Apple turns to Japan to ease China's rare-earth magnet supply squeeze

Apple Inc’s Telangana factory, which is run by Foxconn to assemble its AirPods, is procuring rare-earth magnets for wireless earbuds from Japan in order to get over the Chinese government squeeze on their supplies to the company. This squeeze had forced the company to close down the plant for two weeks till June-end — a move that was unprecedented. 

Government sources privy to the development say that the quick action by Apple Inc has helped the company to restart production of AirPods at the factory in Kongara Kalan from the beginning of July. To ensure continuity in production, Apple Inc has told the government that the company is looking at other sources for magnets, which include Uzbekistan, to get over the Chinese action.

The AirPods are currently only for exports, primarily to the US and Europe. 

Sources say that the company has informed the government that this could increase the cost of producing the AirPods in India vis-a-vis China, and could make them globally uncompetitive, especially since the focus is on exports. 

Apple did not respond to a query and an email to Foxconn remained unanswered till the time of filing of this report. 

The plant began assembling AirPods from April this year but started facing serious issues on supplies of magnets in June, forcing the company to close the factory for two weeks. 

Under China’s new export control order regime, companies in India operating in various industries like electric vehicles (EVs), hearables, and drones among others, have not received supplies of rare-earth magnets since April this year. As a result, many companies, like those in the EV space, are planning to cut or stop production. 

Foxconn Interconnect Technology, a subsidiary of Foxconn, has invested $500 million in the plant and there are already over 5,000 workers churning out AirPods only for the export market. The plant will hire over 15,000 workers in its full capacity. During the plant closure, the workers were asked to stay home. 

The move by Apple Inc comes at a time when the Chinese government has been targeting firms that are big on exports, like the Cupertino-headquartered company, and blunting their competitive edge vis-à-vis the Chinese in the global play. 

Around a year ago, Apple Inc faced challenges with the Chinese government sitting on applications to import machinery for making iPhones in India. This year, the matter was exacerbated when the Chinese Customs indefinitely held machines that are required to be retrofitted on the assembly lines to make the upcoming iPhone 17. 

And the biggest blow came recently when the Chinese government prodded Foxconn to withdraw over 300 Chinese engineers and technicians from its factories in India. 

The engineers were flown to help and ease the process of transfer of technology, and technicians to train workers. The attempt was to increase the cost of production on Apple Inc products, ensuring that they are not globally competitive. 

It is also part of a strategy, say analysts, to bring in a sense of uncertainty among global value chains working on a China Plus 1 about India as a manufacturing destination, as they could stop supply  of key components which they had to import from.China and stifle production in India.