Nintendo may sell the Switch 2 at a loss in the US due to tariffs

The Nintendo Switch 2 is functionally similar to its predecessor. Sure, the detachable controllers can now each be used as a mouse (on your pants, no less), the screen is bigger, the hardware is more powerful and there's a built-in mic for voice chat. But otherwise the company isn't rocking the boat too much. At least not outside of its business model, as it may be preparing to sell the console at a loss.

For most countries, President Donald Trump has paused the harshest tariffs that he announced last week. Still, he increased tariffs on imports from China to 125 percent on Wednesday, while imports from elsewhere will still be subject to a levy of at least 10 percent.

Per Bloomberg, Nintendo may be looking to make as many Switch 2 units as it can in Vietnam (it's manufacturing about a third of the consoles there) during the 90-day freeze on higher tariffs and ship as many as possible to the US. The US is a critical market for Nintendo as it accounts for about a third of sales. 

Still, with a 10 percent tariff, Nintendo may reluctantly eat that cost, even if that means losing money on each sale. "We believe the Switch 2’s bill of materials is around $400, meaning Nintendo would still be selling consoles at a loss in the US with the 10 percent tariff — but the loss would be something Nintendo would be able to absorb," Hideki Yasuda of Toyo Securities told Bloomberg. "Sony is in a tougher situation as most of its PlayStation production is in China, and it may be forced to hike PS5 prices in the US in the near future."

If the Switch 2 has about $400 worth of materials, that means Nintendo will also be taking a hit on a Japan-only edition of the console in its home country. It's selling that variant for under $350.

Another analyst, Robin Zhu of Bernstein, also suggested that Nintendo will take the hit and keep the price at $450 if the tariff on Vietnamese imports remains at 10 percent. However, "At 46 percent Vietnam tariffs, I expected them to raise [the Switch 2 price] by $50 to $100."

Unlike Sony and Microsoft, Nintendo has not historically sold its consoles at a loss with the aim of making up for that with sales of pricey software. The gaming side of the business is far and away Nintendo's largest source of revenue. It's diversifying more these days with things like movies and theme parks, but it still needs a thriving base of Switch and Switch 2 players. With the consoles critical to the company's success, the suggestion that Nintendo may sell the $450 Switch 2 at a loss is somewhat surprising, even if it's because of tariffs.

Nintendo formally revealed the Switch 2 just hours before Trump announced higher import tariffs on every country. Soon after, Nintendo delayed pre-orders for the console in the US (it later did the same in Canada, perhaps to reduce the risk of secondary-market price gouging) to assess the impact of the tariffs. With those now on hold, the company surely wants to get the ball rolling on pre-orders so it has a better sense of North American demand and can accordingly adjust its manufacturing plans if need be.

This article originally appeared on Engadget at https://www.engadget.com/gaming/nintendo/nintendo-may-sell-the-switch-2-at-a-loss-in-the-us-due-to-tariffs-175857327.html?src=rss https://www.engadget.com/gaming/nintendo/nintendo-may-sell-the-switch-2-at-a-loss-in-the-us-due-to-tariffs-175857327.html?src=rss