Taiwanese manufacturing powerhouse Foxconn Technology Co. Ltd (TPE: 2354) has landed on American soil with an incredible amount of fanfare.
No less a personage than President Donald J. Trump (R-New York) was on hand to break ground on Foxconn’s $10 billion plant in Racine County, Wisconsin, on 28 June 2018. Trump touted the controversial LCD manufacturing facility as “the eighth wonder of the world,” The Chicago-Sun Times reported.
Despite the Donald’s boosterism some of the numbers surrounding the plant raise serious questions about Foxconn’s operations and money-making capabilities. Foxconn only came to Wisconsin because of $3 billion state tax credits and breaks.
The local municipality; the Village of Mount Pleasant, and Racine County had to chip in another $764 million in tax incentives to attract Foxconn, CNN calculated. State and local governments will chip in another $400 million in road improvements including two new lanes to Interstate 94. The federal government added another $160 million to pay for Interstate expansion.
That deal will be costly to the state; CNN estimated that Wisconsin will not see any tax revenue from Foxconn until 2043 under current arrangements. Since the company might pull out before then that means the state might never recoup its losses.
Will Foxconn Hire 13,000 people or put 13,000 robots to work
Some of the numbers Foxconn is handing out sound fishy. The most questionable figure is the 13,000 people that Foxconn claims the factory will employ and the projected payroll.
Foxconn claims it will pay an average salary of $53,000 a year at the 20 million square foot plant — which would mean a yearly payroll of $689 million. That sounds fishy and unviable to me. A more likely scenario is that most of the work will be done by robots, which would be cheaper.
Since the average industrial robot cost around $45,000 a year in 2018, Statista estimated. Robots would seem the cheaper alternative, especially since robot costs are dropping fast, the average industrial robot cost $55,000 in 2011, automation seems the logical answer.
Trump breaks ground on plant for company that promised to “replace every human worker with a robot”
Foxconn is the company that promised to “replace every human worker with a robot” back in December 30, 2016, The Verge reported. Foxconn claimed to have replaced 60,000 jobs with machines in 2016.
Foxconn also has plans to replace 80% of its workers with robots within five years, Yahoo Finance reported. One of Foxconn’s goals is to build more lights-out facilities fully automated facilities with no humans on site. It sounds as if that is what is being built in Wisconsin.
Foxconn might be experimenting with a robotic factory in Wisconsin and taxpayers are paying the bill. One reason why Foxconn is carrying out the experiment in Wisconsin is that the state is suffering a labor shortage so little worker unrest in unlikely. There will be no mobs of Luddites storming the factory to smash the robots.
Is Foxconn Lying about Hiring 13,000 workers?
Foxconn claims it will hire 13,000 workers but Wisconsin has a low employment rate of 2.8% and just 90,000 unemployed people, CNN reported. Even the state of Wisconsin admits there will not be enough workers for the plant.
The state has launched an advertising campaign to lure workers from elsewhere. That sounds more like propaganda designed to fool voters into thinking jobs are coming.
The most likely scenario is that Foxconn plans to build a ”dark factory” where most of the work is done by robots in Wisconsin. If that is true the political fallout will be nasty, especially with the tax incentives and plans to build the factory campus on 26 acres of wetlands.
Trump and Wisconsin Governor Scott Walker (R) are already feeling a backlash, The Sun-Times reported. Illinois Senators Tammy Duckworth (D) and Dick Durbin (D) and U.S. Rep Brad Schneider (D-Illinois) accused Wisconsin of not studying the environmental impacts of the plant.
The main side effect of the Foxconn plant might be public outrage if all Wisconsin gets is a giant building that pollutes streams, jams the highways with trucks, and eats up electricity. A likely scenario is that a future Wisconsin state legislature will slap high taxes on Foxconn to recoup some of its losses.
Trump and Walker might not care, they will probably be safely out of office by the time voters realize what is going on. The plant will probably not open until after the 2020 presidential election.
The No Jobs Economy is coming to Wisconsin
A likely scenario is that vast numbers of unemployed or underemployed people will make the trek to Mount Pleasant, Wisconsin.
Once there, they will be told that are no jobs by the Foxconn security guard. Large numbers of homeless people will end up sleeping in their cars on the streets of nearby cities such as Chicago. There will be no jobs, less tax revenue, and long lines at local food banks and homeless shelters.
Other fallout will include mobs burning Donald J. Trump and Walker in effigy and a new generation of demagogues accusing them of being “Chinese agents.” Leftwing politicians promising high taxes on big business; and lots of government benefits, will easily win most elections in that environment.
Foxconn is making a lot of Money
Despite its dubious practices in Wisconsin, Foxconn is making a lot of money. The Foxconn Technology Co. Ltd.; or Hon Hai Precision Industry Co., Ltd. reported a net income of $1.03 billion in March 2018. That income increased by 1.02% over March 2017.
Foxconn’s business is very lucrative, data provided by Google Finance indicates. Foxconn had $62.04 billion in Cash on Hand in September 2017, and reported revenues of $34.1 billion in March 2018. Those revenues increased by 83.8% between March 2017 and March 2017.
Foxconn is also a very cash rich company the $62.04 billion stash grew by 30.5% between 2017 and 2018. That gives Foxconn a lot of money to buy robots with.
How Investors can Cash in on Foxconn’s American Adventure
Despite those figures I would advise against investing in Foxconn because it is a Taiwanese listed company. Investors that want to cash in on Foxconn should buy a robot maker like ABB LTD (NYSE: ABB).
ABB is listed on the New York Stock Exchange it was cheap at $21.53 a share on 3 July 2018. Since ABB builds industrial robots it might make a lot of money from Foxconn’s American adventure.
Other companies to invest in for the Foxconn future include chipmakers like NVIDIA (NASDAQ: NVDA); its graphics processing units will control robots, Apple (NASDAQ: AAPL), Foxconn’s most famous customer for contract manufacturing, and the Ocado Group PLC (LON: OCDO). Ocado specializes in deploying swarms of robots that operate complex facilities like factories.
Those who expect vast numbers of high-paying jobs to come to Wisconsin will be disappointed. The biggest side effect of Foxconn’s Wisconsin adventure will be to jump start the conversation about basic income and corporate taxation in the United States.
This commentary first appeared at the Market Mad House your detection system for political lunacy and market insanity.