The toll of tariffs: CPS America explains how it has mitigated costs to this point and what comes next for customers

 

CPS America

CPS America sent a letter to its customers this week to update them on the recent tariff increases and actions it has taken to this point (and will need to keep taking) to reduce the burden on its customers. The letter is an inside look at the toll the tariffs are taking on top solar equipment brands in the U.S., and how at least this one company has been navigating these uncertain waters so far. CPS allowed us to share the details with all of you.

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Situation

The United States continues to increase import tariffs that affect CPS America — from 10 percent to 25 percent (now) and 30 percent starting October 1.

Trade negotiations have been stubbornly protracted and unpredictable. USA determination may continue to expand beyond China and include alternative supply chains from other countries such at India, Vietnam and elsewhere. There are concerns this status might endure deep into 2020.

CPS had anticipated the risk of tariff increases and took action to mitigate cost exposure for its customers as best they could. In the last 12 months, CPS:

1. Accelerated inventory ahead of the 10% and 25% duty. This effectively delayed the burden on CPS customers.

2. Created a USA production capability in Texas (pilot run successful, now is UL approved manufacturing site) – a hedge, an option – but components from China now equally face high tariffs.

3. Drove efficiency and supply chain cost reductions with our existing operations – this enabled CPS to absorb most of the tariff costs temporarily.

4. Has been reviewing alternative operations within Chint Group and with partners, but “we biased toward no change in our robust, high quality supply chain. We decided, thus far, to avoid operational changes so that we can assure reliable, high quality supply with low risk of disruptions to our customers.”

Tariff Surcharge

CPS says it will now institute a “Tariff Surcharge” on inverters as follows:

• 8.8% for new orders placed after Sept. 20
• This surcharge will be reviewed month to month
• Surcharge magnitude depends on Tariff rules and CPS cost mitigation progress
• The surcharge will be eliminated as soon as possible
• Existing orders and those placed by September 20th for shipments by CPS America in 2019 will have no surcharge (ship from CPS America by December 31st)

Safe Harbor (year end, pre-ITC decline)

Safe Harbor component and factory supply chain actions have been put in place and are being firmed up over the next few weeks for customers requiring such support from CPS.

Now is the time to confirm such requirements as the production plans will be aligned to your requirements confirmed before end of September.

The company concluded this transparent look behind the curtain with a call for renewed support from its own customers:

CPS needs your support, just as we have taken actions and mitigated costs to support you. Our continued partnership and your order volumes will enable us to keep unit costs low, factory efficiency and quality up and continue our business model of robust service and support in America. Now is a time to assess your loyalty to CPS – and we are determined to ensure that you get the value back from CPS for such loyalty. Thank you.

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