Harley-Davidson said in a securities filing that it plans to shift production of its motorcycles for EU destinations out of the United States to its international facilities to avoid the EU’s retaliatory tariffs, providing a glimpse into the broader cost implications that the trade war is expected to have on global companies.
The European Union enacted tariffs on various U.S.-manufactured products, including Harley-Davidson motorcycles. These tariffs, which became effective June 22, were imposed in response to the tariffs the United States imposed on steel and aluminum exported from the European Union to the United States.
Due to the retaliatory EU tariffs, Harley-Davidson motorcycles exported from the United States “have increased from 6% to 31%,” the company stated. “Harley-Davidson expects these tariffs will result in an incremental cost of approximately $2,200 per average motorcycle exported from the United States to the EU.”
“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, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses,” the company added. “Therefore, Harley-Davidson will not raise its manufacturer’s suggested retail prices or wholesale prices to its dealers to cover the costs of the retaliatory tariffs.”
In the near-term, the company said it will “bear the significant impact resulting from these tariffs, and the company estimates the incremental cost for the remainder of 2018 to be approximately $30 to $45 million. On a full-year basis, the company estimates the aggregate annual impact due to the EU tariffs to be approximately $90 to $100 million.”
Harley-Davidson said it “expects ramping-up production in international plants will require incremental investment and could take at least 9 to 18 months to be fully complete.” It added that it “maintains a strong commitment to U.S.-based manufacturing. Increasing international production to alleviate the EU tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe. Europe is a critical market for Harley-Davidson.”
Harley-Davidson said it remains fully engaged with both U.S. and EU government officials “helping to find sustainable solutions to trade issues and rescind all tariffs that restrict free and fair trade.”
The company said it will provide more details of the financial implications and plans to mitigate the impact of retaliatory EU tariffs during the company’s second quarter earnings conference call on July 24, 2018, at 8:00am CDT.