Foxconn Chairman Young Liu is placing a massive bet on artificial intelligence while stepping back from electric vehicles, predicting that China’s brutally competitive EV market will soon experience a devastating consolidation that forces unprofitable startups to disappear.

The world’s largest contract electronics manufacturer plans to invest $2 billion to $3 billion annually in AI infrastructure over the next three to five years, Liu told Reuters during a visit to Tokyo earlier this month.

That massive investment represents more than half of Foxconn’s roughly $5 billion in annual capital expenditure.

AI Servers Surpass iPhone Manufacturing

The strategic pivot reflects a dramatic shift in Foxconn’s revenue mix. The Taiwanese company’s cloud and networking business, which includes AI servers, has now surpassed consumer electronics for two consecutive quarters.

“For now, AI will be the majority of the investment,” Liu said in comments embargoed until Friday to coincide with Apple supplier’s annual Hon Hai Tech Day.

The 69-year-old chairman, who has led Foxconn since taking over from founder Terry Gou in 2019, is betting that AI infrastructure represents a more profitable future than the company’s traditional manufacturing business.

Foxconn is also in discussions with Japan’s government about potential investments in AI or EV sectors, though Liu declined to provide details. He emphasized that local manufacturing of AI systems is critical for data sovereignty.

China’s EV Market Faces “Very Fierce Competition”

While ramping up AI investment, Liu delivered a stark warning about China’s overcrowded electric vehicle market. He predicts a consolidation “shakeout” will arrive soon as unprofitable manufacturers collapse and government support proves insufficient.

“They’re not making money,” Liu said of Chinese EV makers, adding that government subsidies are too limited to support every manufacturer in the world’s largest auto market.

Liu’s assessment carries weight given his front-row seat to China’s manufacturing realities. He predicted China’s automotive landscape will be “much more stable” once a period of brutal consolidation eliminates weaker players.

BYD’s Profit Collapse Validates Liu’s Warnings

The squeeze Liu describes is already crushing even market leaders. Top Chinese EV maker BYD reported its biggest quarterly profit drop in more than four years last month, with third-quarter profit plummeting 33% while revenue declined 3% for the quarter.

That marked BYD’s first revenue decline in more than five years.

BYD has also slashed its 2025 sales target to 4.6 million vehicles amid growing competition from domestic rivals and an intensifying price war that has seen discounts reach up to 34% on select models.

The bloodbath extends beyond BYD. More than 40 Chinese brands are now engaged in aggressive discounting, creating what regulators have called “rat-race competition.”

Xiaomi’s Success Proves Competition Is Real

Yet China’s auto industry remains nascent enough to attract new entrants despite the carnage. Xiaomi, which makes everything from smartphones to rice cookers, launched its first EV model in 2024 and has quickly become a disruptive force.

The tech giant’s SU7 sedan has outsold Tesla’s Model 3 monthly since December 2024, while its YU7 SUV generated 289,000 pre-orders in just one hour at launch.

Xiaomi’s aggressive entry demonstrates both the opportunity and the danger Liu describes. The smartphone maker can leverage existing manufacturing expertise and consumer electronics know-how to rapidly scale EV production. But it also intensifies the overcapacity and pricing pressure that’s destroying profit margins across the industry.

Foxconn Delays Its Own EV Ambitions

Liu’s pessimistic outlook on EVs reflects Foxconn’s own struggles in the sector. The company delayed its ambitious target to capture 5% of the global EV market by 2025 in November last year as demand slowed worldwide.

Rather than abandoning EVs entirely, Foxconn is holding off on ramping up investment until market conditions improve. The company is exploring expansion in other emerging technologies including quantum computing and robotics.

Liu’s caution stands in stark contrast to Foxconn’s original EV enthusiasm when the company entered the market in 2019 with plans to replicate its iPhone manufacturing success in automotive.

The PC Industry Playbook: Consolidation Then Outsourcing

Liu drew parallels between today’s EV market and the personal computer industry of the 1990s, when intense competition made in-house production unsustainable and drove manufacturers to outsource assembly.

Foxconn pioneered that outsourcing model by becoming Compaq Computer’s manufacturing partner, eventually growing into the world’s largest PC supplier.

“Once they start outsourcing with one successful example, the others will follow,” Liu explained. “That’s exactly what we saw in the PC market.”

