Bruce Murphy
Murphy’s Law

13 Takeaways on Foxconn’s Birthday

Two years after project announced, what’s left of that world-shattering deal?

By - Aug 1st, 2019 11:56 am
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Foxconn chairman Terry Gou and Governor Scott Walker signing a memorandum of understanding. Photo by Jeramey Jannene.

Foxconn chairman Terry Gou and Governor Scott Walker signing a memorandum of understanding. Photo by Jeramey Jannene.

It was two years ago that then-Gov. Scott Walker and Foxconn announced the largest subsidy ever given to a foreign company by an American government to support a manufacturing plant President Donald Trump predicted would be the “8th wonder of the world.” The $3 billion subsidy promised by Walker soon grew to $4.1 billion in return for which Foxconn promised a $10 billion manufacturing complex and 13,000 jobs. Two years later that looks like what it may have always been: a political fantasy scrawled on a restaurant napkin. What’s left of the deal?

1. It’s 18 times smaller: The original campus was supposed to 20 million square feet. It’s now down to 1.1 million square feet, just 5.5 percent of what was promised.

2. Only a $1.4 billion investment is guaranteed. Foxconn stopped promising the $10 billion investment nearly a year ago. The massive Gen 10.5 plant it promised is down (at best) to a Gen 6 piant that experts estimate could cost $2.5 billion. But the company has only guaranteed the Village of Mount Pleasant that $1.4 billion in new property value will be created.

3. There will be only 1,500 jobs. That’s the number of employees it will hire at the new plant, the company told Gov. Tony Evers, as CNBC reported.

4. There will be few if any lower-skilled manufacturing jobs. The original plan was for a manufacturing facility where nearly 10,000 of the jobs would be assembly line work. Now it’s down to 1,500 total jobs and Foxconn has said 90 percent will be for engineers and if there is any manufacturing work it will mostly be done by robots. 

5. The plant’s completion date keeps getting pushed back: Foxconn originally said the building would be completed by the fourth quarter of 2019, then the first quarter of 2020 and more recently the fourth quarter of 2020, some three-and-a-half years after the project was first announced. 

6. Not many jobs have been created so far. Foxconn fell 82 jobs short of the 260 minimum needed to earn a state subsidy for 2018, and looks unlikely to hit the 520 jobs needed by the end of 2019 to earn a subsidy, since the new plant won’t have opened. And it needs to hit 1,820 jobs in 2020 to earn a subsidy, well more than it’s predicted for the new plant. 

7. Those satellite innovation centers won’t be created. As I predicted in July 2018, those innovation centers Foxconn had planned to create in Milwaukee, Eau Claire and Green Bay were unlikely to happen and would be forgotten about once Walker’s reelection campaign was over. As the technology publication The Verge has reported, some real estate purchases promised by Foxconn in those cities never happened and the buildings it did buy have no Foxconn employees or activities in them.

8. That $100 million pledge to UW-Madison hasn’t happened. In August 2018, Foxconn announced a $100 million matching grant to support research and other activities. Not a dollar has been received to date. As UW spokesman John Lucas told the Journal Sentinel, “as a result of changes in Foxconn’s executive leadership and business priorities, there has been no significant progress in discussions related to the $100 million investment.”

9. Taxpayers will pay $305 million for nothing. Republicans have repeatedly claimed no subsidy would occur unless jobs were created. But they left out the upfront costs. The state transportation department is spending an estimated $160 to $170 million on a complex of local roads in Racine County that would have been needed for a massive, 20-million square-foot project, but not for a plant less than 6 percent of that in size. Ditto for the high-voltage lines and substation that American Transmission Co. is building to feed to Foxconn and is expected to cost as much as $140 million, to be paid for by We Energies customers. The project was created because the planned mega-plant would have drawn six times more power than the next-largest factory in Wisconsin, which turned out to be a fantasy.

10. $155 million in water and sewer costs may have been wasted. LCD plants use a lot of water and Foxconn was expected to use 7 million gallons of Lake Michigan water every day. A plant 18 times smaller than that (which may not even be making LCD products) won’t use anywhere near that amount of water. The net costs of the water and sewer lines being built for a plant that won’t happen are $155 million for Mount Pleasant. Yes, they may get reimbursed from future property taxes paid by Foxconn, but it’s still spending that was unnecessary both for the company and taxpayers. 

11. Hundreds of millions more in local spending may have been wasted. Beyond the water and sewer costs, the Village of Mount Pleasant committed to another $750 million in spending for Foxconn. This, too, was done to accommodate — at a rapid-fire pace — the mega-plant that would supposedly be built and now won’t be. Mount Pleasant acquired 73 residential properties, paying homeowners 140 percent of fair market value and another 2,335 acres, paying “several times the going rate for farmland in the area,” as the JS reported.  Precisely how much money was wasted by local taxpayers hasn’t been tallied yet. 

12. The down-sized plant probably won’t manufacture LCD products. While experts estimated a Gen 6 LCD fabrication plant would cost about $2.5 billion, Foxconn has only guaranteed a $1.4 billion project, which raises suspicions. As I’ve previously reported, Gen 6 plants are typically huge, multi-floor plants and the Mount Pleasant plant will be just one floor. They also require a massive steel substructure that could be up to two-floors deep and though recent photos of the Foxconn plant show many support columns sunk into the earth, Harvard Professor Willy Shih, one of the few U.S. experts on LCD fabrication, tells Urban Milwaukee that still doesn’t look like an LCD plant. More likely, he says it will be an assembly plant: “Maybe they will take raw panels made elsewhere and assemble them into more complex products. That’s highly likely.” 

Bob O’Brien, co-founder and president of Display Supply Chain Consultants, and a long-time observer of the industry, has told Urban Milwaukee that the plant could do LCD fabrication but on a very small scale, about 40 times smaller than the original $10 billion plan. 

13. Foxconn’s leadership and future is murky. State and local officials are stuck spending somewhere between $500 million and $1.6 billion on upfront costs for a mega-plant that has shrunk to a tiny fraction of what was promised. And given that it has taken more than three years to get even this investment from Foxconn, any future expansion seems unlikely. The deal was the idea of company founder and longtime CEO Terry Gou, who resigned from his position to run for president of Taiwan. He lost the election but there has been no word of him returning —or of who might replace him at Foxconn. 

Gou was looking for a hedge, a U.S. outpost in case Trump engaged in a trade war with China. Should Trump lose his reelection the plant in Wisconsin will be an unnecessary expense, with vastly higher labor costs than its plants in East Asia. There will be no reason to expand here and every reason to shut the plant down.

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3 thoughts on “Murphy’s Law: 13 Takeaways on Foxconn’s Birthday”

  1. Patty Thompson says:

    I said from the very beginning that they would never break ground for the plant. I was wrong on that one, but it sounds like this has proven to be the boondoggle that many had suspected.

  2. mkwagner says:

    Exactly what Foxconn did in Vietnam, Brazil and Pennsylvania. This was a bad deal for Wisconsin taxpayers from the get go. When will Vos and Fitzgerald wake up and end this charade?

  3. dbaumann@execinc.com says:

    Fox Conned is the best spin you can put on a Wisconsin republican legislative sell out aided and abetted by a clueless President and a governor looking for anything to distract enough to keep him from being left on the side of the road during the next election. Every Wisconsin taxpayer will pay a price and southeast Wisconsin will suffer the most economic damage from the stunning political and economic blunder.

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