PDD Holdings Inc. (NASDAQ:PDD) is bracing for another trade headache. The company warned that upcoming European Union tariffs will squeeze Temu's margins and slow down cross-border orders, just months after U.S. trade policy shifts already forced a rethink of its cross-border model.
Co-CEO Lei Chen, speaking on PDD's second-quarter earnings call, said the company is adapting to a rapidly changing global regulatory environment to protect Temu's long-term growth. The comments come as Temu faces mounting trade barriers in two of its biggest overseas markets.
Europe Becomes Temu's Next Trade Challenge
Asked about the EU's new customs duties on low-value imports, Chen acknowledged the changes will pressure Temu's cross-border business.
"On the changes to the EU customs duties that you mentioned, our team is actively assessing and adapting to them," Chen said.
He added that, "Drawing on the experience that we have gained over the years, we have adjusted our supply chain and we are optimizing our fulfillment processes."
Even so, management expects the policy changes to create meaningful near-term disruption.
"In the short term, cross-border orders in the affected markets will face lower fulfillment efficiency and higher costs, which will have a considerable impact on those parts of our business," Chen said.
This is one of PDD's clearest admissions yet that Europe is becoming the next major regulatory hurdle for Temu, following the U.S. trade rule changes that forced the company to rethink parts of its cross-border shipping model.
Temu Is Changing How It Operates
Rather than signaling a retreat from international markets, PDD said the latest trade headwinds are accelerating changes already underway.
Chen said the company will "continue to onboard and support more high-quality local merchants to broaden the supply of local products."
PDD is also accelerating the build-out of local warehousing and fulfillment infrastructure, Chen added.
The goal is to reduce reliance on direct cross-border shipments while building stronger local operations that can better withstand future policy changes.
"Through these investments, we hope to integrate more deeply into every market we serve, strengthen the foundation and resilience of our supply chain, and better navigate changes and volatility in the environment," Chen said.
Compliance Is Becoming A Competitive Priority
Management also made clear that adapting to global regulation involves more than logistics.
Chen said PDD will continue investing in "compliance capabilities and platform governance" alongside supply-chain improvements.
The company has also "developed systematic IP protection capabilities," which Chen said has been reinforced by "our recent favorable ruling in the IP litigation involving an industry peer."
According to management, those investments are intended to strengthen trust with consumers, merchants and regulators as Temu expands internationally.
A More Challenging Global Growth Story
In addition to the fickle nature of U.S. trade policy, PDD must also contend with Europe's latest layer of costs and operational complexity that could pressure the economics of cross-border e-commerce.
Still, management emphasized that the long-term strategy remains unchanged.
"We are confident in our execution capabilities and organizational resilience," Chen said. "Short-term volatility will not change the long-term direction of our global business."
PDD will continue advancing its investments across "supply chain, fulfillment, compliance, and consumer service," with the goal of providing consumers around the world "with a shopping platform that remains stable over the long term and offers compelling prices and reliable quality—a platform that they can count on, trust, and enjoy using."
