um, I mean, the most high level components are chips, right um time and semiconductor we talked about before, and that's that's the sexy part of the industry. But going down the supply chain, you get these chips and you put them onto a module, you well them together. There's other there's so many chips inside a computer or inside an iPhone that are kind of boring, you know, capacitors and and things that control the voltage

withinside a computing system. Now, the thing about these is they self they sell for a dollar or two. They don't sell for a lot of money, but they're huge, huge volume, and because they're very very very specialized, um, it's not easy to swap out one component from another. So if you're a company like fox Con as they were in the nineties, and you work out exactly how to do exactly the right component with all the right specs and your client, it's all the PC makers electronics

makers go, that's just the component I need. It's only a dollar, but I need it, and it's got to work. It can't you can't mess up. They will put in orders for millions of them. They buy them by the bucket. And if you're someone like Foxcon who can do that really well and set up a production system that makes them really well, you've got fat margins. So it's it's

very high volume but low price. Like the price point is very low, but with fat margins, you can be a very very profitable company and you've almost got the market to yourself in some of these components, because the barriers to entry are quite high. And that's really the bread and butter of Foxcon. Even to this day, they make a lot of money from an iPhone from the components that go inside an iPhone rather than actually assembling an iPhone. How did Apple find fox came well? When

Steve Jobs came back. Um, as we all know, the company was in trouble. They Apple was actually making their computers, like physically making them in California. But over the over a period of time, many companies, um, you know, Michael Dell and Heller, Packard, Compact and others were starting to

outsource to Asia. And at some point during that period of time, Tim Cork who was who was operating officer at the time, he had not yet become CEO, would have discovered fox con and realized that, you know, these these guys make the components, we should probably get to

know them. And they really jumped into bed deeply when the iPod came out in the early two thousand's and that was one of the really the first high high high volume electronics product after maybe um you know, the Sony Walkman, and no one else really had the kind of scale in n Jen to do it. So it was really started with the iPod era and it was only the iPhone that came almost a decade later, or

less than a decade later. And when you know, Tim Cook needed someone to assemble this new gadget that nobody had ever heard of but heard rumors of Fox and was the place to go well on this question of like assembly. So you know, I'm sort of thinking about like actually our Taiwan Semi conversation, and you know Taiwan Semi. You know, just like over time like builds up an expertise to be able to manufacture chips at scale while making very few errors, and they just become really good

at it. What is like, is it similar with fox con where just over time they just sort of build up this internal muscle or you know, you can come up with a new design. Here's the design of an iPhone, or sorry, here's the design of an iPod, And because they've just like built up this sort of like internal tacit knowledge of how to assemble things, It's just no one else can really do something like that at scale and have to be consistently good precisely. That's really really it.

It's it's not that difficult to make one pizza. Try and make fifty pizzas and now or you know, a thousand pizzas, and now that's difficult because quality yield, right, the amount of products that you put through the production line that are usable at the end, that is very very difficult. Scale is really what it's all about in pretty much any industry, even in cars. You know, Tesla's struggles over the years have been about scaling, and so, yeah,

you're right. They had built up this this knowledge base from making components so that when it came to things that were a bit more labor intensive, and they had used a lot of labor even for their components, this was the company that you would turn to. And you know, what is it a dozen years after the first iPhone came out, seventy iPhones are still made by Foxcon. Right, the Apple can't replace them. They're addicted to fox Con.

I was going to ask what is the relationship like between those two entities, because on the one hand, okay, fox Con providing a valuable service for Apple, clearly, but it feels like Apple is basically reliant on one supplier here. Yeah, I mean, it's it's it's a possibly an unhealthy I've argued for a long time, it's a very unhealthy codependence. Um, you know, there is really if you look at the

tech industry globally or of the world in general. Um, you know, if if Apple was to disappear overnight, um, you know, we wouldn't get our ophines, and you know, maybe that wouldn't be a very nice thing, or Facebook disappeared that would be terrible, or some people might argue

the opposite. But if if fox Con or t SMC were to disappear from the face of the earth overnight, we've been a lot of trouble because nobody can do what these two companies can do, and they even if they tried, and so many companies have been trying to replace fox Con. Apple doesn't want to be addicted to fox Con, right, It's just not healthy. It's not about them being a good or a bad company. It's just

