Foxtron's products represented six of the eight electric vehicles (EVs) showcased at Hon Hai Tech Day 2023 (HHTD23): three n7 models designed by Foxtron and manufactured by Yulon Motors, the sporty crossover Model B, the luxurious Model E, and Model T commercial bus models. Only the Model V pickup and cargo van Model N were developed by Hon Hai. 

Foxtron looks to go public in mid-November. It is surely difficult to imagine that HAITEC, Foxtron’s predecessor, was once a heavy burden that parent company Yulon Motors had trouble shaking off and even came to the brink of dissolving.

Money-losing company rebounds from rock bottom

Autonomously forging an automobile brand has long been Yulon’s mission, from founder Yen Ching-ling and chairwoman Vivian Shun-wen Wu, to Kenneth Yen, as well as HAITEC’s reason for existence. 

In 2005, in order to pave the way for the launch of the Luxgen Motors brand, Kenneth Yen founded HAITEC. The company would handle overall car design and engineering development, and take on the weighty mission of forging Taiwan’s first original brand automobile.

At the company’s height it had sales outlets around Taiwan, China and Japan, and even enlisted help from Kazutoshi Mizuno, the renowned chief engineer of the Nissan GT-R, to great fanfare.

However, with tens of billions of NT dollar losses year after year due to failure to turn a profit in the PRC market, Lilian Chen initiated a series of belt-tightening measures after taking over as Yulon CEO. This saw debates within Yulon about possibly dissolving HAITEC to stop the bleeding.

Ultimately, Lilian Chen resolved to downsize and keep HAITEC, which ultimately engendered the subsequent joint venture with Hon Hai, which carries forth HAITEC’s manufacturing experience and patent ownership with Foxtron.

On October 23, 2023, Foxtron held a performance report event. Huang Ping-chun, chairman of Grand Fortune Securities, the underwriter for the event, revealed that Foxtron, with a reference price of 50 yuan per share, plans to raise approximately NT$8 billion through share issues. Of late, Huang remarked, sales through book building has been overbooked by a considerable margin, indicating enthusiastic market interest."

A company once seen from the outside as a loss-making entity has now transformed into a potential golden goose, with an estimated market value surpassing NT$87 billion, exceeding major shareholder Yulon and marking a remarkable turnaround from its previous doldrums.

(Source: Pei-Yin Hsieh)

Rapid growth focused on three potential-rich markets

However, Foxtron's revenue was less than NT$300 million last year, and it incurred a staggering NT$1.35 billion in losses due to extensive research and development expenditures. So how did it arrive at such a sky-high valuation prior to going public?

First and foremost, Foxtron aims to enter a new business by "manufacturing cars according to the Foxconn model," leveraging Foxconn's expertise in supply chain management to reduce production costs and maximize profit margins as much as possible.

"We are a company with innovative ICT technology and conventional automotive design craftsmanship. This is a unique combination in Taiwan, and rare worldwide," noted Foxtron CEO Andy Lee. He explained that their business model, known as CDMS (Commissioned Design and Manufacturing Services), aims to provide a new type of division of labor for automotive brands in the electric vehicle era.

Taking the example of the Luxgen n7 model, Foxtron is responsible for styling and engineering design, component supply chain management, and production management. Manufacturing is outsourced to Yulon's factory in Sanyi, Miaoli, and Foxtron delivers the vehicles to the brand customer, Luxgen. This approach starkly contrasts with the automotive industry's conventional vertically-integrated model.

According to the projected offering price estimate from Grand Fortune Securities, Foxtron is expected to achieve approximately NT$12 billion in revenue next year. In a conservative scenario, the company is projected to generate around NT$51.5 billion in revenue by 2032. In an optimistic scenario, this figure could reach NT$120 billion.

Chang Yi-cheng, manager at CTBC Investments’ Green Energy and Electric Vehicle Fund, observed that Foxtron's CDMS car manufacturing model, with its modular design, can reduce development time and costs by nearly half. This could help address the biggest pain points in electric vehicle development and provide an opportunity to enter three demanding markets during the early stages of development.

