Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. Tracy, you know
Speaker 1: what I was thinking, Like, there's so much attention to
Speaker 1: Elon Musk and all of his controversies and the things
Speaker 1: that he does in his personal life and Twitter and
Speaker 1: potentially buying Twitter and the tweets and everything. I think
Speaker 1: sometimes people forget like what an extraordinary success or what
Speaker 1: an extraordinary company, just like Tesla has been over the
Speaker 1: last decade. Oh boy, where to start? Well, first of all, um,
Speaker 1: a cynic might say that Elon Musk courts that kind
Speaker 1: of controversy quite actively and that maybe if he wanted
Speaker 1: the focus to be on what Tesla was doing, um,
Speaker 1: he could go about it a different way. But anyway, Yeah, Tesla, Tesla,
Speaker 1: I mean, just looking at the share price, it's down
Speaker 1: obviously from its peak, but over its history it's you know,
Speaker 1: a very successful company from a purely financial basis or
Speaker 1: just looking at the share price. Yeah, And you know,
Speaker 1: like when I think about the last decade, obviously it
Speaker 1: was about the rise of software. Software is eating the world, Uh, cryptocurrency,
Speaker 1: all these sort of things that just like existing code.
Speaker 1: And here's a company that became the biggest car company
Speaker 1: in the world at least by market cap, by actually
Speaker 1: manufacturing something that is actually built. And so this was
Speaker 1: a decade in which people weren't really into manufacturing and
Speaker 1: really weren't into capital intensive businesses. And yet during that decade,
Speaker 1: this one company is sort of like just extraordinarily well
Speaker 1: at a time when that wasn't really that cool. Right, Okay,
Speaker 1: so this is possibly one of the few things that
Speaker 1: you cannot fault elon must for it. But he certainly
Speaker 1: likes to make things right. And you can debate whether
Speaker 1: or not those things are realistic, but everything from electric
Speaker 1: cars to flame throwers to you know, tunnels underground satellite
Speaker 1: launching equipment that starlink. Yeah. Um, he makes things at
Speaker 1: a time when the emphasis wasn't really on making things.
Speaker 1: It was on software, as you mentioned, and sort of
Speaker 1: the ephemeral stuff, big ideas and changing the world through
Speaker 1: technology but not necessarily tangible technology. Right, And of course
Speaker 1: one of our themes, and it's something that we hit
Speaker 1: on with a lot of our Commodities episodes and you know,
Speaker 1: some of our conversations with Jeff Curry and all kinds
Speaker 1: of things that we've been doing over the last year
Speaker 1: has been about this sort of the revenge of the real,
Speaker 1: the tangible economy actually putting stuff together. It's really hard,
Speaker 1: but it's sort of it feels like this sort of
Speaker 1: like physical engineering is going to be one of the
Speaker 1: huge themes of this next decade. Yeah, I think that's right.
Speaker 1: And again I think maybe we're so used to thinking
Speaker 1: about technology as like a search engine or a software company,
Speaker 1: but it feels like that might be starting to change.
Speaker 1: And nowadays when people think about technology, when they think
Speaker 1: about technological prowess, it feels like a lot of people
Speaker 1: think about things like semiconductors and chips and the actual
Speaker 1: physical components that drive that kind of technological innovation. Yeah.
Speaker 1: And so when you think about like manufacturing tech, right, like, okay,
Speaker 1: we're talking about who's may have acturing, you might think
Speaker 1: of Taiwan Semiconductor, which of course we've done episodes Intel,
Speaker 1: And then another name that has to come up in
Speaker 1: all of that has to be fox Con, which everybody
Speaker 1: knows is basically the company that makes the iPhones, the
Speaker 1: company that is sim Yeah, that's right. So I think again,
Speaker 1: this is sort of one of the big themes that
Speaker 1: has come out of the past couple of years in
Speaker 1: the global pandemic, but also even the trade war before that.
Speaker 1: But we all are intensely aware now of how these
Speaker 1: tech supply chains actually work and where things are made
Speaker 1: and who is putting them together. Yeah, and so did
Speaker 1: you know, Well, I didn't know that until recently. Did
Speaker 1: you know that fox Con itself wants to get into, uh,
Speaker 1: the electric vehicle game? I didn't know that either. I
Speaker 1: know that the head of fox Con, Terry Coo, I
Speaker 1: know he's he's a he's an ambitious guy, he has plans,
Speaker 1: But I didn't know about this specific space. So yeah,
Speaker 1: I'm interested in learning more about it. Yeah, and I
Speaker 1: think you're sort of like, it's hard to understand the
Speaker 1: world over the last several decades without understanding the trajectory
Speaker 1: of fox Con and so the fact that they want
Speaker 1: to be a player and ev is really interesting. So
Speaker 1: I think we should talk about it. Let's do it,
Speaker 1: all right. I'm very excited because in studio with us,
Speaker 1: this is a real treat. In studio with us, we
Speaker 1: have a colpen. He has a Bloomberg opinion columnist normally
Speaker 1: based in Taipei. But he is here in studio with us,
Speaker 1: and he is going to talk He knows all about
Speaker 1: Fox count. We'd actually I think we had him on
Speaker 1: last year to talk about Taiwan semi, so he knows
Speaker 1: about the world of manufacturing, the real economy that most
Speaker 1: people forgot over the last decade. Knows a lot about it.
Speaker 1: Plus he brought us pineapple cakes, so you know, he
Speaker 1: automatically gets an episode thanks to thanks for the pineapple cakes.
Speaker 1: To no worries, I apparently listeners. If you do want
Speaker 1: to get onto the Odds podcasts, you just have described
Speaker 1: Tracy and Joe with with goodies, and Tracy really likes sweets. Okay,
Speaker 1: I don't know Tracy's opinion on Elon Musk, but I
Speaker 1: know that Tracy likes sweet So yes, if you want
Speaker 1: to get on odd Loads, send Tracy a pineapple cake
Speaker 1: or some other pastry and you will probably get invited.
