January 16, 2020 4:30 PM, EST

IPhone Manufacturer Wades Into Electric Cars With Fiat Venture

iPhone 11iPhone 11 by Chris Ratliffe/Bloomberg

Hon Hai Precision Industry Co., the iPhone assembler that’s part of Foxconn Technology Group, plans to establish a joint venture with Fiat Chrysler Automobiles NV to develop and make electric vehicles in China.

Hon Hai and its subsidiaries will hold a 50% stake in the venture, and Fiat Chrysler will hold the rest, the Taiwanese company said in an exchange filing. While the two companies have yet to sign a formal agreement, they plan to target the China market first and consider exporting cars later.

The two aim to ink the agreement in the first quarter, according to a person familiar with the matter, and Hon Hai’s Hong Kong-listed unit FIT Hon Teng will also be involved. A Fiat Chrysler declined to comment beyond the filing.

“Hon Hai will be responsible for design, components and supply chain management,” Chairman Young Liu told Bloomberg News in a text message, adding that the company will not get into car assembly. The manufacturer expects the automotive business to account for 10% of overall sales in the long run, according to Liu, and the new venture will have little impact on Hon Hai’s earnings this year.

Hon Hai and Fiat Chrysler are focusing on the China market because of sheer volume, Liu said. While consumers in the country buy more electric vehicles than anywhere else in the world, sales have slumped since the government pared back subsidies amid a broader-market downturn in demand.

Fiat Chrysler has struggled to crack the Chinese market for years, and tightening fuel-economy standards and electric-vehicle mandates makes the task even more challenging. Fiat Chrysler’s market share in the world’s largest car market was less than 1% in 2018, well behind Ford Motor Co.’s 2.3% and General Motors Co.’s 13.8%.

CEO Mike Manley is trying to reboot Fiat Chrysler’s money-losing Chinese operations. He restructured the automaker’s decade-old joint venture with Guangzhou Automobile Group in April, calling the shakeup an attempt to “more rapidly respond to changes in the Chinese market.”

While Hon Hai has limited automotive experience, it does bring other things to the table, said Michael Dunne, a China expert and CEO of consultant ZoZo Go.

“Foxconn knows the supply chain in China better than anyone else, that’s what they do,” he said.

Tesla Inc. CEO Elon Musk told shareholders in 2014 that Foxconn was supplying some components to the electric-vehicle maker.

Hon Hai relies on Apple Inc. for about half of sales. Past attempts to diversify its product lines have not been entirely successful. The company tried to invest in a number of electric-vehicle ventures before, but none has borne any fruit.

With assistance from Daniele Lepido.