Foxconn held its Tech Day on October 18, 2023, where Chairman Young Liu addressed the company’s stance and strategy in response to the high growth of the EV market in mainland China, which significantly impacts the global EV industry.
Liu began by discussing the prevailing trend of electric vehicles in China, emphasizing that while the focus has primarily been on the development of EVs, the business model has received limited attention. Foxconn’s approach in the EV industry centers on its Commissioned Design and Manufacturing Service (CDMS) business model, but Liu stressed that in China, CDMS alone is not permitted. Automakers in mainland China must engage in both manufacturing and sales.
Liu explained that the CDMS model doesn’t involve the creation of Foxconn’s own brand, a practice currently disallowed in mainland China. However, the competitive landscape is shifting, with fierce competition, particularly among domestic automakers. With an estimated 100 to 200 automakers in China, the market has become increasingly intense, prompting a focus on minimizing costs and investments. In this context, Foxconn’s CDMS model emerges as a viable solution, as investing in 100 automakers would be prohibitively expensive.
Liu anticipates that China will eventually open up to the outsourcing model. While Foxconn isn’t currently engaged in EV manufacturing in mainland China, it’s gradually building relevant capabilities, preparing for the moment when outsourcing becomes permissible, enabling Foxconn to take a leading position.
Regarding the interest of Japanese automotive giants in Foxconn’s electric vehicles, Liu noted that their stance is clear. They consider themselves partners to established auto brands. Traditional automakers have traditionally covered all aspects, transitioning from internal combustion engines to batteries. However, in the age of electric vehicles, the shift can no longer be about the engine as a barrier to entry into the industry. Traditional automakers must now contemplate how to create value, which represents their most significant challenge.
Manufacturing, Liu noted, is no longer the source of value that traditional automakers can create. Instead, they should focus on marketing and services. It involves understanding how to leverage apps and scenarios to offer consumers unique experiences. Traditionally, brands like Mercedes-Benz stood for luxury, while BMW represented driving performance. In the era of electric vehicles, positioning needs to shift toward services rather than engine definitions.
Liu offered the analogy of televisions to illustrate his point. Sony was a leader during the cathode-ray tube era, but as the market transitioned to liquid crystal displays, the focus shifted to panels, and every brand became indistinguishable. Liu’s advice to potential Japanese automotive partners is to delve deeper into understanding the users, emphasizing that this will be critical in the age of electric vehicles.