Speaker 1: It's really that easy. Uh, Tim, Great to have you,
Speaker 1: Great to have you here. What is Fox con Oh,
Speaker 1: I didn't expect you to give me such an opening
Speaker 1: and the question. All right, So so our producer Carmen
Speaker 1: is going to have to cut this after about three
Speaker 1: hours when you give me that question, what's interesting, I'm
Speaker 1: going to go back in time in history, if you'll
Speaker 1: indulge me. I think everyone first started to learn about
Speaker 1: fox Con. That was when the the unfortunate suicides happened
Speaker 1: and the company became famous because of it. And there's
Speaker 1: about a dozen suicides that year. Uh and even fox
Speaker 1: Con chairman and founder Terry Ware at first there was
Speaker 1: a couple of suicides, and he admitted to to us
Speaker 1: when we interviewed him at that time, I didn't think
Speaker 1: it was a big deal. And to put it in
Speaker 1: in in context, at the time, they had about a
Speaker 1: million employees. So if you go to any town in
Speaker 1: America and China and anywhere in the world, you know,
Speaker 1: with the million employees, it's unfortunately you're going to have,
Speaker 1: you know, a couple of suicides. It's just an unfortunate reality.
Speaker 1: So he didn't think it was a big deal. But
Speaker 1: after about the fifth he's like, oh, we've really got
Speaker 1: an issue here. And of course it got a lot
Speaker 1: of global attention from from everybody, including US Bloomberg and
Speaker 1: Bloomberg Business Week. But that's really what put fox Con
Speaker 1: on the radar. But they've been going since the mid seventies,
Speaker 1: Terry Gore, who was born in Taiwan, was one of
Speaker 1: the first people to embrace shen Jin in China across
Speaker 1: the other side of the Taiwan straight He went there
Speaker 1: at the time when China had decided that shen Jen
Speaker 1: would be this special economic zone and China was just
Speaker 1: starting to open up to the world, and Terry Guare
Speaker 1: was very quick to embrace it. He saw a real potential. Obviously,
Speaker 1: cheap labor was was a real draw card, but he
Speaker 1: saw a potential for a very large labor pool and
Speaker 1: also the fact that there could be a supply chain
Speaker 1: building there. So he was one of the first people
Speaker 1: to say, you know what this this is the place
Speaker 1: to be. And so he went and set up shop there.
Speaker 1: And one of the kind of the craziest ways or
Speaker 1: simplest ways that he could get higher he could hire
Speaker 1: employees because there was a lot of competition for for
Speaker 1: labor at the time, was that he decided to just
Speaker 1: treat them a little bit better than other employers in China. Now,
Speaker 1: people look at the Fox con scan and say, you know,
Speaker 1: they're a sweatshop and they're terrible on staff, and you know,
Speaker 1: treat labor badly. Actually in context, um, and I sound
Speaker 1: like a bit of a Fox con apologist here, but
Speaker 1: in context, they did actually treat their employees in the
Speaker 1: early days and right through their history actually a lot
Speaker 1: better than than a lot of employees employers do in China.
Speaker 1: And so one of the first things Terry Gore did
Speaker 1: was he said, Okay, I want all of my my
Speaker 1: workers to eat well, So every single one of them
Speaker 1: would get an egg a day so they could get
Speaker 1: a bit of protein. That was kind of a bit
Speaker 1: of a way out idea at the time. This was
Speaker 1: just to be clear, this was in the eies, seventies,
Speaker 1: and and so Terry War is not an electronics guy.
Speaker 1: Most people in the tech industry have a tech background.
Speaker 1: They have an electronics background, um, maybe electronic engineering. Terry
Speaker 1: War studied a maritime college in northern Taiwan, so he
Speaker 1: really started shipping and logistics, and then he moved into plastics.
Speaker 1: So he's he's kind of opening business was plastic injection molding.
Speaker 1: And if you think of Taiwan in the seventies and eighties,
Speaker 1: it was known as you know, made in Taiwan, cheap
Speaker 1: plastic toys, Barbie dolls, and everything else was made in Taiwan,
Speaker 1: so that was his business. He was a plastics guy.
Speaker 1: One of his first things was to make the little
Speaker 1: plastic tuner knobs on our c A t v s.
Speaker 1: And over time he went more and more into plastics
Speaker 1: and uh and when the electronics boom happened from you know,
Speaker 1: the eighties, he he started getting into the business and
Speaker 1: making the connectors that would connect to say, your printer
Speaker 1: to your PC, or your atari to the television. And
Speaker 1: if you remember, you know, those of us of age
Speaker 1: can remember, they are flat cables with two thirty six pins.
Speaker 1: They were kind of difficult to make, and so if
Speaker 1: you could work out ways to make these connectors, you
Speaker 1: could get pretty fat margins. And so the name fox Con.
Speaker 1: The con in fox Con is connector. That's that's where
Speaker 1: the name comes from. And as an interesting aside, his
Speaker 1: brother runs a company called fox Link, which does the
Speaker 1: cable part, the boring cable that goes between the two connectors. Now,
Speaker 1: of course that's not as exciting anymore because pretty much
Speaker 1: everybody's on USB and FireWire and everything else. But back
Speaker 1: then there was like sixty different types of connectors, and
Speaker 1: and since then they have basically been a component company,
Speaker 1: and so we think of them as being a company
Speaker 1: that hires a million workers, you know, at peak time
Speaker 1: to to assemble iPhones. But if you look at the
Speaker 1: numbers um you know, back in the mid nineties when
Speaker 1: the PC boom was happening and people like Michael Dell
Speaker 1: and others decided that they want to be into the
Speaker 1: in the PC business, fox Con got into the business
Speaker 1: of just creating the components. They weren't really assembling that much.
Speaker 1: They were doing the components that went inside. And if
Speaker 1: you ever opened up a desktop PC, you'll see the
Speaker 1: motherboard inside and there's just all sorts of componentry welded
Speaker 1: to the motherboard. That's the business that fox Con was in,
Speaker 1: and that's to this day kind of the business they're
Speaker 1: in right now. We just don't really think of it
Speaker 1: because it's not a sexy But I'll tell you one thing, guys,
Speaker 1: the margins are really, really, really good. So their gross
Speaker 1: margins were over thirty and if if anyone really kind
Speaker 1: of dives into, you know, the margins business, I knew
Speaker 1: you've had. Stacy has gone on co cover Semis is
Speaker 1: a really nice gross margin and at the time Apple
Speaker 1: which was kind of at its worst period. INTI was
Speaker 1: doing ten percent gross margins, so they did very very well.
