Foxconn (also known as Hon Hai Precision Industry) recently has been aggressively implementing its ambitious strategy to become a major player in the EV market. It has formed a grand alliance of more than 200 companies for developing an open-source EV platform known as MIH. Besides growing this coalition, it has also entered agreements with automotive brands Byton and Geely for manufacturing EVs. Taking account of these accomplishments, brokerage firms now hold a very positive view of Foxconn’s expansion into the EV market. There are even speculations that Foxconn will become a key supply-chain actor in Apple’s ongoing EV project (widely dubbed “the Apple Car”).
With Foxconn making waves in the automotive industry, the performance of its shares has also improved noticeably. Regarding the analyses of Foxconn shares by the foreign brokerage firms operating in Taiwan, JP Morgan now recommends an “Overweight” rating with the target price set at NT$120. Daiwa Capital Markets is even more bullish, recommending a “Buy” rating with the target price set at NT$130.
According to JP Morgan, the JV that Foxconn is establishing with Geely represents a new one-stop service model in the automotive industry. Foxconn through the JV will be offering products and services related to the whole industry ecology, including car assembly, smart control systems, etc. By participating in every section of the supply chain for EVs, Foxconn will be able to assist its partnering carmakers in rapidly launching their battery-electric models.
JP Morgan expects Foxconn to announce more deals like the one it made with Geely in the future because establishing relationships with carmakers will create the momentum to make further inroads in the EV market. From the perspective of the automotive industry, Foxconn’s recent deals have raised the certainty that the multinational electronics manufacturer will commit resources into the development of automotive components, systems, and platforms. All in all, JP Morgan believes that the EV strategy will contribute to the growth of Foxconn’s revenue and profit over the long term.
JP Morgan in its analysis also predicts that Foxconn will play a vital role in the development of the Apple Car, which lately has become a hot topic in the market. The brokerage firm is currently confident that Apple will be introducing an EV in the future. If this scenario does come to pass, then there is a strong possibility that Foxconn will become Apple’s main supplier for chassis, components, and subsystems. After all, Foxconn is already Apple’s contract manufacturer for numerous devices, and it has amassed an enormous amount of expertise in machinery and electronic components.
Daiwa in its analysis emphasizes that Foxconn has made significant gains in the EV market through collaborations and alliance-making since it revealed the MIH platform in October 2020. The partnership with Geely is also an important milestone because it gives an additional advantage to Foxconn in the development of its automotive business. At the same time, Geely will be able to accelerate the revamp of its business model.
Daiwa points out that the JV formed by Foxconn and Geely not only produces automotive parts and components but also offers solution packages that can spur the formation of an industry ecology for EVs. The two companies complement each other very well. Geely has a lot of R&D resources, while Foxconn has decades of experience in contract manufacturing. They can raise each other’s competitive strength; and Foxconn, in particular, will gain more momentum in its transition from a hardware manufacturer to a technology provider.
Furthermore, Daiwa has made the bold claim that Foxconn has already inserted itself into the supply chain for the Apple Car and is now in a rush to manufacture the components that Apple needs in the development of its first EV. Daiwa suggests that the Apple Car could become a long-term growth engine of Foxconn’s operation. Under an optimistic scenario, Foxconn’s EV strategy will gradually come into fruition in 2022, and the growth of its automotive business will accelerate and become relatively mature in 2023.
Foxconn has a subsidiary that specializes in die casting of metallic materials. This business unit recently has completed its R&D in the manufacturing of vehicle bodies based on advanced aluminum alloys. Enhancing this technological capability is essential in reducing the weight of EVs. Furthermore, the subsidiary has also successfully entered the supply chain of BMW. These latest achievements are expected to generate more impetus in Foxconn’s efforts to become a dominant player in the automotive supply chain.
In sum, the major brokerage firms such as JP Morgan and Daiwa are very upbeat about Foxconn’s strategy for the development of EVs and the related technologies. Thus, they have raised the target price of the company’s shares. As mentioned earlier, JP Morgan recommends an “Overweight” rating with the target price of NT$120, while Daiwa recommends a “Buy” rating with the target price of NT$130.
(Image credit: Apple.)
