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No one seems to know what Foxconn is doing in Wisconsin

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After billions in subsidies and investments from local governments, Foxconn says it’s rethinking the whole factory idea

Workers drive their construction vehicles at the Foxconn construction site along 90th Street on Wednesday, October 25th, 2018, in Mount Pleasant, Wisconsin.
Photo by Joshua Lott for The Verge

In 2017, Foxconn promised Wisconsin an enormous state-of-the-art factory, staffed by thousands of workers, all making screens for 75-inch TVs. The building would be the “eighth wonder of the world,” President Trump declared at a groundbreaking ceremony with gold-plated shovels last summer. Then, the Taiwan-based company announced that it would actually be a far smaller factory, making screens about half the size, with more jobs in “knowledge work” than in manufacturing.

Now, it is unclear whether there will be a factory at all.

On Wednesday, Louis Woo, special assistant to Foxconn chief executive Terry Gou, told Reuters that the company was rethinking the whole screen-making idea. “In Wisconsin we’re not building a factory,” Woo said. He explained that Foxconn can’t compete producing televisions in the US. Instead, it would be more profitable to manufacture LCD panels in China and Japan, ship them to Mexico, and import them in the US. On Thursday, the Nikkei Asian Review reported that work on the Wisconsin project had been suspended.

Later that day, Woo appeared to backtrack vaguely, sending a peculiar email to the Milwaukee TV station WTMJ suggesting that it was hard to know what to call the project. “No matter how we look at it, the campus cannot be simply described as a factory,” Woo wrote. “It is a lot more than that.” (Update: Friday afternoon, Foxconn said that after a conversation with Trump, it had decided to build an LCD factory in Wisconsin after all, but gave no timeline for the project.)

State officials appear to have been caught off guard by the news. Republican lawmakers were quick to blame Wisconsin Gov. Tony Evers, who was critical of the Foxconn deal and its record-breaking $4.5 billion in taxpayer subsidies during his campaign. Evers’ spokesperson along with Mark Hogan, the head of the state’s economic development agency under former Gov. Scott Walker and Evers, denied a claim in the Nikkei article that the current governor had tried to renegotiate the deal. Regarding the change in focus mentioned by Woo the day before, a spokesperson for the WEDC said that the deal was always meant to allow Foxconn to be flexible, and that the state is having “ongoing conversations” with the company.

“Everybody is trying to find out what exactly is happening,” says Martha Laning, chair of the Democratic Party of Wisconsin. “Here’s this boondoggle where you’ve invested all the money for this huge company to come, and we want to be sure that the people in that community get a return on their investment. They prepared for this to happen, and now if it doesn’t happen, how is it going to affect that community?”

In a statement to The Verge, Foxconn said that the market has changed since the Wisconsin project was first announced, but that the company remains committed to the technology park project and meeting its original target of creating 13,000 jobs. Though the factory was initially touted by Trump and Walker as an opportunity to bring manufacturing jobs back to the United States, Foxconn is now emphasizing research work. In addition to its “consideration of plans to produce traditional products like television sets,” the company listed a range of activities “knowledge workers” might help with, from research into smart cities to health care technology. “We look forward to continued investment in American talent as we build the AI 8K + 5G ecosystem we are creating in Wisconsin and the US.”

What this actually means on the ground in Wisconsin is unclear. The company listed seven things it planned to build in the next 18 months:

  1. A liquid crystal module backend packaging plant
  2. A high precision molding factory
  3. A system integration assembly facility
  4. A rapid prototyping center to help startups to test out their hardware ideas and concepts, which will go in line with building the AI 8K+5G ecosystem
  5. A research and development center
  6. A high-performance data center inside the park or in the vicinity
  7. A town center to support the people working in the Wisconn Valley Park

Bob O’Brien, a partner at Display Supply Chain Consultants, is skeptical of the project. “I think at this point, anything they say you’ve got to take with—” He breaks into laughter, before continuing. “You have to question whether it will likely happen.”

With that considerable caveat, the first three items on Foxconn’s new to-do list are production facilities, and that indicates that the company does intend to manufacture something in Wisconsin, O’Brien says, likely having to do with the back end and final assembly of TVs, rather than the screens themselves. However, such a facility would be far smaller and require far fewer employees than initially conceived. Assembling 5 to 10 million televisions a year would employ no more than 2,000 workers, he estimates, and it would take considerable time to reach that level of output.