Speaker 1: Now in context, margins at fox Con dropped off over
Speaker 1: the next decade as they went more and more into assembly,
Speaker 1: which is not a margin business. I was going to ask,
Speaker 1: can you talk a little bit more about the difference
Speaker 1: between making components versus assembly and why what fox Con
Speaker 1: is doing, you know, was was somewhat unusual at the time,
Speaker 1: is my understanding? Yeah, no, that's I think that's a
Speaker 1: good question. So components, um, I mean, the most high
Speaker 1: level components are chips, right um time and semiconductor we
Speaker 1: talked about before, and that's that's the sexy part of
Speaker 1: the industry. But going down the supply chain, you get
Speaker 1: these chips and you put them onto a module, you
Speaker 1: well them together. There's other there's so many chips inside
Speaker 1: a computer or inside an iPhone that are kind of boring,
Speaker 1: you know, capacitors and and things that control the voltage
Speaker 1: withinside a computing system. Now, the thing about these is
Speaker 1: they self they sell for a dollar or two. They
Speaker 1: don't sell for a lot of money, but they're huge,
Speaker 1: huge volume, and because they're very very very specialized, um,
Speaker 1: it's not easy to swap out one component from another.
Speaker 1: So if you're a company like fox Con as they
Speaker 1: were in the nineties, and you work out exactly how
Speaker 1: to do exactly the right component with all the right
Speaker 1: specs and your client, it's all the PC makers electronics
Speaker 1: makers go, that's just the component I need. It's only
Speaker 1: a dollar, but I need it, and it's got to work.
Speaker 1: It can't you can't mess up. They will put in
Speaker 1: orders for millions of them. They buy them by the bucket.
Speaker 1: And if you're someone like Foxcon who can do that
Speaker 1: really well and set up a production system that makes
Speaker 1: them really well, you've got fat margins. So it's it's
Speaker 1: very high volume but low price. Like the price point
Speaker 1: is very low, but with fat margins, you can be
Speaker 1: a very very profitable company and you've almost got the
Speaker 1: market to yourself in some of these components, because the
Speaker 1: barriers to entry are quite high. And that's really the
Speaker 1: bread and butter of Foxcon. Even to this day, they
Speaker 1: make a lot of money from an iPhone from the
Speaker 1: components that go inside an iPhone rather than actually assembling
Speaker 1: an iPhone. How did Apple find fox came well? When
Speaker 1: Steve Jobs came back. Um, as we all know, the
Speaker 1: company was in trouble. They Apple was actually making their computers,
Speaker 1: like physically making them in California. But over the over
Speaker 1: a period of time, many companies, um, you know, Michael
Speaker 1: Dell and Heller, Packard, Compact and others were starting to
Speaker 1: outsource to Asia. And at some point during that period
Speaker 1: of time, Tim Cork who was who was operating officer
Speaker 1: at the time, he had not yet become CEO, would
Speaker 1: have discovered fox con and realized that, you know, these
Speaker 1: these guys make the components, we should probably get to
Speaker 1: know them. And they really jumped into bed deeply when
Speaker 1: the iPod came out in the early two thousand's and
Speaker 1: that was one of the really the first high high
Speaker 1: high volume electronics product after maybe um you know, the
Speaker 1: Sony Walkman, and no one else really had the kind
Speaker 1: of scale in n Jen to do it. So it
Speaker 1: was really started with the iPod era and it was
Speaker 1: only the iPhone that came almost a decade later, or
Speaker 1: less than a decade later. And when you know, Tim
Speaker 1: Cook needed someone to assemble this new gadget that nobody
Speaker 1: had ever heard of but heard rumors of Fox and
Speaker 1: was the place to go well on this question of
Speaker 1: like assembly. So you know, I'm sort of thinking about
Speaker 1: like actually our Taiwan Semi conversation, and you know Taiwan Semi.
Speaker 1: You know, just like over time like builds up an
Speaker 1: expertise to be able to manufacture chips at scale while
Speaker 1: making very few errors, and they just become really good
Speaker 1: at it. What is like, is it similar with fox
Speaker 1: con where just over time they just sort of build
Speaker 1: up this internal muscle or you know, you can come
Speaker 1: up with a new design. Here's the design of an iPhone,
Speaker 1: or sorry, here's the design of an iPod, And because
Speaker 1: they've just like built up this sort of like internal
Speaker 1: tacit knowledge of how to assemble things, It's just no
Speaker 1: one else can really do something like that at scale
Speaker 1: and have to be consistently good precisely. That's really really it.
Speaker 1: It's it's not that difficult to make one pizza. Try
Speaker 1: and make fifty pizzas and now or you know, a
Speaker 1: thousand pizzas, and now that's difficult because quality yield, right,
Speaker 1: the amount of products that you put through the production
Speaker 1: line that are usable at the end, that is very
Speaker 1: very difficult. Scale is really what it's all about in
Speaker 1: pretty much any industry, even in cars. You know, Tesla's
Speaker 1: struggles over the years have been about scaling, and so, yeah,
Speaker 1: you're right. They had built up this this knowledge base
Speaker 1: from making components so that when it came to things
Speaker 1: that were a bit more labor intensive, and they had
Speaker 1: used a lot of labor even for their components, this
Speaker 1: was the company that you would turn to. And you know,
Speaker 1: what is it a dozen years after the first iPhone
Speaker 1: came out, seventy iPhones are still made by Foxcon. Right,
Speaker 1: the Apple can't replace them. They're addicted to fox Con.
Speaker 1: I was going to ask what is the relationship like
Speaker 1: between those two entities, because on the one hand, okay,
Speaker 1: fox Con providing a valuable service for Apple, clearly, but
Speaker 1: it feels like Apple is basically reliant on one supplier here. Yeah,
Speaker 1: I mean, it's it's it's a possibly an unhealthy I've
Speaker 1: argued for a long time, it's a very unhealthy codependence. Um,
Speaker 1: you know, there is really if you look at the
Speaker 1: tech industry globally or of the world in general. Um,
Speaker 1: you know, if if Apple was to disappear overnight, um,
Speaker 1: you know, we wouldn't get our ophines, and you know,
Speaker 1: maybe that wouldn't be a very nice thing, or Facebook
Speaker 1: disappeared that would be terrible, or some people might argue
Speaker 1: the opposite. But if if fox Con or t SMC
Speaker 1: were to disappear from the face of the earth overnight,
Speaker 1: we've been a lot of trouble because nobody can do
Speaker 1: what these two companies can do, and they even if
Speaker 1: they tried, and so many companies have been trying to
Speaker 1: replace fox Con. Apple doesn't want to be addicted to
Speaker 1: fox Con, right, It's just not healthy. It's not about
Speaker 1: them being a good or a bad company. It's just
Speaker 1: not healthy to have one supplier. So over the years,
Speaker 1: Apple has diversified away, ironically to mostly Taimeanese companies like
Speaker 1: with Troyn and Pegatron, and some Chinese companies too, uh.
