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Foxconn in Wisconsin: tech mega-deal faces reality check

Financial Times - Steff Chavez

Oct 6, 2022

Alan Yeung, Foxconn’s former point person in Wisconsin, says that the company had intended to build the Gen 10.5 screens, but that “the market condition had changed”, with

Foxconn in Wisconsin: tech mega-deal faces reality check

The ‘eighth wonder of the world’ foreseen by Donald Trump has not materialized yet

When a Wisconsin lawmaker was driving home from Chicago last month, he pulled over outside the Foxconn plant in Mount Pleasant, Wisconsin, and was struck by how empty the area looked. “There literally is a gorgeous six-lane highway that was built for 18,000 vehicles and automated trucks [that looks] totally abandoned. It’s incredible,” says representative Gordon Hintz, a member of the Wisconsin State Assembly.

The highway had been expanded to accommodate the transport of electronics produced at the site, which is operated by the Taiwanese multinational best known for assembling the iPhone. Recommended Special ReportInvesting in America Miami tops FT-Nikkei ranking of best US cities for foreign businesses.

On July 12 2017, Wisconsin’s then-governor Scott Walker, a Republican, and then-Foxconn chief executive Terry Gou signed a 14-word agreement drafted in pen on a single piece of paper: Foxconn would invest $10bn to build a 20mn sq ft manufacturing campus and create 13,000 jobs, which the state of Wisconsin would incentivise to the tune of $3bn. The deal electrified the Republican party leadership at the time: President Donald Trump and House speaker Paul Ryan, a Wisconsin representative, were both eager to bill themselves as revitalisers of the US manufacturing sector. For Gou and Foxconn, the plant announcement came at a time when the Trump administration was considering tariffs on electronic imports. At one point, Trump dubbed the future plant “the eighth wonder of the world”. But the sprawling complex and 13,000 jobs never came, and the project has become a case study in the gap between dealmaking hype and on-the-ground reality. Sphere of influence: Foxconn says its Wisconsin plant is a ‘key strategic asset’

Only four buildings, including a conspicuous glass sphere, were constructed at Mount Pleasant, which, though it describes itself as a village, has a population of about 28,000. US media reports over the past few years have detailed allegations from Foxconn employees who said they had nothing to do at the plant, while the company has given few details about what, if anything, is being made there. One former employee, who asked for anonymity, estimates that in a three-month period this year, only one month featured work to do, when the plant was producing motherboards for Google and Amazon servers. “Very quickly after that [initial announcement], it just sounded too good to be true,” says Kelly Gallaher, a local resident who runs watchdog group A Better Mount Pleasant.

In its original announcement, Foxconn said it would use the plant to make Gen 10.5 LCD screens, the latest generation of the display technology. It abandoned those plans and said it would make smaller Gen 6 screens, but subsequently gave those up, too. Sources say Foxconn has spent years trying to figure out what to do with the plant. The company counters that “the macro-environment for the global technology industry has changed very dramatically” since 2017, and says it “does not disclose the nature of our manufacturing operations to protect aspects of commercial sensitivity”. The company says it has “continued to find ways to create new business opportunities in Wisconsin, while also investing over $1bn and hiring hundreds of employees”.

Substantial investment has come from the local community too. Together with surrounding Racine County, Mount Pleasant bought up land to create the 3,000-acre Foxconn site, with compulsory purchase a possible option, says Robin Palm, a municipal planner for the village. According to a payout spreadsheet seen by the Financial Times, Mount Pleasant spent over $181mn buying up private property. Mount Pleasant and Racine County issued more than $310mn in debt to acquire the land and make infrastructure improvements, with about two-thirds of the funds raised by the village, according to the Wisconsin Legislative Fiscal Bureau.

Despite early signs that Foxconn’s plans were faltering, the village and county went ahead with their spending, and the town’s infrastructure is now overdeveloped. (The local agreement with Foxconn included almost $800mn in addition to the state incentives.) The state, however, changed tack. After a new governor, democrat Tony Evers, took office, the Wisconsin Economic Development Corporation, the state-run entity that entered into the Foxconn agreement on behalf of Wisconsin, renegotiated last year.

Foxconn is now eligible for only $80mn in state incentives based on investing $672.1mn and creating up to 1,454 jobs by 2024, a far cry from the figures in the original 2017 deal. The most recent available headcount, reported by Foxconn in December 2020 as part of its tax arrangement with the state, is 600 employees. Kathleen Gallagher, executive director of the 5 Lakes Institute, a non-profit focused on establishing high-tech activity in the Great Lakes region, thinks that Mount Pleasant was taken advantage of. “Any village of that size wouldn’t have the sophistication to understand all this,” she says. “The village relied on this small sliver of the business community and the state . . . [but] they didn’t have the right people.” Approached for his views on the deal, Mark Hogan, head of WEDC at the time it was made, declined to comment.

The WEDC, Racine County executive, Racine County Economic Development Corporation, and Mount Pleasant village president Dave DeGroot did not respond to requests for comment. The debt and interest payments taken on by Mount Pleasant are a considerable sum for a community of 28,000 people — they amount to over 500 per cent of the village’s annual operating revenue, according to Moody’s, which has downgraded Mount Pleasant’s credit rating. The contract with Foxconn states that the town will meet its debt repayments through property tax paid by the company. In order to do that, Foxconn must pay an annual bill of roughly $30mn — equivalent to its property being valued at at least $1.4bn. But since the property’s valuation is closer to $500mn, Foxconn must cover the resulting tax shortfall — some $17mn. While that is a relatively little for a company that brought in record revenue of $214bn in 2021, Hintz says some residents fear what could happen should Foxconn fail to pay.

A Better Mount Pleasant’s Gallaher points to a lawsuit filed against Foxconn in Illinois, in which Foxconn argued that, because it was a foreign company, it could not be sued in the US. Others are more sanguine. Mount Pleasant is confident that Foxconn will make its payments, says village trustee Nancy Washburn, particularly since it has fulfilled its tax obligations until now. Foxconn notes that it is “the largest taxpayer in Racine County” and has demonstrated its “ability to meet contractual payments while adapting to market demand”.

Alan Yeung, Foxconn’s former point person in Wisconsin, says that the company had intended to build the Gen 10.5 screens, but that “the market condition had changed”, with Chinese LCD screens undercutting the competition. He adds that “the investment climate of Wisconsin changed dramatically”, referring to Walker being voted out of office. On claims that Mount Pleasant’s workers sometimes have nothing to do, Foxconn says it “is not immune to supply chain shortages for critical materials” but sees “a workforce that is flexible and fulfilled” as key to capturing business opportunities. The site, it says, remains “a key strategic asset”. “Are we disappointed that it worked out the way it did? Absolutely,” says Washburn. But she and Palm say Mount Pleasant is now betting another company will move into the Foxconn site — either to share it or take it over — because the community’s infrastructure is now set up to handle growth.

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