Impact of EU tariffs on US manufacturers estimated at $100m p.a. as Harley-Davidson plans production outside US

Motorcycle maker, Harley-Davidson said it will shift production of EU-bound motorcycles away from its US-based manufacturing sites as a result of Brussels’ decision to retaliate in kind against Washington’s tariffs on imported steel and aluminium.

The company said the financial impact of the EU tariffs would be up to $100m per year, which makes the Milwaukee-based manufacturer one of the first US companies to detail the financial impact of the escalating trade tensions between Washington and its allies, and follows hard on the heels of Daimler, which last week issued a warning that its profits would be hit by new Chinese tariffs on US imports.

“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 group said in a filing on Monday morning.

As a result, it said, it would not “raise its manufacturer’s suggested retail prices or wholesale prices to its dealers to cover the costs of the retaliatory tariffs.”

Instead, it will “be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden.”

Tariffs imposed by the EU on various US-manufactured products became effective on June 22 and have pushed up the levy on Harley-Davidson motorcycles exported from the US to the EU to 31 per cent from 6 per cent. While this was itself a response to Washington’s decision to impose levies on steel and aluminium imports from the EU, Canada and Mexico, US President Donald Trump threatened in a tweet on Friday “if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US. Build them here!”

The tariffs are expected to add $2,200 per average motorcycle to affected vehicles, the company said in a filing on Monday.

Harley said it will bear the cost of this increase in the near-term, and expects to take a hit of $30m to $45m for the remainder of 2018. On a full-year basis, the aggregate annual impact of the EU tariffs would be about $90m to $100 million.

The company said ramping-up production at non-US plants, which are located in India, Brazil and Thailand, will require additional investment and take at least nine to 18 months to complete. Earlier this year, Harley said it would close its Australia-based plant.

Harley said in April it was refining a plan, to be released over the summer, to boost performance and shareholder value over the next five years.

The company sold 44,935 motorcycles in the Europe, Middle East and Africa region last year, amounting to 18.5 per cent of global sales, or nearly half of its sales outside the US.

Shares were down 2.7 percent at $43 in pre-market trading on Monday, an implied move that would leave the stock 15.5 percent lower for 2018.