Speaker 1: And of course they have diversified away from China to
Speaker 1: an extent in India and Brazil and other places. But
Speaker 1: really they can't help it. And fox Con is also
Speaker 1: unhealthily addicted to a fifty percent of their revenue comes
Speaker 1: from Apple, uh, and it's been that way for more
Speaker 1: than a decade. They brought in about two hundred and
Speaker 1: fifteen billion dollars of revenue last year fox Con and
Speaker 1: half of that came from Apple, So they can't do
Speaker 1: that Apple unless they get into the EV business. The
Speaker 1: hottest gadget or one of the hottest gadgets in the
Speaker 1: world right now is the electric vehicle, and Tesla is
Speaker 1: the leader. But we know that every uh, every car company,
Speaker 1: um wants to get into e v s and they're
Speaker 1: spending a lot of money and actually rolling out cars
Speaker 1: and some of them seem to be decent. Before we
Speaker 1: get into fox CON's ambitions in the space, how is
Speaker 1: manufacturing a car historically different than manufacturing electron I mean,
Speaker 1: my guess is, like GM and Ford at all, they
Speaker 1: have their own plants, they're in the United States. They
Speaker 1: don't just like make a design and send it to
Speaker 1: some other company to build. They actually build it themselves.
Speaker 1: But how would you compare and contrast the sort of
Speaker 1: like existing legacy approach to building a car versus the
Speaker 1: existing approach to building a phone. Well, at the end
Speaker 1: of the day, yeah, no, I think it's a fair
Speaker 1: point at the end of the day. I mean, car
Speaker 1: companies don't want to admit it, but all cars are
Speaker 1: kind of similar, right um now, where there is a
Speaker 1: differences in engines. Right, So companies like Toyota and Ford
Speaker 1: and the Europeans as well, have have worked a lot
Speaker 1: on on engine design and and car buffs will say, well,
Speaker 1: this engine, this you know V six or this straightforward
Speaker 1: whatever is is a better engine. And a new car
Speaker 1: comes out with a new engine and people love it
Speaker 1: or hate it. But the other part, that kind of
Speaker 1: the the I P is in how you make it.
Speaker 1: And Toyota, i guess, is most famous for their production
Speaker 1: system that just in time and all of that um
Speaker 1: and again it comes back to the issue of scale
Speaker 1: and quality and yields and so forth. So the very
Speaker 1: process of producing a car is in some ways that
Speaker 1: secret source. And so if Toyota, for example, or Ford
Speaker 1: was to work out exactly the right way to make
Speaker 1: a car over and say a ten year production run, um,
Speaker 1: it's kind of a thing that they wouldn't necessarily want
Speaker 1: to hand out to somebody else. But the other thing
Speaker 1: is with safety standards. Um, you have to be very meticulous,
Speaker 1: and the way you produce a car is so connected
Speaker 1: to things like safety standards. And the final thing is, um,
Speaker 1: the product cycle of a car is much much much longer.
Speaker 1: We're talking like a decade, whereas you know the product
Speaker 1: cycle of a phone iPhone, Apple has the longest product cycle,
Speaker 1: which is about a year. But you know Samsung and
Speaker 1: shower Me or whatever, they come out with a new
Speaker 1: product like every three to six months or even less.
Speaker 1: So it's a very quick turnaround, and so they kind
Speaker 1: of need the external help to help put these devices together.
Speaker 1: I think that's really the difference. So walk us through
Speaker 1: fox CON's thinking here and what they see exactly as
Speaker 1: their competitive advantage. Because on the one hand, yes, EV
Speaker 1: is very hot right now, everyone is probably going to
Speaker 1: end up having one in the future. But on the
Speaker 1: other hand, especially in places like Asia, the market is
Speaker 1: incredibly crowded. It feels like a new EV manufacturer springs up,
Speaker 1: you know, every week or every month and then probably
Speaker 1: has problems soon after. But what exactly is the opportunity
Speaker 1: here and what does fox Can think it can do
Speaker 1: better than other EV manufacturers. Well, what's interesting, I think
Speaker 1: is that you think a fox Can has being the
Speaker 1: iPhone assembler, and you think, wow, if they're going to
Speaker 1: do evs, they're going to be all about the e
Speaker 1: V assembling with big factories like you'd see in Detroit,
Speaker 1: that's actually not quite their thinking. They are more thinking
Speaker 1: in the nineties model, which is in the ES when
Speaker 1: desktop PCs were, you know, the biggest thing out there.
Speaker 1: It was very modular. You open up a PC and
Speaker 1: it's very very modular, and you've got standard reference designs
Speaker 1: for what it would look like. And you know at
Speaker 1: that time you have you know, m D and Intel,
Speaker 1: we're doing the CPUs ah and fox Con could make
Speaker 1: a lot of those component parts and get good margins
Speaker 1: on it. They see e vs more similar to PCs
Speaker 1: than iPhones, and so they have reference designs. Right, if
Speaker 1: you want to go out like literally, if you had
Speaker 1: the money, you could call up fox Com tomorrow and say, hey,
Speaker 1: we want to make an EV. We don't have a clue,
Speaker 1: We've just got money, and fox going to like, all right,
Speaker 1: we've got a reference design. Literally, it is a design.
Speaker 1: It's a chassis with four wheels, and they can basically
Speaker 1: walk you through the process and for the right amount
Speaker 1: of money, you could have an EV, you know, in
Speaker 1: six months. And that's why you've got companies like Lordstown
Speaker 1: and Ribbing and all these other startups are actually turning
Speaker 1: to fox Con and saying, oh um, yeah, we we
Speaker 1: want to get into the e V business, maybe we
Speaker 1: would you know, get into bed with each other. Well,
Speaker 1: so when I think about like PCs in the nineties,
Speaker 1: and there were just so many of these brands and
Speaker 1: they basically just all sold the exact same boxes and
Speaker 1: it didn't turn out to be So there was Compact,
Speaker 1: an HP and or before that, I guess there was
Speaker 1: like yeah, tons of Gateway was another one, uh and
Speaker 1: then of course Dell more or less one that space.
