Exclusive: documents show Foxconn refuses to renegotiate Wisconsin deal

Why won’t Foxconn tell Wisconsin what it’s building?

Whatever Foxconn is building in Wisconsin, it’s not the $10 billion, 22 million-square-foot Generation 10.5 LCD factory that President Trump once promised would be the “eighth wonder of the world.” At various points over the last two years, the Taiwanese tech manufacturer has said it would build a smaller LCD factory; that it wouldn’t build a factory at all; that it would build an LCD factory; that the company could make any number of things, from screens for cars to server racks to robot coffee kiosks; and so on.

Throughout these changes, one question has loomed: given that Foxconn is building something completely different than that Gen 10.5 LCD facility specified in its original contract with Wisconsin, is it still going to get the record-breaking $4.5 billion in taxpayer subsidies?

Documents obtained by The Verge show that Wisconsin officials have repeatedly — and with growing urgency — warned Foxconn that its current project has veered far from what was described in the original deal and that the contract must be amended if the company is to receive subsidies. Foxconn, however, has declined to amend the contract, and it indicated that it nevertheless intends to apply for tax credits.

Foxconn has “refused by inaction” to amend the deal, says Wisconsin Department of Administration Secretary Joel Brennan. “They were continuously encouraged. It’s a relatively recent development, where they have said, ‘No, we don’t want to do anything with the contract.’ Our expectation has been, and continues to be, that they should want to come back and have discussions about this.”

The documents show it was Foxconn that first proposed amending the contract in a meeting on March 11th, 2019. Over the following months, various officials from the Wisconsin Economic Development Corporation (WEDC) and Gov. Tony Evers’ administration urged Foxconn to formally apply to revise its contract to reflect whatever it is actually building, a process that would involve describing Foxconn’s current plans, its expected costs, employment, and other basic details.

Foxconn never did.

Instead, a Foxconn representative wrote a brief letter asking the then-CEO of WEDC to make the current factory eligible for subsidies under the original contract. The company later claimed it has a right to apply for subsidies no matter what it builds in Wisconsin. Negotiations appear to have completely broken down in late November, after Foxconn director of US strategic initiatives Alan Yeung accused the Evers administration of being unfriendly to business, and saying that “discussions regarding immaterial matters are a misappropriation of our collective time and energy.”

Despite the impasse, Foxconn vice chairman Jay Lee told reporters as recently as last week that the company had hired more than the 520 workers required by the contract to receive subsidies for 2019, a surprising turnaround, given that Foxconn ended last year with only 156 employees and has yet to manufacture anything in Wisconsin. If Foxconn’s application for subsidies were to be certified by the state, Wisconsin would potentially pay the company more than $50 million in cash next year.

But unless something changes dramatically in the coming weeks, Foxconn’s application is more likely to result in a tense legal showdown with Wisconsin and the Evers administration. And to amend the deal, Foxconn will have to specify exactly what it plans to manufacture in Wisconsin, something the company has all but refused to do.

“It’s time to get some answers,” says Wisconsin State Assembly Rep. Gordon Hintz. “Wisconsinites deserve better than having Donald Trump show up in May, pulling back a curtain on a bunch of people assembling flat panel TVs and saying, ‘look what we’ve done.’”

Asked what would happen if Foxconn were to apply for tax credits now, Brennan says the subsidies would be withheld.

“The project that they have right now is outside the bounds of the contract,” Brennan says.

The Foxconn deal was controversial from the outset. Championed by Trump and passed by former Republican Gov. Scott Walker, it offered the company $4.5 billion in taxpayer subsidies, the largest ever granted to a foreign company. The credits were “refundable,” meaning that if Foxconn doesn’t owe taxes (as it likely won’t, given Wisconsin’s corporate tax structure), the state would simply pay the company cash.

If Foxconn actually hired the 13,000 people it promised, that subsidy would come out to $172,000 per job, according to a study requested by the Evers administration this year. For comparison, the same study estimated that Virginia paid between $10,000 and $13,000 per job for Amazon’s second headquarters.

