HANOI/TAIPEI (Nov 5): Elon Musk's SpaceX asked Taiwanese suppliers to transfer manufacturing off the island, leading to some relocating portions of their supply chain, according to sources employed by and close to the equipment makers and corporate documents.

A source at a company that is one of the numerous subcontractors that provide components for SpaceX's Starlink satellite internet products said SpaceX asked their manufacturers to produce outside of Taiwan because of geopolitical risks, pushing at least one to move production to Vietnam.

A second source who collaborates with Taiwanese satellite component makers on the island said suppliers were directly asked by SpaceX to transfer manufacturing abroad.

Chin-Poon Industrial, a satellite component maker which said it was recently a SpaceX supplier, told Reuters the US company requested they move their manufacturing from Taiwan to Thailand for new orders "mostly due to geopolitical considerations". It did not elaborate.

The sources declined to be identified because the information was not public. SpaceX did not reply to requests for comment.

SpaceX's requests place a renewed focus on the contentious relationship Musk has had with Taiwan, especially after he said last year it is an "integral part" of China, drawing sharp criticism from the Taiwanese government.

China views democratically governed Taiwan as its own territory and has staged almost daily military drills around it over the past five years and has never renounced taking the island by force. Taiwan rejects China's sovereignty claims.

China's drills have increased in intensity since 2022, with the latest war games it carried out last month replicating a blockade of the island. Amid the potential for devastating disruptions to their supply chains, some Taiwanese companies in the strategic satellite and semiconductor industries are taking steps to reduce their reliance on domestic manufacturing.

A Vietnam-based investment adviser told Reuters in October SpaceX representatives said in a private meeting in March 2023 the company was interested in setting up a manufacturing hub for satellite equipment in Vietnam and sought advice on protecting intellectual property.

When contacted by Reuters about Taiwanese SpaceX suppliers moving abroad, Taiwan's economy ministry responded, "Short-term political factors should not affect the supply chain relationship between international satellite companies and Taiwan manufacturers."

Taiwanese SpaceX supplier Wistron NeWeb Corp (WNC) this year began producing routers and other network gear for Starlink at its factory in the northern Vietnamese province of Hanam, about an hour south of Hanoi, two of the plant's workers and a contractor said.

WNC's expansion in Vietnam is largely due to orders from SpaceX, said one of the workers.

The Hanam factory plans to at least double its 3,000-strong workforce, the contractor and one of the workers said. Outside the factory, several banners advertised job offers at the plant, Reuters reporters observed in mid-October.

The first source familiar with SpaceX's requests to move out of Taiwan is an employee of a Vietnam-based foreign-owned supplier whose components for printed circuit boards are in Starlink's ground equipment through WNC-made components.

The source said a SpaceX vendor they work with that supplies WNC was directly told by SpaceX to produce outside of the island.

WNC declined to comment, citing customer confidentiality. Its latest annual report in April said: "In the face of geopolitical risks and ever-changing customer requirements, WNC has continued to expand its global manufacturing capabilities".

Universal Microwave Technology, another SpaceX supplier and manufacturer of satellite components, invested in a factory in Vietnam this year, according to a Taiwanese official and public documents from the company.

Universal Microwave Technology declined to comment on individual customers, citing confidentiality agreements, but said it was expanding its presence in Southeast Asia, including new factories in Thailand and Vietnam.

"The planning of overseas production capacity will help customers reduce their doubts about geographical risks, gain customer recognition, and increase the breadth of cooperation with customers," it said.

Taiwan has a large satellite industry, with about 50 companies producing ground equipment and sensitive components, according to the economy ministry and industry data. The government estimates the sector's output exceeded T$200 billion (RM27.4 billion) last year.

SpaceX has about a dozen direct suppliers from Taiwan, which rely on dozens of domestic vendors, the source who collaborates with the island's satellite industry said.

Vietnam's government in September said SpaceX wanted to invest US$1.5 billion (RM6.55 billion) in the country, though the timing and purposes of the actual investments remain unclear.

Shenmao Technology, a supplier of soldering materials for printed circuit boards, which has provided components to SpaceX, said in April it would spend US$5 million to set up a unit in Vietnam, without saying who its clients would be for products from that facility. The company did not respond to a request for comment.

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