[Exclusive] LG Electronics to Consolidate Mexico TV Factories... Beginning of Tariff Risk Response

Mexicali TV Factory Closure, Integration into Reynosa
Will 'Selection and Concentration' Strategy Overcome High Tariffs?
Chinese Competitors on the Rise, North American Market Position at Risk

LG Electronics has confirmed that it has halted operations at some of its TV factories in Mexico and is entering the process of closure. This appears to be a sign of companies' active responses to the tariff war triggered by U.S. President Donald Trump. As the Trump administration's high tariff policy makes it inevitable to revise strategies for 'North America targeting' forward bases, other companies are also expected to show similar movements.

According to local media such as Mexico Industry on the 6th, LG Electronics will invest $100 million (approximately 144 billion KRW) to close the Mexicali factory in the first quarter of this year and consolidate TV production at the Reynosa factory. The Reynosa factory is located near the Mexico-U.S. border. While it cannot be completely free from tariff threats, it is expected to reduce logistics costs. If the production line expands, the production volume this year is expected to reach 6.4 million units, an increase of about 56% compared to the previous year.

Hong Seong-hyeok, Managing Director of LG Electronics' Reynosa production corporation, met with the local governor, officials from the National Maquiladora (foreign manufacturing companies in Mexico) Industrial Chamber of Commerce (INDEX), and others on the 30th of last month to announce this plan, saying, "Although the global economic and political situation is unclear, we will continue investment projects even in these circumstances."

LG Electronics believes that consolidating production at the Reynosa factory will reduce production costs and ultimately enable a response to tariff risks. Currently, the U.S. has decided to impose a 25% tariff on imports from Mexico but has granted a one-month grace period. If high tariffs are imposed on Mexican-made TVs, LG Electronics can either transfer some production to its Tennessee factory in the U.S. or choose a rerouted export method via a third country. However, rerouted exports may increase logistics costs, making their effectiveness uncertain. Therefore, maximizing cost reduction through production efficiency is expected to be a practical countermeasure to reduce tariff burdens.

An LG Electronics official officially explained regarding the decision to close some factories in Mexico, "(The closure) is a process that has been underway for some time," and "It is not due to tariffs." However, as the Trump administration strengthens protectionism, revising production strategies for the North American market is inevitable, and ripple effects are expected to continue. LG Electronics' strategy to optimize production bases may also be considered as an option by other Korean companies operating locally.

In particular, U.S. tariffs can be sensitive in the competition with Chinese companies. Market research firm Counterpoint Research recently analyzed data from the U.S. International Trade Commission (ITC) and diagnosed that Korea, which has a high export share to the U.S. in the TV business, is more disadvantaged than China if tariffs are imposed on Mexico. The Chinese government plans subsidies worth 1.3 trillion yuan (approximately 258.4 trillion KRW). Some of these subsidies will be used for trade-in sales of durable consumer goods such as TVs. This means that despite tariff burdens, Chinese manufacturers are likely to maintain price competitiveness.

As of the cumulative third quarter last year, the North American TV market share by shipment volume was similar between Korea (27%) and China (28%), but by sales, Korea (48%) was far ahead. This is because Korea focused its supply strategy on large premium products. If high tariffs are imposed, Korean companies' price competitiveness may weaken, and there is a possibility that the market could be lost to Chinese products' 'low-price offensive.'

LG Electronics has been reorganizing its business portfolio according to a 'selection and concentration' strategy. The Mexican factories in Reynosa (TV), Monterrey (refrigerators), and Ramos (automotive parts) are key bases for targeting the North American market.

Kim Chang-tae, Chief Financial Officer (CFO, Vice President), said at the earnings announcement on the 23rd of last month, "We plan to expand the swing production system and operate optimal production sites based on cost competitiveness," adding, "More active changes in production site strategies, such as adjusting production capacity (CAPA) by existing production sites, may also be included within the scope of consideration."