But it quickly became clear that Foxconn was unlikely to hire that many people, at least on the schedule laid out in the contract. Even before Trump, Walker, and Foxconn founder Terry Gou broke ground on the factory, it began to shrink. First, it went from a Gen 10.5 LCD factory to a far smaller Gen 6. Later, Foxconn would tell the press that it had decided not to build a factory at all, only to restart the project two days later after a call from Trump. There were more changes after that, but the latest promise from Foxconn is that it will build a smaller Gen 6 LCD factory eventually employing 1,500 people, a “smart manufacturing facility” that will make automated coffee kiosks, and a data center. Collectively, the new buildings total a bit more than a million square feet, about one-twentieth the size of the original factory.

Even that plan doesn’t seem to be set in stone: experts have noted the current plants don’t have the type of foundations required for LCD fabrication, and while Foxconn had said the Gen 6 fab would be operational in 2020, it now says LCD production won’t start until 2022. The factory was already unusually small for a Gen 6, and now it appears to be only partially dedicated to LCD manufacturing, causing officials to believe it’s not a Gen 6 at all, but some type of multipurpose factory, making what, nobody knows.

“We know they’re not making a 10.5. We know they’re not making Gen 6. So what are they making?” asks Hintz, who sits on the WEDC board. “Is there any demand for it? What are the long term prospects?”

The shrinking factory was bad news for the state. Because of the way the incentives are paid out in the contract, if Foxconn built expensive facilities that employed few people, Wisconsin could end up paying $290,000 per job and certain scenarios could take that number above $500,000.

The state did have some leverage, however. The contract clearly defines the project as a Gen 10.5 LCD factory. So by building anything else, Foxconn risked having its subsidies withheld. Foxconn further departed from the contract this fall when the subsidiary Foxconn Industrial Internet (Fii) took the lead on the Wisconsin project, submitting plans for the manufacturing building and data center. Fii is not among the Foxconn entities covered by the contract.

Both sides seemed to have reason to revise the contract: the state to make sure taxpayers weren’t on the hook for exorbitant subsidies, and Foxconn to make sure it got paid. Indeed, it was Foxconn that first raised the prospect of changing the contract, even though the company now insists that is not required.

On March 11th, 2019, Louis Woo, special assistant to Foxconn founder Terry Gou, visited Wisconsin and met with Evers and other state officials. At that meeting, according to a memo obtained by The Verge, Woo confirmed that Foxconn wouldn’t be building the promised Gen 10.5 plant. Instead, the company would build a smaller Gen 6 plant that made LCDs for automotive and health care industries, a manufacturing plant for server boards, maybe a data center, and a medical facility. The new plan would be far smaller, the memo recounts Woo saying, employing 1,500 people and requiring $2 billion in investment.

Woo also said that Foxconn was interested in revising the contract to reflect the new plan and include additional Foxconn subsidiaries. WEDC’s then-CEO Mark Hogan told Woo that such an amendment would be possible and that WEDC had a formal process to apply for one. WEDC says it handles more than a hundred such amendments each year, typically when the budget or scope of a project changes, and that applications are subject to review and approval.

But when Evers mentioned at an April press briefing that the contract would have to be revised, Republican lawmakers who had pushed the deal criticized Evers for reneging on the contract. Foxconn issued only a vague statement that it remained committed to the contract but was open to “new ideas.” In response, Evers published a letter noting that it had been Woo who first proposed changes to the contract and that it was his understanding that Foxconn would be submitting the necessary documentation to WEDC in the coming weeks. The state, Evers said, was also identifying parts of the contract it would like to change “to enable greater flexibility and transparency as the project continues to evolve.” It appeared to be the opening overture in a negotiation.

It was not.

On July 8th, Evers wrote a letter to Hogan reiterating his position that the incentive package was tied to a far larger factory and would need to be revisited. Hogan, a Walker appointee, was one of the architects of the original Foxconn deal and had frequently asserted that the contract was sufficiently flexible to cover Foxconn’s changing plans.

“The unprecedented incentive package offered to Foxconn under the original contract was justified by the project’s promise of new manufacturing jobs in Racine County and the massive scale of a Generation 10.5 Facility. Because the project has evolved substantially from what was originally proposed, evaluated, and contracted for, it is necessary to review the revised aspects of the project and evaluate how changes can most fairly benefit both the company and our state,” Evers wrote. “Proposed modifications to the Foxconn agreement or terms for a new agreement should be thoroughly and thoughtfully reviewed and assessed by the WEDC and my Administration.”

