President Donald Trump’s latest round of tariffs — including a now 125 percent levy on Chinese imports — will hit the smart home industry hard.
Many smart home device makers are already struggling, thanks, in part, to Trump’s first round of tariffs. Increased competition from budget smart home companies largely based in China has also played a part, and so has slower takeup from homeowners than the industry expected.
Smart home control panel maker Brilliant cited tariffs and supply chain issues along with weaker-than-expected demand when it was close to shutting down last year. This year, robot vacuum maker iRobot announced it has struggled in the face of increasing competition as cheaper products from China flood the US market.
The sky-high tariffs on Chinese goods and components present a huge challenge for all smart home manufacturers. Most companies source products from China, and even if they moved manufacturing to other countries, they still may use Chinese-made components. The new, steeper tariffs on countries like Vietnam, where many companies relocated manufacturing, compound their problems.
Despite the just-announced 90-day pause on tariffs from “non-retaliatory countries,” the confusion and chaos caused by these new taxes remain. Add in the looming threat of a recession in the world’s biggest consumer market, and the fear from companies I’ve spoken to is not just that they’ll struggle to afford to make their products; it’s that, even if they do, Americans won’t be able to afford them.
“We’re like a bunch of crabs in boiling water. It doesn’t help that we’re all in the same pot of boiling water.”
While bigger companies may have the capital to sustain these kinds of changes in the economy, many smart home makers are startups. “For a small company like us, the next four years, well, every year, is a make-or-break year,” says Gimmy Chu, CEO of Nanoleaf, a smart lighting company based in Canada. “What I hear a lot is, ‘Well, at least everyone’s in the same boat.’ But we’re like a bunch of crabs in boiling water. It doesn’t help that we’re all in the same pot of boiling water.”
Nanoleaf is an example of a company that moved much of its manufacturing to Vietnam and the Philippines after Trump’s 2018 tariffs. Chu says that at that time the company put a lot of effort into redesigning its supply chain — costing it not only money but also time. “When we manufactured in China, the lead time was four months. Now, with a dispersed supply chain, it’s six to eight months,” says Chu.
With the potential of new tariffs of 49.9 percent on Nanoleaf’s products from Vietnam and 20.9 percent on those from the Philippines, Chu says the company would need to look at relocating everything again. “But supply chains are very difficult to move, and now we don’t know where to move to. Everyone’s running in different directions because nobody knows in which direction to run.”
Moving manufacturing to the US isn’t feasible for Chu and many others. Even if there were a factory that could assemble its products, few, if any, of the components it needs are made in the US. The high cost of investing in transferring to the US is made worse by all the uncertainty surrounding the tariffs. “We work with a manufacturing partner that has facilities in the US, but there’s so much uncertainty and the high probability some tariffs may be removed,” says Chu.
“Everyone’s running in different directions because nobody knows in which direction to run.”
This uncertainty makes it hard for manufacturers to invest in US factories, he says. If the higher tariffs are imposed on the countries many moved to, Chu says some may question whether it might be easier to keep manufacturing in China and eat the tariff cost instead of investing in creating production elsewhere.
“I don’t think a lot of people would be willing to make the financial investment of moving things to the US,” he says. “Because that is expensive.” He says the biggest roadblock is the cost of labor, pointing out that it also seems unlikely that the US really wants these types of repetitive labor jobs. “I don’t know if this is the future America they really want. The whole point of doing it in other countries is that it’s work Americans don’t want to do. I don’t think it’s going to work to try and force that type of labor back here.”
For European startup Nuki, which makes high-end smart locks, the tariffs have cast a huge shadow over its planned expansion into the US market. And while Nuki cofounder and CEO Martin Pansy tells me the company is currently sticking to its plan to launch its first US smart lock this spring, there’s a lot still up in the air, including the price.
“The situation’s high volatility necessitates a cautious strategy, leading us to postpone definitive long-term commitments for the time being,” he says, adding that Nuki is currently treating the tariffs “as operational costs” but may be forced to rethink its approach based on “how global trade conditions develop.”
The big question for many of these companies now is how much of the increased costs they can stomach and how much they will have to pass on to consumers. Chu says that if the tariffs continue as planned, he hopes to limit the impact on customers as much as possible. “I wouldn’t want to put it all on our customers; I would want to take some of it, and I would ask our retail partners to take some,” he says. “If our overall cost increases by $10, then we’ll maybe split it three ways and try to absorb the costs like that.”
Higher prices will keep new households from entering the smart home market.
Chinese companies may be able to absorb most or all of the cost, according to Sy Bohy, CEO of software development company Seam. This potentially puts even more pressure on European and North American manufacturers. China-based companies are better positioned to adapt more quickly and take advantage of “margin reduction and bill of material improvements,” he says, as they are inside the core Chinese supply chain.
US companies that shifted out of China to places like Mexico and Vietnam after the first round of tariff increases in 2018 may fare better, he says. Those governments seem more ready to work out a deal with the Trump administration than China does.
Whichever way they go, companies are likely to pass on at least some of their increased costs to consumers, which means you’ll be paying higher prices for smart lights, locks, thermostats, robot vacuums, and more. Industry analyst Jennifer Kent of Parks Associates says these price increases come at a critical time for the smart home market, which is just starting to reach more mass-market consumers.
“Forty-five percent of US internet households own at least one core smart home device (not counting smart speakers or smart displays),” she says, citing Parks Associates research. But higher prices will keep new households from entering the smart home market. “The perception that smart home devices are not affordable is the number one barrier to purchase for households who neither currently own nor intend to buy smart home products,” she says.
Compounding the problem is that years of inflation have reversed a multiyear trend of price decreases on smart home gadgets, “driven by new competition from value-tier competitors,” says Kent. Average selling prices for popular products like smart garage door openers, door locks, video doorbells, and lights at the end of last year were close to or, in some cases, higher than the same period in 2017, following some significant drops in the intervening years.
It may be a few months until we see prices go up, especially as some companies tell me they have been stockpiling goods in anticipation of the tariffs. But what is likely to go down is the number of big sale days. Smart home buyers have become accustomed to seeing regular sales throughout the year, from Black Friday to Prime Big Deals Days, all great times to grab deep discounts on gear.
Even if companies somehow manage not to increase prices, we may well see the end of these sales that have become common with smart home devices, which will hit your wallet in much the same way.
