Analysis
TE Connectivity (TEL) has demonstrated significant resilience to the U.S. "reciprocal" and "Liberation Day" tariffs introduced in April 2025. The company's primary defense is its highly localized manufacturing strategy, with 76% of its production occurring within the same region as its customers and 90% of its supply chain sourced locally. This footprint minimizes the volume of goods crossing international borders, which is the primary trigger for these tariffs. Management noted that while roughly 3/4 of company sales are outside the United States, only a small percentage of total sales are actually subject to the new duties.
The Industrial Solutions segment bears a disproportionate share of the tariff impact compared to the Transportation segment. This is attributed to the greater supply chain fragmentation and more frequent cross-border movements inherent in industrial product lines. In contrast, the automotive business is almost entirely localized in major markets like China, Europe, and North America. Despite this concentration of impact, the company has maintained its margin targets by implementing direct mitigation strategies, including sourcing shifts and, most significantly, the use of tariff surcharges.
TE Connectivity employs a pass-through model for tariff-related costs, which management describes as being passed to customers "at cost." In the second quarter of fiscal 2025, the company initially estimated a 3% of sales headwind from enacted tariffs. However, following the 90-day pause for non-China countries announced in April 2025, the actual impact was reduced to 1.5% of sales. To recover these costs, the company implemented pricing actions representing approximately 2% of sales in its Industrial segment, successfully neutralizing the impact on net earnings.
The company has not observed meaningful "pull-ins" or demand destruction resulting from the tariff-related price increases. Orders have remained stable, particularly in high-growth areas like Artificial Intelligence and Energy, where the critical nature of the components allows for more effective pass-through of surcharges. Management expects the tariff impact to remain at approximately 1.5% of sales for the remainder of the fiscal year, with ongoing pricing surcharges continuing to offset the cost headwind.
Data
Tariff Financial Impact Summary
The following table outlines the estimated impact of tariffs on TE Connectivity's financials since the implementation of reciprocal tariffs in April 2025.
| Metric | 2Q25 Guidance | 3Q25 Actual | 4Q25 Guidance |
|---|---|---|---|
| Gross Tariff Cost (% of Sales) | 3.0% | 1.5% | 1.5% |
| Estimated Quarterly Gross Cost ($M) | $123 | $68 | $68 |
| Revenue Surcharge (Pricing Action) | 2.0% | 1.5% | 1.5% |
| Net Earnings Impact ($M) | Minimal | Minimal | Minimal |
Note: 2Q25 guidance was issued prior to the 90-day tariff pause; 3Q25 and 4Q25 reflect the adjusted impact.
Source: Transcript 2Q-2025, Transcript 3Q-2025, Marvin Labs
Financial Impact
- Cost Impact (Historic): $205M
- Cost Impact (Forward-Looking): $70M
Sources
Anything that's tariff-related is just passed through at cost.
The impact from tariffs in the third quarter was approximately 1.5% of sales with minimal earnings impact.
We anticipate that about one-third of this impact will be mitigated by sourcing changes by TE and our customers. We expect to recover the vast majority of the remaining two-thirds of the tariff impact through pricing actions.