Yet the summer went on, and Foxconn’s proposed changes never arrived. Instead, on July 25th, Woo wrote a three-paragraph message to Hogan touting the “incredible progress” Foxconn had made, detailing the large number of cement trucks used in pouring the foundation of the facility, and noting that Foxconn intended to include the work it was doing on the Gen 6 when it applied for tax credits at the end of the year. “With this letter, we are seeking the Wisconsin Economic Development Corporation’s affirmation that such Significant Capital Expenditures made for our Gen6 facility located in the EITM Zone will count towards the calculation of Capital Investment Tax Credits,” Woo wrote.

Hogan forwarded Woo’s letter to Brennan, the secretary of the Department of Administration, who replied that the administration had “strong concerns” regarding Woo’s request, and that Foxconn needed to submit detailed plans about the changes it wanted to make, and those plans needed to be voted on. Hogan responded by writing a letter to both Woo and Brennan, saying he felt an amendment to the contract was the best path forward and that Woo was aware of WEDC’s process for applying for one.

But by late August, Foxconn still hadn’t sent any proposed changes to the contract, even though the company had begun erecting concrete walls on the Gen 6 factory. On August 23rd, Brennan wrote another letter to Foxconn outlining the administration’s three goals, which all amounted to Foxconn revising the contract: that the Foxconn project should succeed, that Foxconn recognized the current plans were outside the terms of the 2017 contract, and that the administration wanted to help Foxconn succeed and earn subsidies by working with Foxconn to amend the contract.

The next step should be taken by Foxconn, Brennan wrote. The company should submit detailed applications for the project similar to those it did in 2017 when the deal was conceived, including detailed descriptions of the project, expected cost, when it will be completed, projections of the type and number of jobs, and what it will produce.

Eventually, Hogan stepped down, the contract still in limbo, and Evers appointed Missy Hughes to take Hogan’s place as CEO of the WEDC. Foxconn’s Woo also retired from his role overseeing the Wisconsin project following an injury; he was replaced by Jay Lee, the Fii executive.

After Brennan sent Foxconn the letter outlining the state’s goals for the contract, a meeting was set for October 2019 in Madison. Fii had also begun to take on a greater role in the project, despite not being a party to the original contract. By the time of the October meeting, Fii had announced it was supplementing the Gen 6 facility with a “smart manufacturing center” as well as a data center capped by a giant glass orb.

The October meeting would prove to be incredibly contentious.

A letter from Brennan summarizing the October meeting says that Foxconn acknowledged the current project was different from the one defined in the contract, wouldn’t apply for subsidies, and didn’t intend to apply to WEDC for a new contract or amend the old one.

This summary apparently shocked Foxconn. Several days later, Fii chief business officer Richard Vincent sent a letter to Brennan accusing him of mischaracterizing the meeting. Actually, Vincent wrote, Foxconn believed that a Gen 6 facility, a “Smart Manufacturing Center,” or a data center would all fulfill Foxconn’s commitments under the contract, and Foxconn “reserves the right” to apply for subsidies.

Brennan responded on November 4th, saying he stood by the accuracy of his earlier letter and that Foxconn’s current project is “ineligible for tax credits under Wisconsin law,” both because of its diminished scope and because Fii wasn’t part of the original contract. “With the new leadership in place at WEDC, we hope Foxconn reconsiders and chooses to follow the path outlined earlier this year by both me and WEDC’s past Secretary and CEO, Mark Hogan, of submitting the applications necessary to start the process of amending the Contract to fit your actual project work,” Brennan wrote.

Later that month, two executives with Fii as well as Yeung met with Brennan and Hughes at the WEDC offices in Madison. In a letter dated November 13th, Hughes thanks the Foxconn team for their presentation on 5G, automation, and 8K imagery, but she goes on to note that the meeting included “a frank discussion about the challenges related to Foxconn’s incentive contract with WEDC and the State.” Foxconn’s plans, she wrote, do not align with the project agreed to in the contract, nor is Fii a party to the contract. Because Fii can’t receive subsidies for hiring and investment prior to being certified as eligible by WEDC, Hughes warned, “it would be in Fii’s best interest to apply soon if it wishes to pursue eligibility for tax credits.”

