iRobot Expecting to Get $57 Million in Section 301 Tariff Refunds
iRobot expects about $57 million in refunds of the List 3 Section 301 tariffs it has paid since the duties took effect in September 2018, including $6.6 million paid in Q1, Chief Financial Officer Alison Dean said on an April 29 Q1 investor call. The Office of the U.S. Trade Representative granted iRobot a tariff exclusion last week on the robotic vacuums it imports from China (see 2004240031). The refunds are expected in several installments this year, Dean said. The exclusion expires Aug. 7.
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The company tracks all Section 301 tariff developments “diligently,” Dean said. It knows that many of the companies getting exclusions from the Lists 1 and 2 tariffs “were able to successfully extend their exclusions for up to another year,” she said. “We assume that there will be a similar process for List 3, and if so, we’ll seek an extension in due course.”
CEO Colin Angle said that “we're a little in the dark, and there's no stated process” for extending iRobot's tariff exclusion past Aug. 7. With Lists 1 and 2 exclusions, companies were informed of their extensions “prior to the expiration of their original exemption,” he said. “In many cases, there was not even anything to apply for. If List 3 is handled in a similar fashion, we hope to know prior to the beginning of August as to whether that extension should happen.” USTR didn't comment.
The company's commitment to “geographical diversification” in its supply chain “remains unchanged,” despite getting the tariff exclusion on Chinese imports, Angle said. “We believe it is a strategic imperative to be manufacturing significant portions of our robots outside of China.” It vowed in February to source a third of its product volume from Malaysia in 2020. COVID-19 “slowed our progress,” Angle said.
The pandemic presented iRobot with “pragmatic challenges” in shifting production, Angle said. “First, China was shut down, and then as it opened up, Malaysia shut down. The physics of moving manufacturing have been delayed, but our intention is unchanged.”
It’s about 10% to 15% costlier sourcing product from Malaysia than from China, Angle said. “It all depends on volume, and how much volume we can move to Malaysia at what rate.” At peak economies of scale, it’s “absolutely” possible to drive down the premium to “single digits,” he said. “Could you get to parity” with China? “Probably not.”