🔍
How Much Would it Cost to Make an iPhone in America? - How Money Works - YouTube
Channel: How Money Works
[0]
How much do you think it would cost to make
a smartphone like this one here in the United
[4]
States?
[5]
How much do you think a manufacturer would
end up selling this American made phone for?
[10]
And most importantly how much extra would
you be willing to pay for your next iPhone,
[15]
Android or Nokia brick to have it made in
America.
[18]
You don’t need to answer just yet, but these
are some very important questions that have
[23]
equally serious implications to consumers,
companies and some of the most powerful economies
[27]
in the world.
[29]
If you have ever looked into this issue, or
even actually tried to purchase a locally
[32]
manufactured phone you have no doubt seen
a dizzying array of numbers that claim anything
[37]
from an American made iPhone would cost ten
thousand dollars all the way down to an American
[42]
made iPhone would only be a tiny bit more
expensive than a Chinese made iPhone
[46]
So which prediction is right?
[49]
Weirdly… both…
[51]
But with trade and political tensions at all-time
highs we might find ourselves in a situation
[55]
where we need workable answers to this problem
sooner rather than later.
[59]
So it’s time to learn How Money Works….
[110]
…
[111]
Consumer electronics are just one of many
industries which have been lost in western
[113]
developed nations over the past 40 years.
[116]
Prior to the 1970’s most durable goods consumed
in America or Europe were produced right there
[122]
in that country because that was the easiest
and cheapest way to get things done.
[126]
Import taxes and quotas meant that foreign
goods were real luxuries which commanded a
[130]
steep premium over their domestically produced
competitors.
[134]
That’s not to say that locally made goods
were cheap though.
[137]
An average television set could easily cost
the average households entire monthly income
[141]
and the same was true of stereo’s, fridges,
cameras and a variety of other household items
[146]
that we almost treat as disposable today.
[149]
But this started to change when countries
like Japan, South Korea, and ultimately China
[153]
built out industrial centers of their own
which could manufacture and deliver items
[157]
to western markets for cheap.
[159]
howeverit is really important to understand
that this would not have been possible with
[164]
just cheap labor alone.
[165]
It was actually the increase in trade deals
that made it possible for foreign factories
[170]
to compete with domestic factories.
[172]
This had a few major benefits for the world
economy.
[174]
The first was that it let poor countries gain
a foothold in the world economy.
[175]
The salaries in these electronics factories
may have been low but they were still far
[179]
better than what these workers would have
made working on a substance farm.
[183]
The other big thing it did was make things
a lot cheaper.
[187]
An average TV today sells for about 400 bucks,
and you would need to get a seriously impressive
[192]
model for it to come anywhere close to matching
the average household income even despite
[196]
stagnant wage growth.
[198]
Imports have become the cheaper alternative…
or really the only alternative.
[203]
So why are these goods so much cheaper?
[205]
It’s because we can exploit the cheaper
labor in these developing countries, right?
[210]
Wrong!
[211]
The cost breakdown of an iPhone looks something
like this.
[214]
There are the fixed costs of researching a
developing a new phone model that need to
[217]
be paid off before the first unit even hits
the production line, that get broken down
[222]
and shared amongst all the phones that are
produced with that design, which goes on until
[226]
a new model needs to be designed to keep up
with the competition.
[230]
On top of R&D there is the actual components,
the camera, the battery, the processor, which
[235]
are provided by other companies that just
specialize in making these small parts.
[239]
Then there is the labor costs.
[241]
An article by the New York Times reported
that a Foxconn factory in Zhengzhou could
[245]
produce 500,000 iPhone a day and employed
an astronomical 350,000 workers.
[252]
This means on average it takes roughly 17-man
hours to manufacture a completed iPhone from
[257]
raw materials and components.
[259]
This report is from 2016, so things could
have changed since then with newer models
[264]
and more automation on assembly lines, but
the companies involved are naturally pretty
[268]
tight lipped about that kind of stuff so for
now let’s assume this is the industry standard.
[273]
The next cost is the profit component of the
manufacturer.
[277]
No major phone companies actually produce
their own phones, they instead outsource manufacturing
[282]
to companies like Foxconn, Celestica and TDK.
[285]
These companies will mark up the phones that
beyond their raw manufacturing costs in order
[290]
to make a profit themselves, after all they
aren’t a charity, they want to make money
[294]
for their shareholders.
[295]
There is also shipping, taxes, and the profit
that the companies themselves will make for
[299]
selling each individual phone.
[302]
Once all of these are added up we are left
with the price that you pay as a consumer.
[306]
If we think of all of these cost factors individually
it makes it a lot easier to asses the impact
[311]
of moving manufacturing on shore.
[314]
If we assume that all other variables stay
the same then we simply need to change this
[318]
variable here.
[320]
It takes the average worker 17 hour to produce
a phone, so if we multiply 17 by the average
[325]
wage of a production line worker at a Foxconn
factory in China, we find that labor accounts
[330]
for $42 of the price of an iPhone.
