Harley-Davidson to move some production out of US to avoid EU tariffs

Harley-Davidson Inc (HOG.N) said on Monday it would move production of motorcycles shipped to the European Union from the United States to its international facilities and forecast the trading bloc’s retaliatory tariffs would cost the company USD 90 million to USD 100 million a year.

The shift in production is an unintended consequence of US President Donald Trump’s administration imposing tariffs on European steel and aluminum early this month, a move designed to protect US jobs.

In response to the US tariffs, the European Union began charging import duties of 25 per cent on a range of US products including big motorcycles like Harley’s on June 22.

Harley-Davidson shares sank more than 5 percent in morning trading on Monday. In a regulatory filing bit.ly/2tA1ru0, the Milwaukee, Wisconsin-based company said the retaliatory duties would result in an incremental cost of about USD 2,200 per average motorcycle exported from the United States to the European Union, but did not provide more details on current motorcycle costs.

The company said it would not raise retail or wholesale prices for its dealers, and expects the tariffs to result in incremental costs of USD 30 million to USD 45 million for the rest of 2018.

“Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region,” the company said.

Trump vowed to make the iconic motorcycle maker great again when he took office last year. But since then the company has been counting the costs of his trade policy.

In late April, Harley said Trump’s metal tariffs would inflate its costs by an additional USD 15 million to USD 20 million this year on top of already rising raw material prices that it expected at the start of the year.

Struggling to overcome a slump in US demand, Harley has been aiming to boost sales of its iconic motorcycles overseas to 50 per cent of total annual volume from about 43 per cent currently.

In January, the company announced the closure of a plant in Kansas City, Missouri as part of a consolidation plan after its motorcycle shipments fell to their lowest level in six years.

In 2017, Harley sold nearly 40,000 new motorcycles in Europe which accounted for more than 16 percent of the company’s sales last year. The revenues from EU countries were second only to the United States.

Harley said ramping up production at its overseas international plants will require incremental investments and could take at least nine to 18 months.

The company does not have any manufacturing facility in Europe. It has three assembly plants outside the United States, one each in Brazil, India and Thailand.

The company decided to build the Thailand plant in response to Trump’s decision to pull out from the Trans-Pacific Partnership which would have lowered import tariffs on its bikes in some of the fastest-growing motorcycle markets in Asia.

The company will provide more details of the financial implications of retaliatory EU tariffs and its plans to offset their impact on July 24 when its second-quarter earnings are due, the filing said.

Mercedes-Benz maker Daimler (DAIGn.DE) last week cut its 2018 profit forecast citing growing trade tensions. Its German rival BMW (BMWG.DE) said it was considering “possible strategic options” in view of the rising trade tensions between China and the United States.

Harley shares have lost about 6 per cent since early March when the trade skirmish between the United States and the EU started, and are down over 15 per cent since end-December 2017.