not healthy to have one supplier. So over the years, Apple has diversified away, ironically to mostly Taimeanese companies like with Troyn and Pegatron, and some Chinese companies too, uh. And of course they have diversified away from China to an extent in India and Brazil and other places. But really they can't help it. And fox Con is also unhealthily addicted to a fifty percent of their revenue comes from Apple, uh, and it's been that way for more

than a decade. They brought in about two hundred and fifteen billion dollars of revenue last year fox Con and half of that came from Apple, So they can't do that Apple unless they get into the EV business. The hottest gadget or one of the hottest gadgets in the world right now is the electric vehicle, and Tesla is the leader. But we know that every uh, every car company, um wants to get into e v s and they're spending a lot of money and actually rolling out cars

and some of them seem to be decent. Before we get into fox CON's ambitions in the space, how is manufacturing a car historically different than manufacturing electron I mean, my guess is, like GM and Ford at all, they have their own plants, they're in the United States. They don't just like make a design and send it to some other company to build. They actually build it themselves. But how would you compare and contrast the sort of like existing legacy approach to building a car versus the

existing approach to building a phone. Well, at the end of the day, yeah, no, I think it's a fair point at the end of the day. I mean, car companies don't want to admit it, but all cars are kind of similar, right um now, where there is a differences in engines. Right, So companies like Toyota and Ford and the Europeans as well, have have worked a lot on on engine design and and car buffs will say, well, this engine, this you know V six or this straightforward

whatever is is a better engine. And a new car comes out with a new engine and people love it or hate it. But the other part, that kind of the the I P is in how you make it. And Toyota, i guess, is most famous for their production system that just in time and all of that um and again it comes back to the issue of scale and quality and yields and so forth. So the very process of producing a car is in some ways that

secret source. And so if Toyota, for example, or Ford was to work out exactly the right way to make a car over and say a ten year production run, um, it's kind of a thing that they wouldn't necessarily want to hand out to somebody else. But the other thing is with safety standards. Um, you have to be very meticulous, and the way you produce a car is so connected to things like safety standards. And the final thing is, um, the product cycle of a car is much much much longer.

We're talking like a decade, whereas you know the product cycle of a phone iPhone, Apple has the longest product cycle, which is about a year. But you know Samsung and shower Me or whatever, they come out with a new product like every three to six months or even less. So it's a very quick turnaround, and so they kind of need the external help to help put these devices together. I think that's really the difference. So walk us through fox CON's thinking here and what they see exactly as

their competitive advantage. Because on the one hand, yes, EV is very hot right now, everyone is probably going to end up having one in the future. But on the other hand, especially in places like Asia, the market is incredibly crowded. It feels like a new EV manufacturer springs up, you know, every week or every month and then probably has problems soon after. But what exactly is the opportunity here and what does fox Can think it can do

better than other EV manufacturers. Well, what's interesting, I think is that you think a fox Can has being the iPhone assembler, and you think, wow, if they're going to do evs, they're going to be all about the e V assembling with big factories like you'd see in Detroit, that's actually not quite their thinking. They are more thinking in the nineties model, which is in the ES when desktop PCs were, you know, the biggest thing out there.

It was very modular. You open up a PC and it's very very modular, and you've got standard reference designs for what it would look like. And you know at that time you have you know, m D and Intel, we're doing the CPUs ah and fox Con could make a lot of those component parts and get good margins on it. They see e vs more similar to PCs

than iPhones, and so they have reference designs. Right, if you want to go out like literally, if you had the money, you could call up fox Com tomorrow and say, hey, we want to make an EV. We don't have a clue, We've just got money, and fox going to like, all right, we've got a reference design. Literally, it is a design. It's a chassis with four wheels, and they can basically walk you through the process and for the right amount of money, you could have an EV, you know, in

six months. And that's why you've got companies like Lordstown and Ribbing and all these other startups are actually turning to fox Con and saying, oh um, yeah, we we want to get into the e V business, maybe we

would you know, get into bed with each other. Well, so when I think about like PCs in the nineties, and there were just so many of these brands and they basically just all sold the exact same boxes and it didn't turn out to be So there was Compact, an HP and or before that, I guess there was like yeah, tons of Gateway was another one, uh and then of course Dell more or less one that space. But it was like not a great victory because the actual like boxes, you know, they won, but it wasn't

