TAIPEI -- Since a 2016 acquisition of electronics group Sharp that raised eyebrows in Japan's guarded manufacturing sector, Taiwanese companies have widened their scope to the auto industry as they seek a shortcut to producing their own electric vehicles.
Taiwan's auto market is less than a tenth the size of Japan's, making it too shallow of a pool to raise big players. Instead, hopefuls like iPhone assembler Hon Hai Precision Industry, also known as Foxconn, and top contract chipmaker Taiwan Semiconductor Manufacturing Co. look to draw on know-how from larger Japan.
Hon Hai envisions annual revenue of 1 trillion New Taiwan dollars ($34.4 billion) in its EV business in the next three years, Chairman Young Liu said at the company's annual general meeting on Tuesday.
The company expects to ship 500,000 to 750,000 vehicles a year by 2025 for a global market share of 5%, he said.
The world's largest contract electronics maker, Hon Hai has partnered with 2,360 suppliers so far as it prepares to kick its EV business into high gear in 2023. Nearly 100 are based in Japan, including motor maker Nidec, which announced last year that it had begun discussions to establish a joint venture with Hon Hai.
"Hon Hai doesn't have built-up expertise on automotive production, so it's eager to gain the technology from the Japanese side," said an executive at a leading Japanese auto parts supplier.
Other Taiwanese players are making similar moves. United Microelectronics Corp. (UMC), the world's third-largest contract chipmaker, announced in April that it will collaborate with Toyota Motor group member Denso on power semiconductor devices used in EVs. The plan is for Denso to design the chips and UMC to mass-produce them at its plant in Japan's Mie Prefecture.
In February, Denso took a minority stake in the operating company for TSMC's planned chip factory in Kumamoto Prefecture, Japan. Areas of collaboration include chips for autonomous driving systems.
These tie-ups come as the global market for EVs is forecast to explode. Taiwanese companies are inspired by past success in using Japanese acquisitions as a springboard to greater scale.
Taiwanese companies started snapping up more Japanese manufacturers in the 2010s as the latter suffered suffered a series of financial crises. Hon Hai's 388.8 billion yen ($3.05 billion at current rates) purchase of Sharp in 2016 was a landmark deal, putting one of Japan's most recognized electronics brands under foreign ownership.
The acquisitions did not stop there. Hon Hai bought Toshiba's personal computer business in 2018, and UMC took full ownership of a cutting-edge joint semiconductor venture with Fujitsu in 2019.
In 2020, Winbond Electronics bought Panasonic Holdings' semiconductor business, including a production hub. That same year, Hon Hai used Sharp as a platform to buy a liquid crystal display factory from struggling Apple supplier Japan Display.
Such deals have raised Taiwan's status as an indispensable link in global technology supply chains. Just how much the balance of power in high-tech manufacturing has shifted in Taiwan's favor is shown by Japan's readiness to offer huge subsidies to attract investment from TSMC and UMC.
Some Japanese industry watchers have expressed alarm over the way Taiwanese companies are expanding their targets to the automotive industry. There they seek to build their own relationships in a sector where traditional ties run deep. The relatively friendly relationship between Tokyo and Taipei makes this process easier.
"If we are too careless in our partnerships and other matters, we could see Japanese technology siphoned away by the Taiwanese, and Japan be overtaken by Taiwan in the auto industry as well," an analyst said.
"Japanese companies are very wary of acquisitions by and tie-ups with Chinese firms, but they are far too lacking in that sense toward Taiwanese firms," this person said.
A Japanese expert in cross-border mergers and acquisitions said Japanese companies "should never give cutting-edge technology to another party even if they partner with them."
"If they want to join hands, they should do it on the condition that the partner may share in the profits but not the technology," this person said.