The following report is a first of several parts looking at Taiwan and its firms' efforts to develop the island and its economy for greater ESG (environmental, social, governance)-related investments. Here, TriOrient Investments looks at how one of Taiwan's PC and smartphone assembly firms is transitioning into the electric vehicle (EV) industry and transform itself into an ESG leader.
Transitioning from PCs and Smartphones to EVs and ESG
Hon Hai Precision Industry (2317.TT), which is known globally instead as "Foxconn Technology," recently held its annual general meeting (AGM) on May 31st, followed by an announcement of its May revenues during the recent Dragon Boat Festival holiday on June 3rd. Shareholders at the AGM, as well as many investors around Taiwan and elsewhere, were keen to hear about the firm's developments in the electric vehicle (EV) sector, after it created its MIH EV Open Alliance in July 2021.
In terms of its revenues, the firm enjoyed a better-than-expected May performance. This was in contrast to the mixed results announced by many firms in Taiwan recently given a resurgence of the COVID-19 pandemic in China that both forced their production lines to be halted or has resulted in weakened demand both in China and globally. Instead, Hon Hai Precision Industry’s revenues rose 2.33 percent mom and 9.39 percent yoy to NT$497.78 billion, a new high for May, while its year-to-May revenues were also a record high at NT$2.39 trillion, up 4.07 percent yoy.
Meanwhile, what shareholders heard at the AGM from Chairman Liu Young-way was that the Hon Hai Group’s efforts to deploy its MIH EV Open Alliance globally are beginning to take shape. He added that the company wants to bring MIH members onto the global stage. He said Foxconn has invited some MIH members to visit its factories in the United States and Thailand, as noted by Digitimes Asia. The alliance, as noted on its official web site, is a consortium focused on creating an open EV ecosystem that promotes collaboration in the mobility industry. This focus aims to bridge the gap between the alliance’s members, which now number around 2,300 firms globally, in the ecosystem, resulting in a lower barrier to entry, accelerated innovation, and shorter development cycles.
With that, the alliance’s goal is to bring the strategic partners together to build the next generation of EV, autonomous driving, and mobility service applications.
Indeed, the Hon Hai Group itself has made important progress in the EV space and has forged partnerships with international EV branded manufacturers such as Lordstown Motors Group (RIDE.US) and Stellantis NV (STLA.IM), among others.
Photo credit: FocusTaiwan and CNA.
At the same time, the alliance is assisting the Hon Hai Group's efforts to shift from its long-time role as being an original equipment manufacturer (OEM) and original design manufacturer (ODM) for Apple (AAPL.US) and its smartphones as well as other devices to instead becoming an ESG (environmental, social, governance) leader.
Since the AGM and revenue announcement, analysts have begun to also comment on the transformation going on at the group. In particular, Bloomberg’s Tim Culpan noted that the move from being an assembler of Apple’s devices to an EV leader are in a way returning the Hon Hai Group back to its earlier business model. As Culpan comments:
“Consider, if you will, a scenario where Foxconn Technology Group enjoys margins three times fatter than Apple Inc. That may be hard to imagine because the developer of iPhones is one of the largest companies in the world, earning close to $100 billion annually, while the one that makes those devices brings in 5% of that.
But this was once the case. The year was 1996, and Hon Hai Precision Industry Co. — Foxconn’s flagship — posted a gross margin of 31% while Apple delivered just 9.8%. It was a historic low for the Cupertino company, during Steve Jobs’s hiatus from the business he founded. It was also a record high for the Taiwanese electronics manufacturer. The roles have since switched and last year they posted figures of 42% and 6%, respectively.”
The Hon Hai Group’s deepening efforts in not just the EV segment but also to improve its ESG-related investments and performance are important, not simply for the group itself but for Taiwan as well.
For the latter, Taiwan is seeking to both attract firms back to the island to set up plants amid a global supply chain reshuffle away from China while at the same time Taiwan is increasingly relying on renewable energy to power its economy.
In the next part of this report, TriOrient Investments’ research team will look at how Taiwan is quickly ramping up its involvement with global ESG trends as it undergoes a manufacturing rebirth on the island after years of watching its factors move offshore to lower cost locations.
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Disclaimer: Blog posts and other information on TriOrient Investments' web site (3-orient.com) do not constitute investment advice. TriOrient Investments is a private company and does not accept outside funds for investment, nor does it divulge trading activity, nor provide recommendations of any kind to buy or sell any kind of investment product. This material is provided for informational purposes only. The views expressed regarding market, economic, industry or corporate trends are those of the authors and are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets, sectors or firms will perform as expected.
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