Due to the sharp rise in raw material prices, we are increasing the price of our children’s tricycles by 5%.

Dear Customers and Partners:

Hello!

It is with sincere intent that we write this letter, both to inform you of the current changes in the market environment and to candidly share the challenges we, as manufacturers, are facing. After careful consideration and repeated cost analyses, we have reluctantly reached a difficult decision: effective immediately, the prices of our company’s children’s tricycles will be increased by 5%. This adjustment is driven by the recent sharp volatility in raw-material prices, which has now exceeded the level that our business can comfortably absorb. We fully understand that this price increase may cause you some inconvenience; however, we would like to take this opportunity to provide a detailed explanation of the underlying reasons and the rationale behind our response.

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Raw Materials Market: A Sudden Storm

Over the past six months, global commodity markets have experienced unprecedented volatility. Take the core raw materials for children’s tricycles as an example: steel prices have risen by 42% compared with the same period last year, plastic pellets by 35%, and rubber products by more than 60%. These figures are not mere statistics—they directly translate into higher costs for critical components such as the frame, shell, and tires of each tricycle. Even more challenging, soaring energy prices have driven up transportation costs by 18% and packaging material expenses by 25%, further pushing up overall manufacturing costs.

As a company that has been deeply rooted in the children’s products industry for two decades, we have consistently sought to mitigate cost pressures by optimizing supply-chain management and enhancing production efficiency. For instance, we enter into long-term contracts with suppliers to lock in prices, invest in automated equipment to reduce reliance on manual labor, and even redesign product structures to lower material consumption. However, this round of price hikes exhibits three distinctive characteristics: first, the scope of affected categories is exceptionally broad, with no sector spared—from metals to chemical raw materials; second, the duration has exceeded expectations—rather than easing within three months, prices have continued to rise; and third, the magnitude of the increases has surpassed historical peaks, with some materials experiencing intraday volatility exceeding 5%. Such systemic risk is now beyond the capacity of individual companies to address on their own.

Cost Pressures: The Squeeze from Numbers to Reality

Let’s use concrete data to reconstruct the transmission process of cost pressures. Take a best-selling children’s tricycle as an example:

Raw material cost proportion: 62% (including steel at 38%, plastics at 15%, rubber at 6%, and other materials at 3%).

Energy and transportation costs: 12%

Labor and manufacturing overhead: 18%

R&D and marketing expenses: 8%

When steel prices rose from RMB 4,800 per ton to RMB 6,800 per ton and plastic pellet prices increased from RMB 12,000 per ton to RMB 16,200 per ton, these two cost increases alone added RMB 47 to the raw-material cost of each vehicle. If we were to maintain the original selling price, each vehicle would incur a loss of RMB 23—this figure does not even include additional costs such as energy and transportation. We have tried to mitigate the impact through bulk purchasing and adjustments to the production schedule, but with daily updated price quotations for raw materials, these efforts feel like a drop in the bucket.

Price-Hike Decision: Balancing Responsibility and Survival

The decision to raise prices was a difficult one. We are fully aware that consumers of children’s products are price-sensitive, that our partners require stable profit margins, and that, as a manufacturer, we also bear the responsibility of safeguarding the jobs of 300 employees and maintaining strong partnerships with 200 suppliers. After three consecutive weeks of detailed financial modeling and scenario analysis by our finance team, we concluded:

If prices are raised by 3%, cost increases will still not be offset, leaving companies at risk of cash-flow disruption.

A 5% price increase would largely offset the impact of rising raw material costs and enable continued normal operations.

If prices are raised by 8%: While profitability can be achieved, market competitiveness may be lost.

Therefore, the 5% price increase represents the balance we have struck between our social responsibility and the sustainability of our business. It ensures that we can continue to deliver high-quality products while also preventing a vicious cycle of market contraction caused by excessive price hikes.

A Promise for the Future: Staying True to Our Original Aspiration Amidst Change

In the face of uncertainty in raw material prices, we have initiated three response measures:

1. Establish a dedicated task force to analyze commodity price trends on a monthly basis and dynamically adjust procurement strategies.

2. Increase R&D investment in environmentally friendly materials to reduce reliance on highly volatile raw materials.

3. Optimize the logistics network and reduce unit costs through consolidated transportation.

We solemnly commit that this price increase will apply solely to raw material cost increases and will not result in any compromise to product quality standards. All products will continue to be certified under the national 3C certification scheme, maintain the industry-standard 100,000-cycle durability test requirement, and remain covered by a two-year warranty. In addition, we will offer tiered price protection programs for our long-term partners to minimize the impact of the price hike on their operations.

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Dear customers and partners, every word in this notice reflects both our sense of helplessness and our unwavering resolve. While changes in the market environment are inherently unpredictable, our commitment to children’s safe travel remains steadfast. A 5% price increase may bring short-term challenges, but we firmly believe that only companies operating in a healthy and sustainable manner can continue to deliver products you can trust. Thank you for your understanding and support—as together we navigate this challenging period and look forward to a more stable future.

Sincerely,

Salute

XX Children’s Products Co., Ltd.

X月X日, 2023

Add: NO.4 Haiyu one road FuYu Industrial Zone Leliu Town Shunde District, Foshan City, Guangdong Province.
Tel: +86-0757-26368660 / +8613413291786
E-mail: sales.01@xiaorenlei.com