like the most amazing victory. Like do the car companies like, okay, if Fox if Fox CON's vision that evs will sort of be this modular thing and there's a few standard parts that they could all plug and play, Like, do car companies want that future? Now? Of course, car companies don't want that future anymore than PC companies want to have PCs to be modular because there's no competitive advantage. And that's why Apple went you know in another directions,

remember Zeos, there was PCs. That's what we had. We had a we had a PC. And in my family, I think it's a company. Remember Tandy we had Yeah, so, um so, no PC company, no company wants wants to be standardized, right, They want to have everything to themselves. In fact, you know, if you look inside an iPhone, um you know, one of the funny things about an iPhone is, of course they have their own chips, a lot of their own things are very very specific to Apple.

But in fact, there's there's quite a few components that go on an iPhone that are no different to a component that going to something else. But but Apple is very insistent with their supplies that they have their own stock coding unit and it's labeled differently, but it's basically the same part. It's just kind of the Apple version of that part. So I think absolutely, I don't think you know, Elon, Musket, Tesla or Toyota or Ford or any company that's going into the e vy era wants

to have it standardized. But then again, they've got to make decisions where is our value add where is that competitive advantage is it to have you know, all our unique components. And in the car era, having your own unique engine, you know, was a standout right and that was a unique selling point I think so far in the e V era. I don't think anyone's going up to an e V and going, well, this is, you know, the the electronic version of you know, a V eight. Right.

They of course they want range, they want power, they want what is it ridiculous mode and stuff like that. But if that can all be done in a in a standardized, modular way, then that would free up the e V makers to focus on the front team, which is the design, make it look cool, feature set, and then the back end, which is sales and marketing. And essentially that's what the PC industry is now. PC makers basically don't make anything. In fact, Apple doesn't really manufacture anything.

They do the front team, which is the design. They outsourced all of the middle which is you know, putting it all together, and in the back end they worry about sales and marketing. And that's probably going to be the future of EV is certainly the way fox Con thinks it will be. And so there was all these PC makers in the nineties and most of them have disappeared or fox gone still around, and they's just applied to all of them, right, that's the way they survive.

Fox Con doesn't do their own branding. They just apply to the brands and the new vision of fox Con. And they've got a new chairman now, a guy called you know, Young Way, who's who's an electronic engineer by training. He sees that future as being fox Con is not going back to the mid two thousands, but fox going back to the mid nineties. Guess what, that's when the

margins were really really good. That's convenient. But it feels like to some extent, the EV manufacturers might not have a choice here, right because chips have been an issue, and if one of the largest suppliers of chips says we want to go in this direction, We're going to standardize to modular component building that sort of thing, it feels like they might just have to go along with it, Right, Yeah, I think so. I think that's a good way to

put a treaty. You if the EV industry it is very very electronic, right, you know, every wheel has multiple chips just controlling it. Right, Um, cars there is more. There's more chips in your garage and there is in your lounge room. Right. There is so many chips inside cars, which is why with the chip shortage of the last couple of years, cars couldn't roll off the production line, right, but we still managed to get our iPhones. And so the e V era is definitely more and more electronic.

And that's why in so many ways, and e v is more like a PC on wheels than then a Toyota af Ford with an electronic engine. Really, that's the way you need to think about it. Certainly, that's the way a lot of companies think about and that's the way Fox Coon thinks about it. And that's why componentary semiconductors are non semic conductor components. There will be standardization in theory. That's that's where the industry is moving. And

that's what foxcon wants to do. They have a platform called m I H. They want to bring all of the company needs together. They want to bring in the chip makers, not just the carmakers, the chipmakers, the electronic makers. They want to bring them all together and set the standards and say we've got these standards. You can buy some of the components from us and some from somewhere else. Not a problem. You can buy all the components from us whatever you like. But fox con wants to be

a part of it. So that as today, apart from iPhone. Pretty much every device you've got, whether it's a Dell PC or or a Cisco router or some webcam, there's probably some fox Con in there somewhere. That's what fox Con wants to be for e vs. So I'm guessing this is a well I'm guessing Ellen, they're not part of Elion's vision, Like, how does how does the fox cond vision of how the EV industry evolved contrast with