Investment would be dramatically lower than the $10 billion initially promised as well, O’Brien says, as it wouldn’t involve the highly automated systems and cleanroom facilities required on the front end of the manufacturing process. Instead, investment would be in the “tens of millions,” maybe reaching a billion, adding all of Foxconn’s new proposals together.

President Trump Attends Groundbreaking Of Foxconn Factory In Wisconsin
President Donald Trump breaks ground with Wisconsin Gov. Scott Walker, Foxconn CEO Terry Gou, US House Speaker Paul Ryan (R-WI), and Christopher “Tank” Murdock, the first Wisconsin Foxconn employee, at a ceremony for the Foxconn Technology Group computer screen plant on June 28th, 2018, in Mount Pleasant, Wisconsin.
Photo by Andy Manis / Getty Images

While Foxconn reiterated its commitment to creating 13,000 jobs in its statement to The Verge, any mention of the $10 billion investment or any investment figure was notably absent.

While Foxconn’s claim that the market for LCD screens has changed is true, it was also extremely foreseeable, O’Brien says. The display business has always gone through boom-and-bust cycles, and when the Wisconsin project was announced, it was obvious a bust was coming. “In 2016 and 2017, there was a bit of a shortage of panels. Panel prices were high, but there was a lot of enthusiasm for investment,” he says. “That’s when you saw Foxconn making these plans. But already, we saw in the pipeline 6 to 7 huge fabs [fabrication facilities] at the same scale as the Wisconsin one, where actual amount of demand that was plausible was maybe two.”

If the type of manufacturing facilities Foxconn is now proposing would employee at most 2,000 people, making up the remaining 11,000 employees with “knowledge workers” would entail an extremely large R&D facility, O’Brien says — something comparable to the entire MIT campus.

Many of the subsidies Foxconn stands to get from the state are pegged to certain investment and employment targets. Foxconn missed the first such target this year when it hired only 178 workers in 2018.

Municipality and county governments, on the other hand, have borrowed and spent considerable amounts to woo Foxconn, and they will be left in a precarious position as the company scales back its plans. Racine County and the Village of Mount Pleasant, the 26,000-person town where the factory was to be located, have borrowed $355 million so far and already spent $190 million, according to the Milwaukee Journal Sentinel, mostly on land meant for Foxconn. The project is expected to cost local governments almost a billion dollars, which officials had said would be covered by additional taxes generated by the development they hoped Foxconn would lead to. In the fall of last year, Moody’s downgraded the city’s credit rating over its Foxconn debt, and it issued another warning on Thursday.

“This could bankrupt our entire community. It could bankrupt the village,” says Kelly Gallaher, a local activist and founder of the group A Better Mt Pleasant, whose battle with the Village Board over the Foxconn project was featured in a recent episode of Reply All. “Our bonds could be reduced to junk, and then I guess somebody else is going to have to figure out what to next.”

The impact on Mount Pleasant goes far beyond the village’s finances. The Village Board declared the 2,800-acre site “blighted” and bought out homeowners or seized properties through eminent domain.

“Family farms, homes were demolished, people moved out, and it’s basically a moonscape at this point,” Gallaher says. “That was an extra special sweetener in the pot, that Mount Pleasant could blight the entire 3,000 square acres at a price that people either had to accept or go to court and get that land for a private corporation. It was immoral.”

Members of the Village Board did not respond to requests for comment.

Gallaher is angry with the officials who pushed through the deal despite copious red flags, but she says the village now has no choice but to make the best of the situation. On the bright side, she says, the town will no longer face some of the pollution concerns raised by the previous plan. In the best-case scenario, she says, Foxconn ends up building something, and development follows, filling out the huge footprint created for the previous version of the factory.

“It’s unfortunate to realize that you’re the cautionary tale for other towns and municipalities who get into this kind of race to the bottom for incentives in corporate welfare,” Gallaher says. “But I think that probably in a few years, we will be that lesson for other towns, and I guess if other people don’t follow in our footsteps, that is to the greater good.”