Speaker 1: But it was like not a great victory because the
Speaker 1: actual like boxes, you know, they won, but it wasn't
Speaker 1: like the most amazing victory. Like do the car companies like, okay,
Speaker 1: if Fox if Fox CON's vision that evs will sort
Speaker 1: of be this modular thing and there's a few standard
Speaker 1: parts that they could all plug and play, Like, do
Speaker 1: car companies want that future? Now? Of course, car companies
Speaker 1: don't want that future anymore than PC companies want to
Speaker 1: have PCs to be modular because there's no competitive advantage.
Speaker 1: And that's why Apple went you know in another directions,
Speaker 1: remember Zeos, there was PCs. That's what we had. We
Speaker 1: had a we had a PC. And in my family,
Speaker 1: I think it's a company. Remember Tandy we had Yeah, so,
Speaker 1: um so, no PC company, no company wants wants to
Speaker 1: be standardized, right, They want to have everything to themselves.
Speaker 1: In fact, you know, if you look inside an iPhone,
Speaker 1: um you know, one of the funny things about an
Speaker 1: iPhone is, of course they have their own chips, a
Speaker 1: lot of their own things are very very specific to Apple.
Speaker 1: But in fact, there's there's quite a few components that
Speaker 1: go on an iPhone that are no different to a
Speaker 1: component that going to something else. But but Apple is
Speaker 1: very insistent with their supplies that they have their own
Speaker 1: stock coding unit and it's labeled differently, but it's basically
Speaker 1: the same part. It's just kind of the Apple version
Speaker 1: of that part. So I think absolutely, I don't think
Speaker 1: you know, Elon, Musket, Tesla or Toyota or Ford or
Speaker 1: any company that's going into the e vy era wants
Speaker 1: to have it standardized. But then again, they've got to
Speaker 1: make decisions where is our value add where is that
Speaker 1: competitive advantage is it to have you know, all our
Speaker 1: unique components. And in the car era, having your own
Speaker 1: unique engine, you know, was a standout right and that
Speaker 1: was a unique selling point I think so far in
Speaker 1: the e V era. I don't think anyone's going up
Speaker 1: to an e V and going, well, this is, you know,
Speaker 1: the the electronic version of you know, a V eight. Right.
Speaker 1: They of course they want range, they want power, they
Speaker 1: want what is it ridiculous mode and stuff like that.
Speaker 1: But if that can all be done in a in
Speaker 1: a standardized, modular way, then that would free up the
Speaker 1: e V makers to focus on the front team, which
Speaker 1: is the design, make it look cool, feature set, and
Speaker 1: then the back end, which is sales and marketing. And
Speaker 1: essentially that's what the PC industry is now. PC makers
Speaker 1: basically don't make anything. In fact, Apple doesn't really manufacture anything.
Speaker 1: They do the front team, which is the design. They
Speaker 1: outsourced all of the middle which is you know, putting
Speaker 1: it all together, and in the back end they worry
Speaker 1: about sales and marketing. And that's probably going to be
Speaker 1: the future of EV is certainly the way fox Con
Speaker 1: thinks it will be. And so there was all these
Speaker 1: PC makers in the nineties and most of them have
Speaker 1: disappeared or fox gone still around, and they's just applied
Speaker 1: to all of them, right, that's the way they survive.
Speaker 1: Fox Con doesn't do their own branding. They just apply
Speaker 1: to the brands and the new vision of fox Con.
Speaker 1: And they've got a new chairman now, a guy called
Speaker 1: you know, Young Way, who's who's an electronic engineer by training.
Speaker 1: He sees that future as being fox Con is not
Speaker 1: going back to the mid two thousands, but fox going
Speaker 1: back to the mid nineties. Guess what, that's when the
Speaker 1: margins were really really good. That's convenient. But it feels
Speaker 1: like to some extent, the EV manufacturers might not have
Speaker 1: a choice here, right because chips have been an issue,
Speaker 1: and if one of the largest suppliers of chips says
Speaker 1: we want to go in this direction, We're going to
Speaker 1: standardize to modular component building that sort of thing, it
Speaker 1: feels like they might just have to go along with it, Right, Yeah,
Speaker 1: I think so. I think that's a good way to
Speaker 1: put a treaty. You if the EV industry it is
Speaker 1: very very electronic, right, you know, every wheel has multiple
Speaker 1: chips just controlling it. Right, Um, cars there is more.
Speaker 1: There's more chips in your garage and there is in
Speaker 1: your lounge room. Right. There is so many chips inside cars,
Speaker 1: which is why with the chip shortage of the last
Speaker 1: couple of years, cars couldn't roll off the production line, right,
Speaker 1: but we still managed to get our iPhones. And so
Speaker 1: the e V era is definitely more and more electronic.
Speaker 1: And that's why in so many ways, and e v
Speaker 1: is more like a PC on wheels than then a
Speaker 1: Toyota af Ford with an electronic engine. Really, that's the
Speaker 1: way you need to think about it. Certainly, that's the
Speaker 1: way a lot of companies think about and that's the
Speaker 1: way Fox Coon thinks about it. And that's why componentary
Speaker 1: semiconductors are non semic conductor components. There will be standardization
Speaker 1: in theory. That's that's where the industry is moving. And
Speaker 1: that's what foxcon wants to do. They have a platform
Speaker 1: called m I H. They want to bring all of
Speaker 1: the company needs together. They want to bring in the
Speaker 1: chip makers, not just the carmakers, the chipmakers, the electronic makers.
Speaker 1: They want to bring them all together and set the
Speaker 1: standards and say we've got these standards. You can buy
Speaker 1: some of the components from us and some from somewhere else.
Speaker 1: Not a problem. You can buy all the components from
Speaker 1: us whatever you like. But fox con wants to be
Speaker 1: a part of it. So that as today, apart from iPhone.
