Tariff-Challenged Universal Eyes Factory Shift to Mexico, Brazil, Possibly Vietnam

Strategies for reducing the financial exposure to Trade Act Section 301 tariffs on Chinese imports (see 1808030002) were top of mind on Universal Electronics and GoPro earnings calls Thursday evening. Universal is developing plans to "mitigate" the cost of the tariffs by "gradually" shifting production of its "highest-priority or highest-volume" goods "out of China and into existing facilities that we have in Mexico or Brazil,” said CEO Paul Arling. It’s also exploring Vietnam as a possible "manufacturing alternative,” he said. The “vast majority” of Universal’s remote controls are manufactured in Chinese factories that Universal acquired in 2010 and owns and operates, and it imports those remotes to the U.S. under the Harmonized Tariff Schedule’s 8543.70.99 subheading, said Arling in comments prepared for Universal's testimony against the tariffs at a July 24 public hearing on round two of the Trump administration's proposed duties (see 1807230032). Shifting production away from China “will take months to complete, which means that we may incur additional costs during the transition as we expect some of these additional tariffs to be implemented somewhere in late September or probably into October,” said Arling on the call, saying it’s “difficult to know” for sure. The tariff situation “is obviously fluid, and we expect to react appropriately and as quickly as we can,” he said. GoPro “to date” has escaped the tariffs, said CEO Nicholas Woodman. If the situation changes, Woodman thinks GoPro would be able to shift production easily to “two locations” he didn’t name that wouldn’t have tariff exposure, he said. “Frankly, there may even be reasons to go to these regions even for cost benefits outside of protecting ourselves against tariffs,” he said. “So as we continue to look for ways to operate our business more efficiently and drive costs down, this is something that the team is looking at.”