Liu predicts automakers will accelerate their shift to outsourcing as EV competition intensifies, potentially positioning Foxconn as a contract manufacturer once the consolidation shakeout eliminates weaker brands.

EVXL’s Take

Liu’s prediction of an imminent China EV shakeout isn’t speculation. It’s pattern recognition from someone who watched this exact movie play out in consumer electronics.

The data backs him up completely. As we reported last month, BYD’s 33% quarterly profit collapse and first revenue decline in five years proves that even the market leader is bleeding. When the company selling the most EVs in the world can’t make money despite massive scale advantages, the writing is on the wall for everyone else.

Industry analysis from AlixPartners, which we covered in July, projects that only 15 of China’s current 129 EV and plug-in hybrid brands will remain financially viable by 2030. That’s a 90% extinction rate. Liu’s “shakeout” language actually undersells how catastrophic this consolidation will be.

The fake sales scandal we exposed last week reveals the desperation driving Chinese automakers. When manufacturers resort to registering unsold vehicles to dealerships just to hit sales targets, you’re not watching healthy competition. You’re watching an industry built on $230 billion in government subsidies that’s now collapsing under its own weight.

Even BYD’s own executives agree. When BYD’s Stella Li called the price war “unsustainable” back in June, she was acknowledging what Liu now states plainly: Chinese EV makers are trapped in a death spiral of margin-destroying discounts that benefits nobody except consumers hunting for bargains.

The irony is delicious. Back in August 2024, we covered Foxconn’s entry into China’s EV market with plans for a 700-acre campus in Zhengzhou. Just 15 months later, Liu is pivoting to AI and predicting the EV market will follow the same consolidation path that made Foxconn rich in PCs.

What makes Liu’s analysis particularly valuable is his manufacturing perspective. While Ford CEO Jim Farley warns that China could “put us all out of business” with their EV dominance, Liu sees the opposite. He’s watching Chinese manufacturers destroy each other through overcapacity and unsustainable pricing before they can conquer global markets.

The Xiaomi factor complicates this narrative. We’ve documented Xiaomi’s meteoric rise as the smartphone maker’s SU7 outsold Tesla’s Model 3 monthly since December 2024. The company demonstrates that tech giants with deep pockets and manufacturing expertise can still disrupt the market. But Xiaomi’s success actually validates Liu’s point: only well-capitalized companies with existing manufacturing scale can survive this bloodbath. The 114 other Chinese EV brands lack Xiaomi’s resources.

The Taiwan connection adds another layer. Liu’s emphasis on local AI manufacturing for “data sovereignty” echoes themes our sister site DroneXL has been tracking around Taiwan positioning itself as an alternative to China’s drone component dominance. Foxconn could leverage Taiwan’s semiconductor expertise for AI infrastructure the same way Taiwan manufacturers are trying to break DJI’s stranglehold on drone supply chains.

The timeline matters here. China’s automotive plant utilization hit just 50% in 2024, the lowest in a decade. Dealership inventory reached 57 days in April. Price discounts hit a record 16.8% that same month. These aren’t signs of a vibrant market finding equilibrium. They’re symptoms of terminal overcapacity.

Liu’s PC industry comparison reveals his real play. Foxconn became the world’s largest electronics manufacturer by letting companies like Compaq, Dell, and eventually Apple focus on design while Foxconn handled the messy, low-margin manufacturing. He’s betting the same consolidation will happen in EVs, with surviving Chinese brands (probably the 15 AlixPartners predicts) eventually outsourcing production to specialists like Foxconn.

But that’s a five-to-ten-year bet, minimum. In the meantime, Liu is chasing the AI gold rush where margins are fat and demand is exploding. Cloud and networking revenue already exceeds consumer electronics. The $3 billion annual AI investment isn’t diversification. It’s recognition that EV manufacturing won’t be profitable for years.

The coming 12 months will be brutal for Chinese EV makers. Government subsidies are waning. Competition remains “very fierce,” as Liu diplomatically puts it. Profit margins are evaporating. And unlike the PC industry, automotive has massive capital requirements for factories, tooling, and safety certification that make pivoting or exiting far more expensive.

Western automakers watching Chinese EV dominance should pay attention to what Liu sees from inside China’s manufacturing machine: not an unstoppable juggernaut, but an industry cannibalizing itself before it can conquer the world.