Profit Decline Amid Trade Tensions
PDD Holdings, the Chinese parent company of the online shopping platform Temu, has reported a significant 47% drop in net profit for the first quarter of 2025. The company’s net profit fell to 14.7 billion yuan (approximately $2 billion), marking the steepest decline in three years. This downturn is attributed to intensified U.S.-China trade tensions, particularly the imposition of new tariffs by the Trump administration. These tariffs have disrupted Temu’s business model, which previously relied on the U.S. de minimis exemption that allowed low-value Chinese imports to enter the U.S. duty-free.
Operational Challenges and Strategic Shifts
In response to the new tariffs, Temu has raised prices and shifted to a U.S.-based fulfillment model to mitigate the impact. However, these adjustments have led to operational challenges, including overburdened logistics, diminished product variety, and rising prices that have upset and confused users. As a result, the company’s quarterly profits fell by 47%.
Impact on Stock Performance
Following the announcement of the profit decline, PDD Holdings’ U.S.-listed shares experienced a sharp decline, falling by more than 13%. This drop reflects investor concerns over the company’s ability to maintain its competitive edge amid escalating trade tensions and operational challenges.
Global Expansion and Regulatory Scrutiny
Despite its rapid global expansion, Temu faces increasing regulatory scrutiny in various markets. In the U.S., the company is grappling with the impact of the new tariffs and potential changes to the de minimis exemption. Additionally, Temu has faced legal challenges, including lawsuits from rival Shein, and regulatory actions in countries like Indonesia and Vietnam, where the company has been suspended or blocked.
Outlook and Strategic Adjustments
PDD Holdings has acknowledged the challenges posed by the changing trade environment and is exploring new business models and innovative localized supply chain solutions to adapt. The company plans to invest over $13 billion in merchant support over the next three years to bolster its platform ecosystem and retain vendors. However, executives have warned that near- and long-term profitability challenges persist due to increased investments and market uncertainties.
