Nintendo US may need to sell the Switch 2 at a loss
The upcoming Nintendo Switch 2 offers an iterative upgrade over its predecessor, retaining a similar core functionality. While boasting enhancements like detachable controllers usable as makeshift mice, a larger screen, more powerful hardware, and integrated voice chat, the console doesn’t represent a radical departure in design. However, significant shifts may be occurring in Nintendo’s business model, potentially involving selling the console at a loss.
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This consideration arises amidst fluctuating international trade policies. Although President Donald Trump has temporarily paused the most severe tariffs announced previously for most countries, imports from China now face a substantial 125 percent tariff, while goods from elsewhere are still subject to at least a 10 percent levy.
According to Bloomberg, Nintendo is strategically increasing its Switch 2 production in Vietnam (currently accounting for about a third of its manufacturing). The company aims to maximize shipments to the crucial US market – which represents approximately a third of its sales – during the 90-day reprieve from higher tariffs.
Despite the temporary tariff pause, the existing 10 percent levy on Vietnamese imports could still impact Nintendo’s profitability. Hideki Yasuda of Toyo Securities suggests to Bloomberg that with an estimated bill of materials around $400 for the Switch 2, Nintendo might reluctantly absorb the tariff cost, even if it means selling at a loss in the US. He believes this loss would be manageable for Nintendo. In contrast, Sony, with a significant portion of its PlayStation production in China, might be compelled to raise PS5 prices in the US.
The potential for selling at a loss extends to the Japanese market. The Japan-only edition of the Switch 2 is priced under $350, suggesting Nintendo will incur a loss there as well, given the estimated $400 material cost.
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Bernstein analyst Robin Zhu anticipates Nintendo will maintain a $450 price point for the Switch 2 if the tariff on Vietnamese imports remains at 10 percent. However, he predicts a significant price increase of $50 to $100 if tariffs on Vietnamese imports were to reach 46 percent.
Historically, Nintendo’s strategy has differed from Sony and Microsoft, as it has generally avoided selling consoles at a loss, relying instead on robust software sales for profitability. While Nintendo is diversifying into areas like movies and theme parks, its gaming division remains its primary revenue source, making a strong Switch and Switch 2 player base essential. Consequently, the possibility of Nintendo selling the $450 Switch 2 at a loss, even due to tariffs, is a noteworthy and somewhat surprising development.
Nintendo’s formal unveiling of the Switch 2 coincided with President Trump’s announcement of broader import tariffs. Subsequently, Nintendo delayed pre-orders in the US (and later in Canada, likely to mitigate price gouging) to assess the tariff implications. With the harshest tariffs currently on hold, Nintendo is expected to proceed with pre-orders to gauge North American demand and adjust its manufacturing plans accordingly.
Crédito: Link de origem