The company’s executives were fully aware of the challenges they would encounter when manufacturing a smartphone in the U.S. Despite the daunting nature of this task, they viewed it as an exciting opportunity and welcomed the challenge. In a bold move, the company proudly defied conventional wisdom in a blog post announcing the production of a new smartphone made in America. Many experts had doubted the feasibility of such an endeavor, citing high costs, a perceived decline in U.S. manufacturing capabilities, and inflexible labor force as major obstacles.
Against all odds, a significant number of sleek touchscreen phones began rolling off the assembly line at a facility in Fort Worth, Texas each day. What initially seemed like a risky venture eventually started to show promise as a potential milestone—a courageous investment in American manufacturing at a time when industry leader Apple predominantly relied on factories in China due to inexpensive labor and a vast network of suppliers.
This groundbreaking initiative took place in 2013 under the leadership of Google, following its acquisition of Motorola Mobility. Leveraging its advanced technological capabilities and substantial resources, Google aimed to make the Moto X smartphone a triumph. However, just a year later, the project came to an abrupt end as Google sold off the Motorola phone business and discontinued U.S. manufacturing efforts. This marked the conclusion of the last major attempt by a company to produce smartphones in the United States.
Though largely forgotten, Google’s brief foray into domestic smartphone production holds valuable lessons that remain relevant today, especially in light of President Trump’s recent calls for tech companies like Apple to move their manufacturing operations to the U.S. The failed experiment raises questions about the impact of globalization, industry competition, and corporate priorities on such endeavors.
To understand the story behind this undertaking, Fortune magazine interviewed five former Motorola employees directly involved in the U.S. assembly project, alongside industry experts and analysts. Despite initial optimism, these insiders soon realized that some of their assumptions were flawed and that sales figures did not meet the ambitious targets set by leadership.
The Moto X, the centerpiece of the project, set itself apart not only through its domestic production but also by offering customers the ability to customize their devices with a wide array of colors and materials when purchased directly from Motorola’s website.
The company offered customized phones with unique features such as bamboo and walnut backs, along with personalized engraving. This tailored approach was aimed at setting them apart from competitors like Apple and Samsung, who mainly sold standardized models. The customization aligned well with the strategy of producing phones in the U.S., enabling quicker delivery to domestic customers and reducing shipping costs. Motorola positioned the device as a patriotic choice compared to foreign-made alternatives in their marketing efforts.
The Fort Worth factory, operated by Flextronics (now Flex), focused on final assembly of phones using imported components from Asia to optimize costs. Despite higher labor expenses compared to China, the decision was justified due to other benefits. The CEO, Dennis Woodside, confirmed that selling customized phones was profitable. In addition to personalized options, Motorola also offered standard versions to wireless carriers to maintain a consistent level of demand and production.
In contrast, Apple, which doesn’t offer customized iPhones, would face similar challenges, including higher labor costs if it shifted production to the U.S., as suggested by Trump. Experts predicted that U.S.-made iPhones would have to be significantly more expensive, potentially over $3,000. Apple has been diversifying its sourcing away from China, with India becoming a primary manufacturing location for its U.S.-bound phones to mitigate the impact of tariffs. President Trump’s stance on Apple’s manufacturing strategies has been clear, emphasizing domestic production over international alternatives.
The ongoing trade war dynamics remain uncertain, as Trump has shuffled import tax decisions while advocating for U.S.-based production. Tim Cook, Apple’s CEO, has highlighted Asia’s manufacturing advantages due to skilled labor availability rather than lower wages, indicating that China’s appeal lies in its workforce expertise rather than cost savings.
Apple CEO Tim Cook praised Chinese tooling engineers for their precision, noting that there is a significant shortage of such engineers in the U.S. He highlighted that in China, the number of tooling engineers could fill multiple football fields, emphasizing the contrast between the two countries in this regard. In an attempt to satisfy President Trump, Apple committed to investing $500 billion in the U.S. over the next four years, with a portion of the funds dedicated to producing servers in Houston for its data centers. However, there has been no mention of relocating iPhone manufacturing operations back to the U.S.
When Flextronics anticipated a shortage of skilled engineers in the U.S. for the Moto X project, they recruited engineering talent from various countries including Hungary, Israel, Malaysia, Brazil, and China, relocating them to Fort Worth to expedite the project. The company also recruited local assembly line workers, supervisors, and managers easily due to the region’s status as a telecom manufacturing hub. The facility, equivalent to nearly eight football fields in size, began production in 2013 in a former Nokia phone factory located in a designated foreign trade zone with its own airport for cargo, allowing for lower tariffs on imported components from Asia.
