Harley-Davidson stock rocked as EU tariffs hit where it hurts

Shares of Harley-Davidson Inc. dropped Monday, after the motorcycle maker said it would have to eat the “substantial” short-term costs of the tariffs imposed by the European Union, but it planned to move some production overseas to ease the burden over the long term.

The Milwaukee-based company made it clear in a filing with the Securities and Exchange Commission on Monday, that the EU enacted the tariffs on its U.S.-made motorcycles in response to the tariffs the U.S. imposed on steel and aluminum imports from the EU.

With tariffs on Harley-Davidson motorcycles increasing to 31% from 6%, effective June 22, the company said it expects the cost per average Harley bike exported to the EU from the U.S. to increase by about $2,200.

The company said it will bear the brunt of the costs, which it estimates could be $30 million to $45 million for the rest of 2018, and $90 million to $100 million on a full-year basis.

“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 said in an 8-K filing with the SEC. “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.”

The stock  tumbled 6.5% in afternoon trade, putting it on track to suffer the biggest one-day selloff since it plunged 8.0% on Jan. 30, after Harley reported fourth-quarter results.

The EU knew to hit where it hurts.

Europe is Harley-Davidson’s second-biggest market, accounted for about 19% of worldwide retail unit sales during the first quarter (the U.S. was 61%). Europe was also Harley’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.

Europe was the best performing region for Harley in 2017, with a retail unit sales decline of just 0.4% (the U.S. dropped 8.5%), and was the also the best performing region in 2016, with growth of 8.3% (the U.S. declined 3.9%). Read more about declining motorcycle sales in the U.S.

Of the most popular 601+cc motorcycles, the European market is actually larger than the U.S. market, with about 390,600 new registrations in 2017, compared with 288,800 in the U.S.

In an ironic twist to the White House’s trade policy, which aims to bolster the U.S. manufacturing industry, Harley-Davidson said it plans to move production of motorcycles bound for the EU from its U.S. facilities to international facilities, to avoid the EU tariff burden. The company said this shift will require increased investment in those international facilities, and could take at least nine to 18 months to implement.

The company did not disclose how many U.S. employees could be affected by the shift in production. The company did not respond to a request for comment.

Harley-Davidson had about 5,200 employees in its motorcycles business segment as of Dec. 31, including about 2,100 unionized employees at its U.S. manufacturing facilities in Milwaukee, Kansas City, Mo., York, Pa. and Tomahawk, Wis.

The company’s international manufacturing facilities are in Manaus, Brazil, Bawal, India and Adelaide, Australia.

Harley-Davidson shares have now dropped 9.5% amid a three-session losing streak, and have plunged 19% year to date, while the S&P 500 index  has gained 1.5% this year.