First, it can cater to startup automobile vendors with smaller capital, allowing them to focus on innovative styling or features while Foxtron provides complete supply chain and manufacturing capabilities. Secondly, emerging markets like Thailand and India, lacking local electric vehicle manufacturing facilities, will require affordable electric vehicles in the next few years — presenting further opportunities for Foxtron.

In addition, as fuel-powered vehicle fleets transition to electric, shared and rental car operators will also need cost-effective and abundant electric vehicles for their new business models.

Challenges to Conventional Automakers

A report prepared by KGI Securities holds that the market evaluation for the Luxgen n7 is critical for Foxtron's success in attracting other clients. The number of clients and order quantities will determine the speed at which the company turns a profit.

Foxtron's short- to medium-term development goals are focused on electric buses, startups, and rental car companies. For example, it expects to generate NT$900 million in revenue this year, doubling from the previous year, primarily driven by selling 100 electric buses to three local transportation groups. However, the initial order of 8,000 Luxgen N7 vehicles alone could generate at least NT$8 billion in revenue for Foxtron next year. When combined with an additional 100 to 200 Model T buses, the company expects to reach NT$10 billion in revenue next year.

Accordingly, attracting more traditional automakers, particularly large orders from major foreign automakers, is crucial for Foxtron and Hon Hai in expanding their electric vehicle business.

On Hon Hai Tech Day 2023, Foxconn chairman and CEO, Young Liu, was asked a pointed question: although Hon Hai has rapidly introduced EV products, why is Luxgen the only conventional automaker among its list of publicly disclosed customers?

Liu explained that the CDMS business model helps clients to complete design, supply chain management, and production management, so that they only need to expend their energy on marketing and services.

On the other hand, conventional automakers use an integrated in-house production process with a large workforce still on the assembly line. “Implementing the CDMS model will remain challenging as long as this group of people is still around,” exclaimed Liu.

However, Liu remains confident. He cited the example of PC manufacturing where he led a team to secure Compaq Computer's orders. At that time, their counterpart asked how Hon Hai could do a better job than Compaq itself. Later, he successfully convinced Compaq that factories, equipment, and personnel were significant costs, and by entrusting production to Hon Hai, they could achieve more competitive pricing.

Liu believes that, as competition in the EV industry intensifies, Hon Hai's role in providing manufacturing services will become more prominent. He stated, "The PC and smartphone industries developed in this manner, and the automotive industry will undoubtedly follow this trend."

Luxgen n7. (Source: Chien-Tong Wang)

Difficulty Cracking European and American Markets

However, one anonymous assistant vice president in the automotive supply chain industry offered that in emerging markets like Thailand, Foxtron may have an advantage because it can help establish their own electric vehicle industry manufacturing chain. Breaking into the European and American markets will be challenging due to established competitors.

For instance, the Canadian company Magna has been an established contract manufacturer for conventional automakers like BMW and Mercedes-Benz for many years. With its strong track record, Magna could be a formidable competitor to Foxtron. The question arises, “When traditional automakers are seeking contract manufacturing, whom will they choose?,” asks the vice president of a Taiwan company in the automotive supply chain.

Jun Seki, Hon Hai’s chief strategy officer for electric vehicles, mentioned at Hon Hai Tech Day 2023 that Hon Hai currently has 14 customers and 23 ongoing projects in the electric vehicle sector. However, he did not disclose how many of these customers belong to Foxtron or Hon Hai, nor what types of customers they were.

It was Andy Lee who, following the event, shared that Foxtron could help a local customer in Ohio state by producing the Model C via Hon Hai's Ohio manufacturing facility, with volume production expected in 2025. Although he was not at liberty to disclose the customer’s name, speculation in the industry points to this customer possibly being a major American rental car company.

As Taiwan's first pure electric vehicle company stock, Foxtron's success in designing its first domestically-produced electric vehicle, the Luxgen n7, will determine whether the company can secure orders from more automakers in the future. The true test will come once vehicle deliveries are revealed next year.

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Have you read?

• Are Chinese EV brands poised to conquer Europe? 
• Thailand's electric shift: The rise of Chinese EVs threatening Japan's legacy 
• Taiwan's Hon Hai and EOI invigorate America's Rust Belt

Translated by David Toman
Uploaded by Ian Huang