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Tesla supplier Hota eyes US expansion as EV demand surges

Taiwanese autoparts maker also planning new plants at home

Hota International Chairman David Shen says the Taiwanese company aims to supply parts for 2 million electric vehicles a year by 2025. (Photo by Cheng Ting-fang and Hota website)

TAICHUNG, Taiwan -- A leading Taiwanese automotive parts supplier is planning its first U.S. plant as it bets demand for electric vehicles will continue to accelerate.

Hota Industrial Manufacturing -- a key supplier to Ford, General Motors and Tesla -- has set out an aggressive expansion plan that also includes building three new factories in its home market and more than tripling production capacity by 2025.

"We are expanding our production site in Chiayi [in southern Taiwan] this and next year, and we also have a plan to build a plant in the U.S. in the coming years," Chairman David Shen told Nikkei Asia in an interview at company headquarters in the Taiwanese city of Taichung.

Founded in Taichung in 1966, Hota made its name making high-end gears and shafts for auto companies across the U.S. and Europe. It joined the electric vehicle supply chain more than a decade ago. Most of its production hubs are in Taiwan but it also has a factory in the Chinese province of Jiangsu.

The Taiwanese company has been a supplier to Tesla since 2012, providing the U.S. company with gear reducers, a key part of EV motors. Hota also supplies automotive transmission parts to Ford, General Motors, BMW, Mercedes-Benz, Volvo and McLaren.

The company is now planning a factory in the U.S. state of Texas amid a booming market in North America for EVs, Shen said. The plant would be Hota's first production site outside Asia.

It would be joining a number of compatriots building or planning to build facilities in the U.S. Foxconn, the world's biggest contract electronics manufacturer, said it will build electric cars for customers in North America. Taiwan's display maker Au Optronics, a Tesla supplier, said it will "definitely" build or help build a plant in the country, while key iPhone assembler Pegatron, which also supplies Tesla, General Motors, Audi and Toyota, is finalizing plans to renovate its plant in Texas to better serve automobile clients in North America, multiple sources said. Taiwan's Commercial Times first reported Pegatron's plans.

"We will kick off a serious evaluation on-site selection in Texas in the second half of next year. ... If all the plans materialize, our plant in the U.S. will be ready by late 2025 and start production in 2026," Shen said.

The chairman added that total investment could be up to 8 billion New Taiwan dollars ($286 million) for a plant with the capacity to supply 1 million EVs a year, though the plans have not been finalized.

Hota is building a third factory in Chiayi and will start to build a fourth in the city from the second half of 2022, followed by a fifth plant there, the chairman said. The aggressive expansion plans, he said, will help Hota go from supplying parts for 600,000 EVs annually to 2 million by 2025.

"We really see traditional carmakers are all changing. ... They are aggressively hiring new staff who have had experience with innovative new car players, such as Tesla," Shen said. "As an automotive parts supplier that has more than 10 years of experience in the EV supply chain, every newcomer into the EV market is a new business opportunity for us."

Shen expects that at least 10 million new cars sold in 2025 will be electric. He also predicts "a golden crossover" by 2030, when the shipment volume of EVs will overtake those of traditional cars.

"Every newcomer into the EV market is a new business opportunity for us."

David Shen, Hota chairman

While the global automobile market was savaged by the pandemic, dropping 14% in 2020, sales of EVs grew 39% on the year to 3.1 million, though they still accounted for just 5% of all new car sales last year, according to research company Canalys. EVs are forecast to exceed 5 million units -- more than 7% of total new car sales worldwide -- in 2021, the research company forecast, which would translate to 66% annual growth.

But while the long-term outlook for the EV industry is rosy, the world is currently battling an unprecedented chip and component shortage, which has already hit automakers.

Hota is also affected by shortages of labor and materials, as well as surging prices for maritime shipping, Shen said.

"We did not renew working visas for some of our foreign production line workers last year when our clients were drastically reducing orders as COVID-19 hit auto demand," Shen said.

The chairman said the sudden recovery in demand made it challenging to hire enough workers in time, as quarantine restrictions hindered efforts to bring in foreign workers and local labor was in high demand from the booming tech sector.

Steel, a key material for vehicle parts, is also in short supply as industries ranging from construction to electronics go through a post-pandemic recovery.

Meanwhile, the price for North America-bound marine-shipping containers has surged fivefold since last year to more than $10,000 each due to a rebound in demand across industries, adding to the complexity of logistics planning for Hota.

"If we bid for more shipping containers, we have to consider if we really can overcome all the shortages and make that many products in time ... otherwise there could be [penalties] if we do not fill the number of containers we booked," Shen said.

Shen said the shortage of steel could be alleviated as soon as this month, but added that labor and shipping issues could last till the second half of this year.

Nevertheless, the chairman hopes the company can rebound from last year, when plunging demand hit financial performance.

Hota's 2020 revenue dropped more than 12% to NT$5.21 billion, while net profit declined more than 55%. For the 2021 January-March period, the company saw revenue jump more than 11% from the previous year.

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