Another New Lego Factory Expansion?

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I just saw an interesting story pop up on Brickpicker's front page from the website brickultra.com. In it, they explain that an expansion to TLG's current Czech Republic factory is in the works. This comes on the heels of stories released earlier this year that Lego is planning an expansion to their Hungary factory, another expansion of their Connecticutsite, and construction of a new factory in China.

That's four expansions announced in the last year!

While this matches TLG's explosive growth chronicled in their 2012 Annual Report, this information should raise an eyebrow for investors. Only TLG can control the supply of sets in the market, and if they overproduce, unsold sets could lower the secondary market prices, and depress investor secondary market gains for future investment sets.

However, a closer look at the expansions should provide a little relief to investors. First, the Hungary and Czech Republic expansions are linked: the Hungary facility is primarily a Lego molding facility, while Czech Republic is a packaging/distribution facility. The Hungary expansion necessitated the Czech Republic expansion, so Lego will not increase their capacity by a factor of two.

The Connecticut expansion appears to be primarily for their Research & Development team (hopefully with some new, exciting designs coming our way!) and, perhaps, their US Sales department. More complex and appealing sets should provide some new, exciting and hopefully investable sets.

As everyone knows, China and East Asia are burgeoning markets for TLG. A new China factory will attempt to capitalize on Lego's popularity in these markets and aim to provide them with the Lego sets they're so eager to purchase. I don't see this as a negative for either European or United States Lego investors. To the contrary, new Lego enthusiasts may look to sellers in established markets for sets that were not available to them a few years ago. Any increase in demand in Asia can only be good for investors in established markets in the short term.

Surprisingly, the news on most of these expansions appear to be good for investors with the Hungary/Czech Republic expansions the possible exception. More production for European markets may increase the number of sets available to retail buyers, however TLG would typically expand only if there was significant unmet demand at their current price points. I don't see this increased capacity drastically increasing secondary market demand, so investor prices should remain stable.

What do you think?

I'm particularly interested to hear from Australian investors. Since their Lego pricing tends to be very expensive, a new Chinese factory coming online may decrease some of the freight costs and lower Lego prices for Aussies. Or, if TLG feels their price point is competitive in the market, they could pocket the freight cost savings.