Elon's vision of how the EV industry will evolve? Well, interestingly enough, fox Con does supply to Tesla, but it's just componentry um, not the final car. Now. Ellen said famously a few years ago, you know, evs are tough. This is not the kind of thing you can you can outsource to fox Con. I actually disagree. Fox Con obviously disagrees. I think it is the kind of thing you can outsource to fox Con. It's exactly the kind of thing you can outsource to fox Con. Now, of course,

Tesla makes their own cars. They're they're building multiple factories around the world, and they believe that building cars is part of you know, the Tesla DNA and their competitive advantage. But if you if your fox Con or any of these other startups, then you probably think maybe not. And certainly to build your own car factory is is very,

very expensive and there's no guarantee of payoff. Now what's interesting is how about the existing legacy car makers like the Europeans and the Japanese, the Koreans and of the Americans. Do they still want to make their own cars or will they at some point say, you know what, We're going to outsource a couple of models of our cars to somebody else, like a fox Con. So one of fox CON's partners is Stalantis, which is the merged group of of p s A and renown A, the European

car makers. They are actually doing deals with fox Con. So we may see, you know, a European car come off for a fox Con production line in future, or certainly some of the components in these European cars may be made by fox Con. So I think the interesting question is not the startups who kind of need to

have a fox Con, it's the legacy makers. Are they willing to embrace the fox com model and frank out The answer to this might be an obvious point, but part of the thing that is sort of surprising me here or I guess I should say the irony here is that it seems like we've had these discussions over the past few years about supply chain resiliency, We've had discussions about the semiconductor shortage, and it feels like the response to all of that might be to concentrate semiconductor

production and assembly even more in a single entity. Um because they're sort of demanding market power or the ability to assemble cars in order to control the components that are going into them. Is that is that the direction that we're heading, Like, rather than see multiple competitors spring up in the space people start to retool their supply chains so that they don't rely on a single company, it feels like we're going in the other direction. Well, if you look at t SMC, I mean, they have

like of the leading, leading, leading edge capacity. But interestingly enough, that is not the type of ships that have chips that have been in shortage. It's that the old stuff that the technology that's in ten or fifteen years old that's been in shortage. And one of the reasons why it's in shortage is because people have been moving forward, you know, the chip industry as as you guys have spoken about quite a few times. It's a very fast

moving industry. You know, Moore's law means that every couple of years you upgrade your technology. But a lot of the chip designers didn't really want to move up the supply chain or you know, the technology stick because they didn't need to. So that's where we are with the shortage. But going forward, I think there's going to be a lot of government involvement. Obviously, the US government Congress is kind of duking it out over the Chips package that

Chips Act. Europeans are doing a similar one. They would like to have control of the chip industry in more companies, or at least in companies from from their domiciles. So obviously Intel wants to get in on the game. There's European makers, but at the same time they all everybody wants a t SMC factor in their backyard, right t SEMC is the most popular company in the world for for you know, economic economy ministers, because they all want

to get t SMC over there. But if you look at fox Con, what's interesting with cars is, you know, it's just not as easy that you can't pack up sixty cars in a box and put them on a on a FedEx slide. Right, So this is a really smart way for fox Con to to diversify geographically. Now, no matter what you think of the tech cold War, is it overblown? Is it unfair? Will blow over? Um, It's really not smart to have all of your supply

chain in one area. In the same way, it's not smart to have so much of your supply from one or two companies like fox Con and tier SMC. It just doesn't make sense to have all of the supply chain in you know, the Shenjen area or jung Jol area of China. Fox Con knows that. But by moving into e V s as they are, they've you know, they've got a plant in Ohio, They've got this factory in Wisconsin which may or may not make e vs. They're looking at India and Indonesia and we'll probably see

something in I would guess, Mexico East in Europe. Great way to diversify your geographical locations because it makes sense to have your car production closer to where your your market will be. Yeah, I want to expand on this further because like right, like if you think about as you mentioned, uh, the era where they're selling like, you know, millions of dollar capacitors by the bucket, and that's very easy to manufacture in shen Zen and then put on