Speaker 1: Pretty much every device you've got, whether it's a Dell
Speaker 1: PC or or a Cisco router or some webcam, there's
Speaker 1: probably some fox Con in there somewhere. That's what fox
Speaker 1: Con wants to be for e vs. So I'm guessing
Speaker 1: this is a well I'm guessing Ellen, they're not part
Speaker 1: of Elion's vision, Like, how does how does the fox
Speaker 1: cond vision of how the EV industry evolved contrast with
Speaker 1: Elon's vision of how the EV industry will evolve? Well,
Speaker 1: interestingly enough, fox Con does supply to Tesla, but it's
Speaker 1: just componentry um, not the final car. Now. Ellen said
Speaker 1: famously a few years ago, you know, evs are tough.
Speaker 1: This is not the kind of thing you can you
Speaker 1: can outsource to fox Con. I actually disagree. Fox Con
Speaker 1: obviously disagrees. I think it is the kind of thing
Speaker 1: you can outsource to fox Con. It's exactly the kind
Speaker 1: of thing you can outsource to fox Con. Now, of course,
Speaker 1: Tesla makes their own cars. They're they're building multiple factories
Speaker 1: around the world, and they believe that building cars is
Speaker 1: part of you know, the Tesla DNA and their competitive advantage.
Speaker 1: But if you if your fox Con or any of
Speaker 1: these other startups, then you probably think maybe not. And
Speaker 1: certainly to build your own car factory is is very,
Speaker 1: very expensive and there's no guarantee of payoff. Now what's
Speaker 1: interesting is how about the existing legacy car makers like
Speaker 1: the Europeans and the Japanese, the Koreans and of the Americans.
Speaker 1: Do they still want to make their own cars or
Speaker 1: will they at some point say, you know what, We're
Speaker 1: going to outsource a couple of models of our cars
Speaker 1: to somebody else, like a fox Con. So one of
Speaker 1: fox CON's partners is Stalantis, which is the merged group
Speaker 1: of of p s A and renown A, the European
Speaker 1: car makers. They are actually doing deals with fox Con.
Speaker 1: So we may see, you know, a European car come
Speaker 1: off for a fox Con production line in future, or
Speaker 1: certainly some of the components in these European cars may
Speaker 1: be made by fox Con. So I think the interesting
Speaker 1: question is not the startups who kind of need to
Speaker 1: have a fox Con, it's the legacy makers. Are they
Speaker 1: willing to embrace the fox com model and frank out
Speaker 1: The answer to this might be an obvious point, but
Speaker 1: part of the thing that is sort of surprising me
Speaker 1: here or I guess I should say the irony here
Speaker 1: is that it seems like we've had these discussions over
Speaker 1: the past few years about supply chain resiliency, We've had
Speaker 1: discussions about the semiconductor shortage, and it feels like the
Speaker 1: response to all of that might be to concentrate semiconductor
Speaker 1: production and assembly even more in a single entity. Um
Speaker 1: because they're sort of demanding market power or the ability
Speaker 1: to assemble cars in order to control the components that
Speaker 1: are going into them. Is that is that the direction
Speaker 1: that we're heading, Like, rather than see multiple competitors spring
Speaker 1: up in the space people start to retool their supply
Speaker 1: chains so that they don't rely on a single company,
Speaker 1: it feels like we're going in the other direction. Well,
Speaker 1: if you look at t SMC, I mean, they have
Speaker 1: like of the leading, leading, leading edge capacity. But interestingly enough,
Speaker 1: that is not the type of ships that have chips
Speaker 1: that have been in shortage. It's that the old stuff
Speaker 1: that the technology that's in ten or fifteen years old
Speaker 1: that's been in shortage. And one of the reasons why
Speaker 1: it's in shortage is because people have been moving forward,
Speaker 1: you know, the chip industry as as you guys have
Speaker 1: spoken about quite a few times. It's a very fast
Speaker 1: moving industry. You know, Moore's law means that every couple
Speaker 1: of years you upgrade your technology. But a lot of
Speaker 1: the chip designers didn't really want to move up the
Speaker 1: supply chain or you know, the technology stick because they
Speaker 1: didn't need to. So that's where we are with the shortage.
Speaker 1: But going forward, I think there's going to be a
Speaker 1: lot of government involvement. Obviously, the US government Congress is
Speaker 1: kind of duking it out over the Chips package that
Speaker 1: Chips Act. Europeans are doing a similar one. They would
Speaker 1: like to have control of the chip industry in more companies,
Speaker 1: or at least in companies from from their domiciles. So
Speaker 1: obviously Intel wants to get in on the game. There's
Speaker 1: European makers, but at the same time they all everybody
Speaker 1: wants a t SMC factor in their backyard, right t
Speaker 1: SEMC is the most popular company in the world for
Speaker 1: for you know, economic economy ministers, because they all want
Speaker 1: to get t SMC over there. But if you look
Speaker 1: at fox Con, what's interesting with cars is, you know,
Speaker 1: it's just not as easy that you can't pack up
Speaker 1: sixty cars in a box and put them on a
Speaker 1: on a FedEx slide. Right, So this is a really
Speaker 1: smart way for fox Con to to diversify geographically. Now,
Speaker 1: no matter what you think of the tech cold War,
Speaker 1: is it overblown? Is it unfair? Will blow over? Um,
Speaker 1: It's really not smart to have all of your supply
Speaker 1: chain in one area. In the same way, it's not
Speaker 1: smart to have so much of your supply from one
Speaker 1: or two companies like fox Con and tier SMC. It
Speaker 1: just doesn't make sense to have all of the supply
Speaker 1: chain in you know, the Shenjen area or jung Jol
Speaker 1: area of China. Fox Con knows that. But by moving
Speaker 1: into e V s as they are, they've you know,
Speaker 1: they've got a plant in Ohio, They've got this factory
Speaker 1: in Wisconsin which may or may not make e vs.
