iPhone manufacturer Hon Hai to establish electric car venture with Fiat

Shares of the company were up as much as 2.7 per cent on Friday, their biggest intraday rise since mid-November

FILE PHOTO: The logo of Foxconn, the trading name of Hon Hai Precision Industry, is seen on top of the company's building in Taipei, Taiwan March 30, 2018. REUTERS/Tyrone Siu/File Photo
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Hon Hai Precision, the main assembler of Apple’s iPhones, will establish a joint venture with car giant Fiat Chrysler to develop and make electric vehicles in China.

Hon Hai and its subsidiaries will hold 50 per cent of the venture and Fiat the rest, the Taiwanese company said in an exchange filing.

While the two companies have yet to sign a formal agreement, they plan to target the Chinese market first and consider exporting cars later. They aim to sign the agreement in the first quarter, according to a person familiar with the matter, and Hon Hai’s Hong Kong-listed unit FIT Hon Teng will also be involved.

Fiat Chrysler declined to comment beyond the filing.

Shares of Hon Hai were up as much as 2.7 per cent in Taipei trading on Friday, their biggest intraday rise since mid-November.

Hon Hai seeks 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 per cent of revenue in the long run, chairman Young Liu said.

“Hon Hai will be responsible for design, components and supply chain management,” he said, 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 EVs 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 have not been entirely successful. The company has tried to invest in a number of EV ventures but none has borne fruit.

Hon Hai, which competes globally with the likes of Flex and Jabil, 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, there’s scope for a real opportunity here,” said Matthew Kanterman, an analyst with Bloomberg Intelligence.

While Hon Hai has limited automotive experience, it does bring enormous supply-chain understanding to the table, said Michael Dunne, chief executive of consultant ZoZo Go. Tesla’s chief executive Elon Musk told shareholders in 2014 that Foxconn was supplying some components to the EV pioneer.

From Fiat Chrysler’s perspective, the car maker has struggled to crack the Chinese market for years, and tightening fuel-economy standards and EV mandates make the task even more challenging.

Its market share in the world’s largest car market was less than 1 per cent in 2018, well behind Ford’s 2.3 per cent and General Motor’s 13.8 per cent.