a boat. Clearly, the geography of automobile manufacturing is already much more localized. And you don't see GM or Ford manufacture car in China for the purpose of shipping it to the United States that they set of factories in Georgia or Tennessee and still in Michigan or elsewhere. And so it does seem as though this would yeah, I mean, the economic the weight of car components just this year, size, the cause of them, um, it seems like it has

to be much more geographically dispersed. Yeah. Absolutely, And and that's just a really nice segue for fox Con to have less of their production capacity in one geography. Uh. And they don't have to be announcing that they're picking up and leaving China. They just you know, all of their extra every extra dollar of capex that they put into something over the next few years just happens to

not be in China for for solid economic reasons. And so I would predict that, say, ten years from now, a lot less of its balance sheet in terms of factory and equipment will be in China, and it won't be a case of them upping and leaving China, will just be a natural kind of evolution away from China. And I think that's exactly what fox Con and its

clients would want. So I know you talked about, um the sort of the historical experience that lends itself to fox Con moving into this area of evy assembly sort of doing a similar thing to what they did with PCs in the nineties. But are there any stumbling blocks here, like what is the biggest challenge in moving to that production model? I think one of them, Um, that's that's a really good point, and that's the kind of thing that probably even catch out fox Con. And I think

one of them is regulation. Cars are very very regulated, right um in terms of safety standards. You know, there was emission standards, but obviously that doesn't quite apply to

e v s, but there's various types of standards. And if you're going through the process of setting up a reference design, UM and you're slotting in different components, even like what kind of seats and you know the seats going to buckle up electronically or breaking and all the other things like, for example, Tesla had a minor problem recently where the chip inside that center console was kind of overheating, and that made it difficult because everything is

control by the center console of a Tesla UM you basically kind of had to reboot the car to to make it work. Now, there was no safety issue involved in that, but it highlights the issue that as we get more and more electronic, the electronics are very important. I think we will see safety regulators in the US and Europe and elsewhere. I want to be much more

cognizant of that. And so this could be a real problem for Fox Gone, or maybe it's an opportunity for Fox Gone, because if they can get into the process of getting the parts or components or half assembled cars go through that safety standard check and licensing themselves with the Europeans or the Americans or Japanese or whomever, then they could possibly sell that to the client and say, hey, this part of the process, the chassis with the seats

and the engine have already gone through compliance. It's been ticked and signed off. You should buy from us. Or alternatively, the carmakers may find that's not working for them because you know, Fox con doesn't do that or doesn't provide that, and that's the carmakers specialty. They may decide, Actually it's still better for us to do this ourselves because the design process is very much focused around, you know, safety,

building in the safety at the start of that process. Now, comparing that to the PC area of the nineties, as your point out, Tracy, there really wasn't that issue. You know, if Michael Dell wants to cobble together a computer, you know, in his garage in round Rock, Texas, he doesn't have to go off to some regulated who gets signed off for safety. And so anyone could put together a PC

from kind of standard parts. So I think regulation and safety standards will probably be the biggest kind of challenge the Fox Can anyone, anyone who wants to get into the e V space will face. So I just have two more questions. One is sort of quick, how big is Fox Can I guess I don't know from a revenue standpoint these days, And how big does it see or how big could this market get or how important

could it get for Fox Car. So their revenue last year was around twoundon fifteen billion U S dollars by comparison, Apples was threound sixty three D and seventies, so about two thirds of what Apples was. Interestingly, by comparison, uh t SMCS revenue last year was only fifty six billions, so it's like less than around a quarter of what fox Cons was, But of course t SMCS margins are exponentially higher. So that's that's putting introspective of where we

are today. But going forward, Fox con just recently put out some of their own targets and they think that they are they're targeting to ship five hundred hundred and fifty thousand e vs annually by five, and they see that translating to thirty four billion US dollars of revenue by five, So you know, back of the envelope number, that means they would expect revenue of around forty five thousand dollars per car. So there's already a pretty significant

chump of the of their business. Huge. That's huge, right, And even if they got really bad margins out of that, you know, one percent margins on forty five thousand dollars is a lot better than tempercent margins on a one thousand dollar IPHI. Yeah, that's it. So then I guess. The other question I have too is like the you know, the other thing, the big the key component in a electric cars obviously the battery, and there's a lot of effort a is that an area that they could ever