Speaker 1: They're looking at India and Indonesia and we'll probably see
Speaker 1: something in I would guess, Mexico East in Europe. Great
Speaker 1: way to diversify your geographical locations because it makes sense
Speaker 1: to have your car production closer to where your your
Speaker 1: market will be. Yeah, I want to expand on this
Speaker 1: further because like right, like if you think about as
Speaker 1: you mentioned, uh, the era where they're selling like, you know,
Speaker 1: millions of dollar capacitors by the bucket, and that's very
Speaker 1: easy to manufacture in shen Zen and then put on
Speaker 1: a boat. Clearly, the geography of automobile manufacturing is already
Speaker 1: much more localized. And you don't see GM or Ford
Speaker 1: manufacture car in China for the purpose of shipping it
Speaker 1: to the United States that they set of factories in
Speaker 1: Georgia or Tennessee and still in Michigan or elsewhere. And
Speaker 1: so it does seem as though this would yeah, I mean,
Speaker 1: the economic the weight of car components just this year, size,
Speaker 1: the cause of them, um, it seems like it has
Speaker 1: to be much more geographically dispersed. Yeah. Absolutely, And and
Speaker 1: that's just a really nice segue for fox Con to
Speaker 1: have less of their production capacity in one geography. Uh.
Speaker 1: And they don't have to be announcing that they're picking
Speaker 1: up and leaving China. They just you know, all of
Speaker 1: their extra every extra dollar of capex that they put
Speaker 1: into something over the next few years just happens to
Speaker 1: not be in China for for solid economic reasons. And
Speaker 1: so I would predict that, say, ten years from now,
Speaker 1: a lot less of its balance sheet in terms of
Speaker 1: factory and equipment will be in China, and it won't
Speaker 1: be a case of them upping and leaving China, will
Speaker 1: just be a natural kind of evolution away from China.
Speaker 1: And I think that's exactly what fox Con and its
Speaker 1: clients would want. So I know you talked about, um
Speaker 1: the sort of the historical experience that lends itself to
Speaker 1: fox Con moving into this area of evy assembly sort
Speaker 1: of doing a similar thing to what they did with
Speaker 1: PCs in the nineties. But are there any stumbling blocks here,
Speaker 1: like what is the biggest challenge in moving to that
Speaker 1: production model? I think one of them, Um, that's that's
Speaker 1: a really good point, and that's the kind of thing
Speaker 1: that probably even catch out fox Con. And I think
Speaker 1: one of them is regulation. Cars are very very regulated,
Speaker 1: right um in terms of safety standards. You know, there
Speaker 1: was emission standards, but obviously that doesn't quite apply to
Speaker 1: e v s, but there's various types of standards. And
Speaker 1: if you're going through the process of setting up a
Speaker 1: reference design, UM and you're slotting in different components, even
Speaker 1: like what kind of seats and you know the seats
Speaker 1: going to buckle up electronically or breaking and all the
Speaker 1: other things like, for example, Tesla had a minor problem
Speaker 1: recently where the chip inside that center console was kind
Speaker 1: of overheating, and that made it difficult because everything is
Speaker 1: control by the center console of a Tesla UM you
Speaker 1: basically kind of had to reboot the car to to
Speaker 1: make it work. Now, there was no safety issue involved
Speaker 1: in that, but it highlights the issue that as we
Speaker 1: get more and more electronic, the electronics are very important.
Speaker 1: I think we will see safety regulators in the US
Speaker 1: and Europe and elsewhere. I want to be much more
Speaker 1: cognizant of that. And so this could be a real
Speaker 1: problem for Fox Gone, or maybe it's an opportunity for
Speaker 1: Fox Gone, because if they can get into the process
Speaker 1: of getting the parts or components or half assembled cars
Speaker 1: go through that safety standard check and licensing themselves with
Speaker 1: the Europeans or the Americans or Japanese or whomever, then
Speaker 1: they could possibly sell that to the client and say, hey,
Speaker 1: this part of the process, the chassis with the seats
Speaker 1: and the engine have already gone through compliance. It's been
Speaker 1: ticked and signed off. You should buy from us. Or alternatively,
Speaker 1: the carmakers may find that's not working for them because
Speaker 1: you know, Fox con doesn't do that or doesn't provide that,
Speaker 1: and that's the carmakers specialty. They may decide, Actually it's
Speaker 1: still better for us to do this ourselves because the
Speaker 1: design process is very much focused around, you know, safety,
Speaker 1: building in the safety at the start of that process. Now,
Speaker 1: comparing that to the PC area of the nineties, as
Speaker 1: your point out, Tracy, there really wasn't that issue. You know,
Speaker 1: if Michael Dell wants to cobble together a computer, you know,
Speaker 1: in his garage in round Rock, Texas, he doesn't have
Speaker 1: to go off to some regulated who gets signed off
Speaker 1: for safety. And so anyone could put together a PC
Speaker 1: from kind of standard parts. So I think regulation and
Speaker 1: safety standards will probably be the biggest kind of challenge
Speaker 1: the Fox Can anyone, anyone who wants to get into
Speaker 1: the e V space will face. So I just have
Speaker 1: two more questions. One is sort of quick, how big
Speaker 1: is Fox Can I guess I don't know from a
Speaker 1: revenue standpoint these days, And how big does it see
Speaker 1: or how big could this market get or how important
Speaker 1: could it get for Fox Car. So their revenue last
Speaker 1: year was around twoundon fifteen billion U S dollars by comparison,
Speaker 1: Apples was threound sixty three D and seventies, so about
Speaker 1: two thirds of what Apples was. Interestingly, by comparison, uh
Speaker 1: t SMCS revenue last year was only fifty six billions,
Speaker 1: so it's like less than around a quarter of what
Speaker 1: fox Cons was, But of course t SMCS margins are
Speaker 1: exponentially higher. So that's that's putting introspective of where we
Speaker 1: are today. But going forward, Fox con just recently put
Speaker 1: out some of their own targets and they think that
Speaker 1: they are they're targeting to ship five hundred hundred and
Speaker 1: fifty thousand e vs annually by five, and they see
Speaker 1: that translating to thirty four billion US dollars of revenue
Speaker 1: by five, So you know, back of the envelope number,
Speaker 1: that means they would expect revenue of around forty five
Speaker 1: thousand dollars per car. So there's already a pretty significant
Speaker 1: chump of the of their business. Huge. That's huge, right,
Speaker 1: And even if they got really bad margins out of that,
Speaker 1: you know, one percent margins on forty five thousand dollars
Speaker 1: is a lot better than tempercent margins on a one
Speaker 1: thousand dollar IPHI. Yeah, that's it. So then I guess.
