Terry Gou’s Presidential Ambition Costs Foxconn $9 Billion

(Bloomberg) -- Beijing’s surprising investigation of Foxconn Technology Group, Apple Inc.’s largest iPhone assembler, is stoking fears about founder Terry Gou’s business empire as he pursues Taiwan’s presidency.

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Shares of Hon Hai Precision Industry Co., the public arm of Foxconn, has lost 5% this week after Chinese state media said regulators are tax-auditing Foxconn subsidiaries and investigating its use of land. Hon Hai unit Foxconn Industrial Internet Co. slumped 15% in Shanghai trading, while two Hong Kong-listed units also declined Tuesday.

The four stocks have lost about $9 billion in value this week. Hon Hai is down 15% from its high in June, while Foxconn Industrial has slumped 40%.

The investigations add to multiple challenges facing Gou’s businesses, including China’s sluggish economy, lackluster iPhone 15 model sales, and Hon Hai’s fledgling diversification into a saturated electric vehicle market.

Given Foxconn’s manufacturing presence in China — it’s the nation’s largest private employer — there are questions over Gou’s ability to withstand pressure from Beijing on cross-straits issues. He is running as an independent candidate for the 2024 Taiwan election.

“The tax probe has triggered some concerns that it was because Gou is seeking presidency in Taiwan,” said Kenny Wen, head of investment strategy at KGI Asia Ltd. “The potential political impact on Foxconn, because of Gou’s moves, is really hard to access, so investors chose to sell it first.”

The probe could accelerate Hon Hai’s move to diversify its production capacity out of China, Morgan Stanley said in a report. US companies have also been leaning on their Chinese suppliers to explore alternative locations amid rising geopolitical tensions.

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