Taiwanese Tesla supplier Hota retools supply chain with first US factory

Hota Industrial Mfg.

28/11/2023 23:00

By Sarah Wu
       TAICHUNG, Taiwan, Nov 29 (Reuters) - For years, Hota
Industrial Mfg. Co has made gears, shafts and other auto parts
in Taiwan and shipped them to large foreign carmakers such as
Tesla  TSLA.O , Ford Motor  F.N  and General Motors  GM.N .
    But soaring shipping costs during the pandemic and
escalating cross-strait tensions have forced some of Hota's
 1536.TW  customers to re-evaluate their reliance on Taiwan, a
democratically governed island that China claims as its own and
has not ruled out taking by force.
    To address client concerns about supply chain security and
to move closer to North America, which accounts for 70% of its
sales, Hota in September announced a $99 million investment in a
plant in New Mexico, its first outside Asia.
    "Our choice of the United States is actually a very natural
decision," Hota CEO Holly Sheng told Reuters in an interview
earlier this month. "But, in terms of cost, it is not very
natural. That is why for so many years we chose not to leave
Taiwan."
    Facing shortages of cargo containers and workers at ports
throughout the pandemic, Hota, which was founded in 1966,
resorted to expensive air freight to send heavy auto parts to
North America.
    "During COVID, even if your products were cheaper, they
couldn't be shipped," Sheng said. "Now, everyone can accept that
'If you're located closer to me, I'm willing to pay a bit
more'."
    
    'THE NEXT DETROIT'
    At one of Hota's plants in Taiwan, robotic arms move metal
cylinders through a series of machines, each a step in shaping
them into precise shafts that will combine with other powertrain
components to make cars move.
    The crates of shafts and gears at the factory contain some
of the more than 20 million parts Hota produces each year.
    Soon, Hota's machines will be humming in Santa Teresa, New
Mexico, with factory construction to begin early next year and
mass production in 2025. Hota chose New Mexico because of lower
costs compared with other states and proximity to customers in
the United States and Mexico, as both countries accelerate a
push to build electric vehicle (EV) supply chains.
    "It will become the next Detroit," Sheng said of the
Borderplex region along the U.S.-Mexico border. Hota's factory
will be near Texas, home to Tesla's headquarters, and Mexico,
where Tesla plans to build a gigafactory.
    U.S. production will account for 5-8% of Hota's total
production in the plant's first few years, Sheng said. New
Mexico will provide $3 million in funding, plus potential tax
credits.
    Hota's biggest U.S. competitors will be its own customers,
who could make components themselves but outsource if suppliers
can offer cheaper prices.
    Most Taiwanese manufacturers seeking a North American
foothold choose Mexico over the United States due to costs,
Sheng said.
    While Hota's U.S. costs will be higher, Sheng pointed to its
advantages in scale, vertical integration and expertise.
    The U.S. Inflation Reduction Act will also help ease cost
pressures as Washington incentivises EV makers to source
components domestically, Sheng said.
    Given its highly automated production lines, Hota is less
worried about higher wages and labour shortages. The latter
delayed the production timeline for Taiwanese chip giant TSMC's
 2330.TW  $40 billion plant in Arizona.
    Overhanging the U.S. plan, however, are concerns about a
China-Taiwan war.
    "There's no way to convince a customer that war will not
happen," Sheng said.
    Similarly, Hota would never be able to completely replace
its established Taiwan production base.
    "But if you distribute the risk, however much, customers
will feel more comfortable," Sheng said.

 (Reporting by Sarah Wu; Editing by Anne Marie Roantree and Sam
Holmes)
 ((S.Wu@thomsonreuters.com;))