Wednesday, January 25, 2023
Taiwanese tech suppliers are increasing their production capacity in Mexico to meet growing demand for electric vehicles and servers to be made in North America.
The moves by key iPhone assembler Foxconn and others are in response to changes in U.S. policy and requests from clients, which together are gradually shifting parts of the supply chain from East to West.
Foxconn, the world's biggest contract electronics manufacturer, recently established a headquarters in Mexico to centralize the management of its subsidiaries and business groups there, and to maximize its resources to better serve clients in North American markets.
The iPhone assembler, which also counts Google and Amazon's AWS as clients, has been prioritizing electric vehicles as its next growth driver in recent years amid the slowing smartphone market. American EV startups Lordstown, Fisker and INDI EV are among Foxconn's automotive clients.
"Foxconn has secured new EV clients there. Mexico is one of the key locations for the company's strategic investments this year," a person with direct knowledge of the matter told Nikkei Asia. "Foxconn will have three local manufacturing options for EV clients in North America: Ohio, Wisconsin and Mexico."
The Taiwanese manufacturing giant's compatriots -- including iPhone assembler Pegatron, MacBook maker Quanta Computer, iPad supplier Compal Electronics and Inventec, a notebook manufacturer for HP and Dell -- all have plans to grow their manufacturing presence in Mexico this year. These companies are key players in the production of servers and data centers and, like Foxconn, have allocated more resources to capture demand from the booming EV industry in recent years.
Their moves to allocate resources to Mexico mark a new trend in supply chain diversification. Suppliers first started shifting capacity for products such as servers, routers and game consoles from China to Taiwan and Southeast Asia at the beginning of the U.S.-China tech war in 2018 to mitigate the impact of Washington's punitive tariffs on Chinese goods. There are now signs that the supply chain shift is extending from the East to the West.
Pegatron, which also serves Tesla and General Motors, has earmarked $300 million to $350 million in capital expenditures this year for Mexico and Southeast Asia due to customers' growing requests for diversification and to be closer to the end market, according to Vice Chairman Jason Cheng. Compal President Martin Wong said his company will expand capacity at the Mexico facility for its automotive electronics business. Quanta, meanwhile, is hiring more engineers with expertise in automotive electronics computing systems in Mexico.
"We are building a new manufacturing complex in Mexico for servers as well as notebook assembly," a senior source at an HP and Dell supplier said. "We expanded our capacity in Taiwan and Malaysia in the past few years, but the clients said it's not enough. They want to be even closer to the North American market now."
Another tech supplier manager said her company's decades-old plants in Mexico have become "very popular" recently: "Our CEO just came back to Taiwan from Mexico last week. We've been receiving endless inquiries about the availability of our plants there."
Tech suppliers' accelerating investments into Mexico come amid political pushes for such moves. The U.S. government's Inflation Reduction Act (IRA), which came into effect last August, aims to spur local manufacturing. Among other things it lays out requirements for local production, such as assembling electric vehicles in North America, to qualify for tax credits.
And the U.S. Department of Commerce in a supply chain review report last year warned that the manufacturing of servers, data centers and networking gear -- products with implications for information security -- is still largely concentrated in Asia, describing this as a risk to supply chain security.
Chiu Shih-fang, a supply chain analyst with the Taiwan Institute of Economic Research, said Mexico is a relatively familiar investment environment for tech suppliers, given that many of them have had manufacturing facilities for home appliances and computers in the country for decades.
"There were signs of tech suppliers putting resources into Mexico, but the trend has been getting more obvious in recent months, especially after the passage of the U.S. IRA," Chiu said. "The U.S. policy is really the driving force behind this shift, which will be led by the local production demand for EVs as well as servers."
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