Why Harley-Davidson Is Moving Production Overseas

June 26, 2018, 3:43 PM UTC

The quintessential American brand, Harley-Davidson, is shifting some production overseas to avoid EU regulatory tariffs — but not without some commentary from the President Donald Trump.

Even with President Trump’s disapproval, the Milwaukee-based company views offshore production as “the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe.”

The Trump administration slapped tariffs on imported steel and aluminum from the EU, Mexico, and Canada, earlier this month. The newly imposed tariffs were designed to protect U.S. jobs, but evoked global anger.

In response to Trump’s tariffs, Europeans are targeting the most iconic American products, such as motorcycles, blue jeans, and bourbon. The EU raised U.S. motorcycle tariffs from 6% to 31%. This percent increase adds nearly $2,200 to the cost of an average motorcycle, according to the public filing.

Such a hike in price “would have an immediate and lasting detrimental impact” to Harley-Davidson’s business in the region, the company says. Instead of raising the manufacturer’s suggested retail price to cover the costs of retaliatory tariffs, Harley will eat the costs itself.

Harley-Davidson’s decision to cover short-term costs of the tariffs hit the company’s stock hard on Monday. Shares continued their slide in premarket trade Tuesday. As of 10:15 AM, Harley-Davidson stock is down nearly 2%.

In the close future, Harley-Davidson estimates the incremental cost for the remainder of 2018 to be approximately $30 to $45 million. For the year at large, the company estimates the annual impact due to EU tariffs to be approximately $90 to $100 million. Harley plans to address the tariff burden by shifting production of motorcycles for EU destinations from the U.S. to its international facilities.

Harley-Davidson was already struggling to combat a dip in U.S. demand by boosting sales overseas to 50% of total annual volume from about 43% currently.

In 2017, nearly 40,000 riders bought a Harley-Davidson motorcycle in Europe, accounting for more than 16% of the company’s sales last year. The EU is the company’s second-biggest sales market, behind the U.S. Europe was also Harley-Davidson’s fastest-growing region, with an 8.1% jump in unit sales from a year ago, compared with a 12.0% plunge in the U.S.

Per Trump’s tweet — “Harley must know that they won’t be able to sell back into U.S. without paying a big tax!” — Harley-Davidson is not looking to import bikes manufactured overseas back to the U.S. The motorcycles made abroad will only sell abroad, while U.S. bikes will continue to be made in the U.S.