Speaker 1: The other question I have too is like the you know,
Speaker 1: the other thing, the big the key component in a
Speaker 1: electric cars obviously the battery, and there's a lot of
Speaker 1: effort a is that an area that they could ever
Speaker 1: get into? Try to get into the battery itself, which
Speaker 1: is really seems like a very tough business. But be
Speaker 1: battery aside, what are the components that they have like
Speaker 1: the best shot at building They are actually in the
Speaker 1: battery business. They're not a huge player. They've developed their
Speaker 1: own battery technology in Taiwan. I didn't even know this
Speaker 1: until just stumbled upon it at at a conference one day,
Speaker 1: and there's this booth with fox Con batteries and like,
Speaker 1: you guys do batteries, Like yeah, and we developing technology.
Speaker 1: It's all chemistry right at the end of the day. Um,
Speaker 1: I don't know if there'll be a big player in it,
Speaker 1: but they certainly have that option. And I guess it
Speaker 1: comes down to who can get the lithium supply, um,
Speaker 1: you know, But in terms of the rest of it,
Speaker 1: I think, um interestingly enough, you go back to their
Speaker 1: roots connectors, Like inside a car, there is a lot
Speaker 1: of connections, there's a lot of wiring I think, if
Speaker 1: you know, we look inside Boweing or an airbus, yet
Speaker 1: there's like miles and miles and miles of cables and
Speaker 1: connectors and stuff. A car is kind of similar. So
Speaker 1: the connectors is definitely a great business for them to
Speaker 1: be in. And then a lot of the components like
Speaker 1: the windscreen, wiper, the lights, all of those things just
Speaker 1: have a little motherboard with some current components solded onto it,
Speaker 1: and so they don't necessarily need to get the big
Speaker 1: ticket items. They could just take off a lot of
Speaker 1: the kind of the smaller items and just get a
Speaker 1: lot of them inside a car and just be that
Speaker 1: company that does know these ten things really really well
Speaker 1: that no one else can do, and and enjoy the
Speaker 1: margins from there. Tim colpen real treat to have you
Speaker 1: here in the studio, and this is totally new for me.
Speaker 1: I had no idea that fox Con was aiming for
Speaker 1: this space, but it seems like an important part of
Speaker 1: the story. So appreciate you coming back on the oddlock.
Speaker 1: Thank you for having me. It's being fun. Thank you, Tim,
Speaker 1: and thank you for the pineapple cakes. I love talking
Speaker 1: about semiconductors while eating the real reason we had Tim ufen. No,
Speaker 1: that was great. Thank you so much, Tracy. I really
Speaker 1: thought that was interesting. I didn't realize the history of
Speaker 1: fox Con. I mean I just basically sort of only
Speaker 1: missed him said more or less ever heard of the
Speaker 1: company around when the sort of you know, when the
Speaker 1: sort of infamy of their iPhone production was in the news.
Speaker 1: But it's interesting that the sort of like real origin
Speaker 1: heyday was in the nineties. I had no idea that
Speaker 1: like those were like super boom times, right, because everyone thinks, oh,
Speaker 1: assembling iPhones, you probably make loads of money off of that,
Speaker 1: but actually it's building the sort of modular components for
Speaker 1: I didn't realize that these those modules. Yeah. The other
Speaker 1: thing that stuck out for me from that conversation was
Speaker 1: just the idea of a company like fox Con becoming
Speaker 1: more of a force in the e V space by
Speaker 1: virtue of building those components and in some respects demanding standardization.
Speaker 1: And I wish I could remember who exactly said this,
Speaker 1: but you know, there was a school of thought that
Speaker 1: in the future, insurers we're going to be these massive
Speaker 1: influencers on society and the economy because they're the ones
Speaker 1: that are ultimately pricing um and sort of dealing in risks.
Speaker 1: So they were the ones setting safety standards, and I
Speaker 1: kind of I think about that with relation to something
Speaker 1: like Fox con if they're the ones building the compon
Speaker 1: oponents and setting the standards for some of the things
Speaker 1: going into e v s, and you know, to Tim's point,
Speaker 1: obviously they have to comply with government standards as well,
Speaker 1: but there are other things that can influence. It feels
Speaker 1: like they just become a really big force in the space. Absolutely,
Speaker 1: it feels like the existing automakers obviously Tesla, but Tesla side,
Speaker 1: but it seems like the existing automakers definitely do not
Speaker 1: want to become Dell and Hewlett Packard and Comback and
Speaker 1: Zero's and Tandy in Gateway and just be like pure
Speaker 1: boxes on a bunch of components that are all identical
Speaker 1: in no margin. But on the other hand, like you know, car,
Speaker 1: I don't know car. You know, it's like cars all
Speaker 1: kind of looked the same, but of course car people
Speaker 1: would what but they were like wildly different, a bunch
Speaker 1: of angry emails. There's a lot of similarities between cars,
Speaker 1: especially these days, they'll kind of look the same. Well,
Speaker 1: I mean, it does feel like there is this massive
Speaker 1: tension between fox Con and it's potential customers in the
Speaker 1: form of EV manufacturers, and it's you know, it's not
Speaker 1: again dissimilar to maybe the relationship between Apple and fox Con,
Speaker 1: but it's going to be really interesting to see how
Speaker 1: it shakes out. And it does feel like a bit
Speaker 1: of a power struggle potentially. Yeah, and either way, it
Speaker 1: is going to be different than PCs or the iPhone
Speaker 1: because of this. There's also it's almost certainly going to
Speaker 1: be the US car market is served by US manufacturing,
Speaker 1: whether it's a fox Con factory, whether it's a Rivian factory,
Speaker 1: whether it's a GM factory. It's going to be domestic.
Speaker 1: So it's not going to be this sort of like
Speaker 1: let's build a bunch of cheap stuff in Asia for
Speaker 1: shipping over there's probably some component shipping, but it will
Speaker 1: still be something of a new model that's different than
Speaker 1: fox Cons path past. It seems like it all right,
Speaker 1: shall we leave it there? Let's leave it there? All right?
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joe. Why isn't thal you could
Speaker 1: follow me on Twitter at The Stalwart, and follow our
Speaker 1: guest Tim Colpen on Twitter. He's at t Colpen. Follow
Speaker 1: our producer Carmen Rodriguez at Carmen Arman. Follow the Bloomberg
Speaker 1: head of podcast, Francesca Levie at Francesca Today, and check
Speaker 1: out all of our podcasts at Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening.