In response to evolving global dynamics and supply chain uncertainties, Hota Industrial Mfg. Co, a renowned Taiwanese auto parts manufacturer, is making a strategic shift by establishing its first manufacturing facility in the United States. For decades, Hota has been a key supplier of gears, shafts, and other automotive components to major foreign car manufacturers like Tesla, Ford Motor, and General Motors, operating from its home base in Taiwan.
However, a combination of factors, including skyrocketing shipping costs during the pandemic and growing geopolitical tensions in the Taiwan Strait, have prompted some of Hota's clients to reassess their reliance on Taiwanese suppliers. The concerns stem from Taiwan's status as a democratically governed island, claimed by China as part of its territory, with the possibility of forceful annexation not entirely ruled out.
To address these challenges and enhance supply chain security while moving closer to its North American customer base, which accounts for a significant 70% of its sales, Hota announced a substantial $99 million investment in a manufacturing plant located in New Mexico. This move represents Hota's first foray outside of Asia.
Holly Sheng, CEO of Hota, emphasized, "Our choice of the United States is actually a very natural decision," albeit acknowledging the cost implications that come with such a decision. She explained that the higher costs have been the primary reason for the company's long-standing presence in Taiwan.
The COVID-19 pandemic further exacerbated the situation for Hota, leading to shortages of cargo containers and labor challenges at ports. To meet their North American demand, the company had to resort to expensive air freight services, highlighting the importance of proximity in the supply chain.
At Hota's facilities in Taiwan, the manufacturing process involves cutting-edge automation technology, with robotic arms meticulously shaping metal cylinders into precise shafts and gears, integral components of automotive powertrains. The company churns out more than 20 million parts annually at its Taiwanese plants.
In the near future, Hota plans to replicate these operations in Santa Teresa, New Mexico. Construction of the new facility is scheduled to commence in early 2024, with mass production expected to commence in 2025. New Mexico was selected as the location due to its relatively lower operating costs compared to other states and its strategic proximity to U.S. and Mexican customers. This decision aligns with the growing momentum in both countries to establish robust electric vehicle (EV) supply chains.
The Borderplex region along the U.S.-Mexico border, where the factory will be situated, is envisioned as "the next Detroit" by Holly Sheng, given its central role in the burgeoning EV industry. It strategically places Hota close to Texas, the headquarters of Tesla, and Mexico, where Tesla is planning to construct a gigafactory.
During the initial years of the plant's operation, Hota anticipates that U.S. production will account for approximately 5-8% of its total output. New Mexico has offered vital support by providing $3 million in funding and the potential for tax credits.
Notably, Hota's biggest U.S. competitors could be its own customers, as major automotive companies possess the capability to produce components internally but may opt to outsource if suppliers offer cost-effective solutions.
While many Taiwanese manufacturers seeking a North American foothold typically choose Mexico due to lower operating costs, Hota believes it can maintain a competitive edge through its scale, vertical integration, and extensive expertise.
The U.S. Inflation Reduction Act is poised to ease cost pressures as it encourages EV manufacturers to source components domestically.
Given Hota's highly automated production lines, concerns about higher wages and labor shortages are less pronounced, in contrast to the challenges that delayed the production timeline for Taiwanese chip giant TSMC's $40 billion plant in Arizona.
However, looming over Hota's U.S. expansion plans are concerns related to the potential for a China-Taiwan conflict. As Holly Sheng rightly pointed out, "There's no way to convince a customer that war will not happen."
Hota has no intention of entirely replacing its established production base in Taiwan. Instead, the company aims to distribute its risk across multiple locations, thereby enhancing supply chain resilience and instilling greater confidence in its valued customers.