Several days later, Hughes toured the Mount Pleasant factory site. In a letter, she thanked her hosts for the tour and reiterated that Foxconn should discuss the project.

“As the previous correspondence from Governor Evers, Secretary Hogan and Secretary Brennan indicate, along with my November 13th letter, the State wants to continue to champion Foxconn’s investments in Wisconsin. To help make your new project in Mt. Pleasant as successful as possible, I hope we can take the time soon to meet to discuss how best to align Foxconn’s needs and expectations with those of the State, WEDC, and of course, the citizens of Wisconsin,” Hughes wrote. She ended by offering to visit Foxconn’s headquarters in Milwaukee.

But that same day, Foxconn’s Yeung sent a letter to Brennan taking a strikingly different tone. “Since 2018, Foxconn has been communicating with the State of Wisconsin, especially Governor Evers, Department of Administration (DOA) and WEDC, that Foxconn’s intent is to build a Gen 6 Fab at Mount Pleasant,” Yeung wrote. (Evers didn’t assume office until 2019.) “Therefore, it comes with great surprise and disappointment that DOA and now WEDC have reaffirmed to us verbally and in writing that the Gen 6 is NOT certified and is thus not qualified for tax credits.”

Yeung said that Foxconn had been “relentlessly” visiting colleges around Wisconsin to recruit employees and traveling the country to attract workers, but that the low unemployment rate has made hiring difficult. “While Foxconn invests millions of dollars into the State of Wisconsin and hires job seekers, these efforts are being impeded by the current administration’s red herrings over the material terms of the Contract, which are overall capital investment and long-term job growth,” Yeung wrote.

“Discussions regarding immaterial matters are a misappropriation of our collective time and energy as we endeavor to bring significant investments and create jobs for decades to come. Distractions like these leave job creators and job seekers wondering if doing business in our great state is welcomed by Governor Evers’ Administration.” He closed by saying Foxconn “shall be evaluating all available options relating to the WEDC Contract.”

Brennan replied four days later with a sternly worded letter, calling Yeung’s letter inaccurate. Not only did Evers not take office until 2019, Brennan wrote, but Foxconn was opaque about its plans through 2018 — Woo had told Reuters in January that Foxconn wasn’t building a factory at all. The state had already spent hundreds of millions of dollars in infrastructure, job training, and other resources supporting the Foxconn project, Brennan wrote, and it had been consistently encouraging Foxconn to begin the process of amending the contract since the March 11th meeting in which Woo first proposed the idea.

Foxconn should see the amendment option as a “positive path,” Brennan wrote. “Unless we work together to ‘right size’ the contract through the amendment process to fit the new project, there will be minimum job cutoffs, investment deadlines and claw-back risks that disadvantage Foxconn. Additionally, the cost to the state of incenting Foxconn to create the new jobs will likely be so much higher for the new project than for the one specified in the contract that there would never be a net benefit to the State, exposing both sides to valid criticism by the State’s taxpayers.”

For its part, Foxconn tells The Verge it believes the original contract is still valid, and it vaguely suggested its efforts in Wisconsin would not continue if no resolution is reached.

“We can confirm that we are in discussions with the State regarding our commitment to bring substantial impact to Wisconsin’s economy, workforce and educational institutions,” the company said in a statement. “Foxconn is in compliance with the terms of the agreement with WEDC and we will continue to work with the State in good faith. Foxconn is hopeful that we will arrive at a mutually acceptable resolution so we can continue with a project that is important to our company and to the development of technology in Wisconsin.”

Hughes says she has continued to meet with Foxconn representatives, but she has yet to receive any proposals to amend the contract.

“I have also emphasized that transparency and accountability are core values for WEDC and for Wisconsin,” Hughes told The Verge. “We are asking Foxconn to come to the table so we can fully understand their plans, how they are evolving, how we can assist them, and how we can do this together in a way that WEDC remains accountable and transparent to the people of Wisconsin who have invested in this project.”

But as Wisconsin awaits Foxconn’s proposal, exactly what type of factory is being built remains a mystery.

“I keep asking people. Does anybody know what the company is going to make in May when they open?” Hintz says. “And I can’t get an answer.”