The Moto X plant in Texas required extensive equipment installation, with some machinery, like testing machines, imported from China. Workers meticulously assembled phones at blue tables, with certain tasks like fitting plastic parts done by hand and robotics utilized for adding components and testing parts. Process engineers focused on optimizing efficiency by identifying and addressing bottlenecks as production increased.
The Moto X, designed under Google, gained popularity for its innovative features such as voice control and distinctive design. Despite the success of the product, there has been no mention of bringing manufacturing operations back to the U.S.
Excited about the Moto X, partly for self-serving reasons, Randall, the supply chain expert, mentioned that if the device sold well, it could give carriers more negotiating power over Apple for future iPhone wholesale prices. However, the Moto X received mixed reviews from critics. While they appreciated the customization options and design, they criticized its limited storage (16GB) and subpar screen quality compared to competitors.
Despite the initial buzz, the “Made in America” aspect didn’t resonate with consumers as expected. The Fort Worth plant initially struggled to keep up with demand, causing delays in fulfilling orders. Motorola sold 900,000 Moto X handsets globally in the first quarter of 2014, far fewer than Apple’s 26 million iPhone 5s sales in the same period.
After five months, Motorola reduced the Moto X price to $399, and the workforce at the factory decreased significantly over nine months. It became clear early on that the Moto X was underperforming, prompting a production slowdown. While not a complete failure, the phone didn’t achieve significant success in sales.
The limited marketing budget was cited as a factor affecting the Moto X’s performance, with employees believing that future models could fare better with improved design and marketing strategies. The company’s emphasis on U.S. assembly didn’t resonate with consumers, highlighting a mismatch between consumer priorities and the company’s assumptions.
Motorola faced challenges due to slow demand and the customization feature, which increased return rates and operational complexities. In contrast, Apple’s standardized lineup and established supplier relationships allowed for better cost savings and control over component prices.
Apple’s size and market dominance provided it with advantages that Motorola lacked, making it easier for Apple to capitalize on economies of scale and negotiate favorable terms with suppliers. Motorola struggled to compete in this aspect, given its position in the market and uncertainty surrounding the Moto X’s success.
Ultimately, the Moto X experience highlighted the importance of understanding consumer preferences, effective marketing, and operational efficiency in the competitive smartphone market.
One of the challenges for smartphone makers is operating in a fiercely competitive market with thin profit margins. For companies like Apple, producing in the U.S. can be costly due to higher wages, but the premium pricing of products like the iPhone allows for absorbing these expenses more easily. In contrast, Google’s shifting priorities led to the sale of Motorola to Lenovo in 2014. Following the sale, production shifted to China and Brazil to lower costs, targeting budget-conscious consumers in developing markets.
The decision to sell Motorola also addressed concerns from Android partners who felt Google was competing against them after acquiring the company. Furthermore, Google aimed to leverage Motorola’s patent portfolio to defend against ongoing lawsuits related to Android’s intellectual property. By selling Motorola to Lenovo, Google retained most of the patents, recognizing their greater value compared to the struggling handset business.
Ultimately, the underperformance of the Moto X in the U.S. market was not solely attributed to its domestic assembly but rather to its inability to compete with the more popular iPhone. While advancements in factory automation could enhance cost efficiencies for U.S. manufacturing, challenges remain in quickly scaling up production as efficiently as in China.
In summary, the dynamics of the smartphone industry, including market competition, shifting priorities, and patent considerations, influenced Google’s decision to sell Motorola and highlighted the complexities of U.S. manufacturing in this sector.
The production of electronic components for millions of phones domestically would be a lengthy endeavor. Importing parts as an alternative could be costly due to potential tariffs proposed by President Trump. The uncertainty surrounding tariff policies adds complexity for companies looking to invest in phone assembly plants. Former Motorola CIO, Mills, believes that providing some flexibility to phone manufacturers like Apple would facilitate setting up manufacturing in the U.S. This could involve conducting final assembly domestically to circumvent tariffs. The definition of “Made in America” by President Trump plays a significant role in this scenario. Another suggestion is for Apple to establish a limited edition iPhone production facility domestically, which could be sold at a premium price to avoid expensive alternatives. While Motorola’s Made in America initiative lasted only a year, no other major smartphone maker has attempted a similar approach since then.
