IPhone production shift to US could spike costs by 90%: report

Moving iPhone production to the US could raise manufacturing costs by 25%, mainly due to higher domestic labor expenses, according to a Bank of America report.

The analysis, led by Wamsi Mohan, also points out that many iPhone components would still need to be imported from China. With potential tariffs, total production costs could rise by 90% or more.

This report comes amid ongoing US-China trade tensions. The US has imposed tariffs of up to 125% on Chinese goods, while China has responded with 84% duties on American imports.

Apple has been affected, with its stock falling 14% since the new tariffs were announced.

Despite this, Apple shares jumped over 10% on Apr. 9, their best gain since July 2020. Still, the stock is down 23% this year, wiping out US$479 billion in market value.

🔗 Source: SCMP

🧠 Food for thought

1️⃣ Apple’s profit margins reflect a premium strategy, not just manufacturing costs

The debate over iPhone manufacturing location often overlooks Apple’s deliberately high margins. Current production costs for the iPhone 15 are estimated at $558, while retail prices range from $999 to $1499, representing profit margins of up to 168% before accounting for R&D and marketing 1.

These margins have allowed Apple to capture 75% of the entire smartphone industry’s profits despite holding only 23% market share 1.

The company’s manufacturing strategy historically prioritizes flexibility to adapt to rapidly changing market demands over pure cost reduction, with quality considered a “qualifier” rather than a differentiator 2.

Even without tariffs, any U.S. manufacturing operation would struggle to maintain these margins while competing with Foxconn’s massive Zhengzhou facility, which spans 2.2 square miles, employs up to 350,000 workers, and can produce approximately 500,000 iPhones daily 3.

This scale and efficiency would be extremely difficult to replicate domestically at competitive costs, regardless of labor rates.

2️⃣ Apple’s previous U.S. manufacturing attempts provide cautionary context

This isn’t Apple’s first consideration of domestic manufacturing. In the 1980s, Apple invested $20 million in a “factory of the future” in Fremont, California, which closed after just two years due to strategic misalignment 2.

The subsequent partnership with Foxconn marked a significant shift that integrated marketing and manufacturing strategies more effectively 2.