Apple iPhone production could be moving out of China and into another country

It’s no secret that Apple is looking to move some iPhone production out of China. The current relationship between the U.S. and China, which continues to deteriorate rapidly, makes it a long term risk for Apple to continue manufacturing the iPhone in the country. That’s because there is always the possibility that the U.S. takes some action that results in retaliation by the Chinese government.

Will some iPhone production end up in Mexico?

Reuters reports today that Foxconn and Pegatron, two of the Taiwan-based contract manufacturers that build the iPhone, are considering building new facilities in Mexico. Besides the iPhone, the two companies assemble handsets for others as well and it isn’t clear which firms Foxconn and Pegatron will be working for in Mexico should the new factories get built. However, two of the sources that spoke with Reuters told the news agency that Foxconn plans to use a new Mexican factory to build the iPhone. However, there is no sign at the moment of Apple’s involvement in the plans.

Besides production facilities, smartphone manufacturers assembling devices in Mexico will need to have a pool of able employees to hire from, and a supply chain that delivers components in the quality and quantity needed to meet production targets. Foxconn is expected to make its decision by the end of the year and work can start on the factory immediately afterward. Pegatron is reportedly in talks with lenders regarding a factory that would assemble chips and other components. Another source noted that Foxconn “indeed has contacted the (Mexican) government.” Talks are said to be in the early stages and concern over rising COVID-19 cases in the country could delay or put the kibosh on a deal.

It remains to be seen whether any move by Foxconn and Pegatron would be part of a broader, widespread move to Mexico from China. The Trump administration has imposed tariffs on several products being imported from China. Last year, that list was going to include the iPhone. However, the phase one trade deal that both countries agreed to last December gave Apple’s most important product a reprieve from the import tax.

Foxconn currently has five Mexican factories that churn out servers and televisions. China’s Luxshare Precision Industry Co. recently purchased the iPhone manufacturing line from Taiwan’s Wistron becoming the first company on the mainland to assemble the device. But mindful of the potential for tariffs to be imposed, Luxshare also is said to be looking to move iPhone production to Mexico along with other Apple products it manufactures such as Apple’s popular wireless Bluetooth AirPods.

Mexico does have several things in its favor including time zones that are more aligned with the U.S., and low wages. The Trump administration has supposedly been looking at dangling incentives at U.S. firms to get them to move production out of Asia and into factories located in the United States, Latin America, and the Caribbean. One country often mentioned as a possible location to host iPhone production is Vietnam; Apple has already built some handsets in India and just started producing a current top-of-the-line model (the iPhone 11) for the first time in the country. Apple originally started producing older iPhone models in India to avoid an import tax and to allow the devices to qualify for the Prime Minister’s Make in India initiative. The latter allows the export of products made in the country. India is the second-largest smartphone market in the world after China but as a developing country, per capita income is low. This is why the iPhones made in the country are typically older, more affordable models.

The Taipei Economic and Cultural Office in Mexico represents Taiwan-based firms doing business in Mexico. The office said that it heard that Foxconn wanted to build another factory in Ciudad Juarez, in the northern border state of Chihuahua. Armando Cheng, the office’s Director-General, said, “Pegatron, I also understand, wants to move a production line from China to Mexico.” While Cheng admitted that he didn’t know the details of either company’s plans, he did say that “Mexico is one of the ideal countries for companies considering readjusting their chain of suppliers.”