[332]
If we change this to reflect the average salary
of an unskilled production line worker in
[336]
the United States this number would grow to
$263.
[341]
So if both Apple and their manufacturing partners
wanted to maintain their profit margins then
[346]
an iPhone would cost the end consumer an extra
$221.
[351]
This actually doesn’t sound so bad.
[353]
The average smartphone is much more expensive
today than the early models that came out
[358]
a decade ago.
[359]
Ironically the prestige of having an American
made phone might actually be enough to attract
[364]
certain buyers, which is almost the opposite
of consumer behavior 40 years ago when foreign
[369]
imports were the status symbol.
[371]
Foxconn actually did invest heavily into manufacturing
in the US, but these projects have since mostly
[377]
been abandoned.
[378]
Whether that was because of the pandemic or
whether it was because of economics that just
[382]
didn’t make sense is quite hard to say.
[384]
But let me re-raise the question I asked at
the beginning of the video, how much extra
[389]
would you be willing to pay to have an American
made phone?
[392]
I don’t think many of you would actually
be willing to part with this extra money.
[396]
I am personally about as pro local industry
as they come, and I honestly don’t think
[401]
I would pay the extra if given the choice.
[404]
But as you might have expected it only gets
worse from here.
[407]
So far we have only changed one variable,
the labor costs.
[412]
But moving manufacturing to the States does
much more than just that.
[415]
Tim Cook has said that the biggest hurdle
to domestic manufacturing is not labor costs,
[420]
it’s the skills and infrastructure.
[422]
The iPhone is made of dozens of components
which are made in countries like Taiwan, Vietnam,
[427]
India or China itself.
[429]
Importing individual electronic components
into America is much less efficient than importing
[434]
completed products, so the shipping and handling
costs would increase drastically.
[439]
These increased costs might be offset slightly
by the reduced cost of transport for the finished
[443]
product within America, but iPhones are sold
all over the world.
[448]
One of the biggest markets for the phone IS
China, a market with consumers who are poorer
[453]
and therefore more price sensitive.
[455]
Due to higher sales taxes an Iphone actually
costs more in China than it does here in the
[460]
states, needing to ship components from Asia,
across the pacific and then back again would
[465]
only expand this price imbalance against the
country that can least afford it.
[469]
So, what if American iPhone were made in America,
and iPhones for the rest of the world were
[474]
made in their own local hubs.
[476]
This actually happens quiet a lot in the automobile
industry.
[479]
Some of BMW’s largest plants are not actually
in Germany, but rather South Carolina.
[485]
This is primarily done to avoid the costs
of shipping in import duties, but it costs
[489]
much more to ship a 4,000-pound car overseas
than it does to ship a comparatively tiny
[494]
iPhone.
[495]
This reduction in domestic shipping costs
would be dwarfed by the increased costs of
[499]
needing to retool and retrain a dozen factories
rather than just one factory every time a
[504]
new phone is released.
[505]
Anyway, this doesn’t really solve the main
issue, an iPhone assembled in America from
[510]
parts made in Asia doesn’t mean we are any
less reliant on fragile global supply chains
[515]
or any more immune from the actions of potentially
hostile governments.
[518]
So, let’s go from the feet up and asses
what would happen if we moved everything onshore
[523]
just like the good old days.
[525]
Well, this is where the prices get out of
control very quickly.
[528]
Let’s start off with the good news, shipping
would cost less, but everything else would
[533]
cost a lot more.
[535]
Finding enough people in America to just work
in the assembly plants might be a major challenge
[539]
right now.
[540]
When you throw in the need to manufacture
all these components locally as well, then
[544]
it would be almost impossible, especially
considering that component manufacturing often
[549]
involves skill sets that just aren’t trained
in America anymore.
[552]
Of course, money can solve everything so with
enough research, development and training
[557]
it is possible, but it’s going to be expensive.
[560]
A company would need to train an entirely
new workforce AND pay them enough to tempt
[564]
them to leave their current jobs.
[567]
These components are going to cost a lot more
because they themselves are influenced by
[571]
the labor costs that go into putting them
together.
[573]
In the very long term these costs may be brought
down once infrastructure is established, and
[578]
training in micro component manufacturing
is something that people do themselves to
[582]
get a job (rather than have training given
to them as a requirement to gain the necessary
[587]
manpower).
[588]
But In the short term an iPhone would be just
the same as a TV 40 years ago, ridiculously
[594]
expensive.
[595]
Unfortunately, most established businesses
really can’t make huge, risky bets that
[599]
only have the potential to break even decades
into the future.
[602]
They have stakeholders to keep happy, and
the status quo is great at achieving that.
[608]
Now obviously wages have been a major variable
throughout all of these calculations, but
[613]
if the headlines are to be believed then all
of that might be about to change.
[617]
Go and watch my video on the real reason why
40% of people are about to quit their jobs
[621]
to find out.
[623]
As always, a big thank you to my channel member
and patrons on Patreon for making it possible
[627]
for everybody to keep on learning How Money
Works.
Most Recent Videos:
You can go back to the homepage right here: Homepage