get into? Try to get into the battery itself, which is really seems like a very tough business. But be battery aside, what are the components that they have like the best shot at building They are actually in the battery business. They're not a huge player. They've developed their

own battery technology in Taiwan. I didn't even know this until just stumbled upon it at at a conference one day, and there's this booth with fox Con batteries and like, you guys do batteries, Like yeah, and we developing technology. It's all chemistry right at the end of the day. Um, I don't know if there'll be a big player in it,

but they certainly have that option. And I guess it comes down to who can get the lithium supply, um, you know, But in terms of the rest of it, I think, um interestingly enough, you go back to their roots connectors, Like inside a car, there is a lot of connections, there's a lot of wiring I think, if you know, we look inside Boweing or an airbus, yet there's like miles and miles and miles of cables and

connectors and stuff. A car is kind of similar. So the connectors is definitely a great business for them to be in. And then a lot of the components like the windscreen, wiper, the lights, all of those things just have a little motherboard with some current components solded onto it, and so they don't necessarily need to get the big

ticket items. They could just take off a lot of the kind of the smaller items and just get a lot of them inside a car and just be that company that does know these ten things really really well that no one else can do, and and enjoy the margins from there. Tim colpen real treat to have you here in the studio, and this is totally new for me. I had no idea that fox Con was aiming for this space, but it seems like an important part of the story. So appreciate you coming back on the oddlock.

Thank you for having me. It's being fun. Thank you, Tim, and thank you for the pineapple cakes. I love talking about semiconductors while eating the real reason we had Tim ufen. No, that was great. Thank you so much, Tracy. I really thought that was interesting. I didn't realize the history of fox Con. I mean I just basically sort of only missed him said more or less ever heard of the company around when the sort of you know, when the sort of infamy of their iPhone production was in the news.

But it's interesting that the sort of like real origin heyday was in the nineties. I had no idea that like those were like super boom times, right, because everyone thinks, oh, assembling iPhones, you probably make loads of money off of that, but actually it's building the sort of modular components for

I didn't realize that these those modules. Yeah. The other thing that stuck out for me from that conversation was just the idea of a company like fox Con becoming more of a force in the e V space by virtue of building those components and in some respects demanding standardization.

And I wish I could remember who exactly said this, but you know, there was a school of thought that in the future, insurers we're going to be these massive influencers on society and the economy because they're the ones that are ultimately pricing um and sort of dealing in risks.

So they were the ones setting safety standards, and I kind of I think about that with relation to something like Fox con if they're the ones building the compon oponents and setting the standards for some of the things going into e v s, and you know, to Tim's point, obviously they have to comply with government standards as well, but there are other things that can influence. It feels

like they just become a really big force in the space. Absolutely, it feels like the existing automakers obviously Tesla, but Tesla side, but it seems like the existing automakers definitely do not want to become Dell and Hewlett Packard and Comback and Zero's and Tandy in Gateway and just be like pure boxes on a bunch of components that are all identical in no margin. But on the other hand, like you know, car,

I don't know car. You know, it's like cars all kind of looked the same, but of course car people would what but they were like wildly different, a bunch of angry emails. There's a lot of similarities between cars,

especially these days, they'll kind of look the same. Well, I mean, it does feel like there is this massive tension between fox Con and it's potential customers in the form of EV manufacturers, and it's you know, it's not again dissimilar to maybe the relationship between Apple and fox Con, but it's going to be really interesting to see how it shakes out. And it does feel like a bit of a power struggle potentially. Yeah, and either way, it is going to be different than PCs or the iPhone

because of this. There's also it's almost certainly going to be the US car market is served by US manufacturing, whether it's a fox Con factory, whether it's a Rivian factory, whether it's a GM factory. It's going to be domestic. So it's not going to be this sort of like let's build a bunch of cheap stuff in Asia for shipping over there's probably some component shipping, but it will still be something of a new model that's different than fox Cons path past. It seems like it all right,

shall we leave it there? Let's leave it there? All right? This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway, and I'm Joe. Why isn't thal you could follow me on Twitter at The Stalwart, and follow our guest Tim Colpen on Twitter. He's at t Colpen. Follow

our producer Carmen Rodriguez at Carmen Arman. Follow the Bloomberg head of podcast, Francesca Levie at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.