Element Plans To Halt U.S. TV Production As Tariffs On Parts Hit Home
Element, which has the distinction as one of the last remaining U.S. television manufacturers, is planning to end production at its factory in Winnsboro, South Carolina in October, due to tariffs on component TV parts sent from China.
Element issued a statement on its Facebook page this week saying that unless the tariffs are lifted on parts it uses, factory production effectively will be shut down and 126 people will be laid off. Only a skeleton crew of eight employees will remain, the company said.
Element manufactures and sells lines of value-priced HDTVs and 4K Ultra HDTVs for sale primarily through North American warehouse clubs and discount store chains, including Target, Walmart and others.
It has had OEM and licensing partnership arrangements with China-based television manufacturer TongFang Global, which is the maker and licensee of the Westinghouse brand and at one time made Seiki-branded televisions for sale in the U.S.
Some will remember, Element-branded televisions have included the first all-in-one Fire TVs, which launched last year, among others.
Stephen Baker, VP of industry analysis with The NPD Group, told us the vast majority of Element’s TV production volume and sales are of models below 40-inches in screen size.
Due to China’s retaliatory measures on the first set of tariffs, which included certain TV component parts, the President has continued to escalate the amount of China-made imports added to the scheduled list. A 25% tariff on $16 billion more Chinese imports is set to go into effect later this month.
The new tariffs will take effect on Aug. 23 and will impact 279 product lines, according to the U.S. Trade Representative’s office. Impacted products include electronics, plastics, railway freight cars and other products.
“As we are the only USA assembler of televisions, we believe the inclusion of our parts on the list of affected products is accidental and resolvable,” Element acknowledged in its Facebook posting. “Element is working hard to have our parts removed from the tariff list and we remain hopeful that the closure of our South Carolina factory will be avoided.”
South Carolina-based newspaper The State obtained on Monday the letter the company sent to the state’s Department of Employment. In it, Element pointed to the tariffs on Chinese TV component parts as the reason for the decision behind the pending layoffs.
In the letter, The State reported that the company told the South Carolina DOE the layoffs are to begin in October and it hoped the measure would be temporary so the factory could reopen in three to six months.
Despite Elements relatively small share of the total U.S. television market, The NPD’s Baker told us the Element plant closure is likely to have an impact on the overall market.
“When the low-cost provider loses its source of supply I would guess others will raise their prices,” Baker said.
He added continued tariffs could have “a dual impact” in the form of “reduced supply and higher prices, both on the goods with tariffs and by the non-tarriff impacted products who see an opportunity to raise prices.”
The NPD’s Baker said that despite Element’s pending layoff and the continued tariff actions, he expects the U.S. television market to be “businesses as usual” this year, adding that it’s folly for anyone to purchase goods early or to stock up in advance of a possible supply or pricing issue in the consumer electronics business.
“Pricing is a very fungible concept and trying to arbitrage it inevitably will result in failure,” Baker warned.
Similarly, TV market analyst Paul Gagnon, executive director of analysis and research with IHS Technology Group, said “the tariffs really aren’t having an impact so far for anything made outside of the U.S., and haven’t seen any impact on the retail prices. It’s a pretty quiet time of year for promotions anyway.”
“We don’t expect tariffs on TVs this year, so consumers probably don’t have anything to worry about for the holiday season,” Gagnon continued.
Japan and China, which are among the countries the President has targeted most heavily for tariff actions, have warned that a trade war will have serious consequences for the world economy.
Although televisions were removed from the list of impacted Chinese products early on, the Consumer Technology Association has argued strongly against using tariffs as a negotiating tool between the countries.
According to the CTA: “The overall trading relationship between the U.S. and China is essential to CTA and our member companies, which rely on the global supply chain to conduct business. Of the 1,000 products so far proposed to receive the additional 25 percent tariffs, CTA members have identified more than 200 products which would disproportionately impact their businesses.”
“Of the companies that have responded to CTA’s surveys requesting information on the economic and operational impact of the proposed tariffs, 79 percent are small businesses and four out of five said they either cannot switch their sourcing from China to another country or do so without a costly disruption to their business,” the CTA continued in a blog posting in late July. “Some members said the tariffs put them at a disadvantage relative to their competitors in other nations. They fear those competitors would be able to undercut them in the market by continuing to import critical components from China. Other startups fear that tariffs and the resulting economic uncertainty would prevent their products from going to market entirely.”
“The CTA recently issued mid-year forecasts showing televisions representating the third largest source of revenue generation for the U.S. electronics sector with total digital display unit sales projected to reach 40.4 million units (a 6% percent decrease from 2017), while higher average wholesale prices hold total revenue at $21 billion, on par with 2017.”
The CTA said 4K Ultra High-Definition (4K UHD) TVs are forecast to sell 18.6 million units (11 percent increase) and generate $14.3 billion in revenue (seven percent increase) for the full year.
OLED unit sales are expected to reach 772,000 (45 percent increase) and earn $1.4 billion in revenue (42 percent growth) this year – and in 2019, OLED display revenue will rise 50 percent to cross the $2 billion mark.
Meanwhile, the threatened Element layoffs are just the next in a series of large-scale layoffs to hit the state’s economically depressed Fairfield County in recent months.
By Greg Tarr
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