Milwaukee-based Harley-Davidson Inc. is facing the prospect of $225 million annually in new tariffs on motorcycles it sells in Europe after the EU revoked an earlier determination allowing the company to import its motorcycles from non-U.S. facilities at a lower tariff.
The European Union increased its tariffs on 800cc and up motorcycles from 6% to 31% in 2018 in response to then President Donald Trump increasing tariffs on steel and aluminum. The new EU tariff is set to increase to 56% in June.
After the tariffs were announced, Harley said it would
move production overseas to avoid the new costs. The company said the initial increase alone would add $2,200 to the average cost of a bike in the EU and it couldn’t afford to pass the cost on to dealers or consumers.
In the second quarter of 2019, Harley received
approval from EU regulators to import bikes from a newly constructed facility in Thailand. The company had originally built the plant to increase its access to Asian markets. Like other international plants, the Thailand facility received parts for Harley and performed final assembly.
However, Harley said Monday it had received notice from regulators that the prior approval would be revoked as of April 19. The implementing decision made by the EU specifically points to Harley’s filings with the SEC noting it planned to move production overseas to avoid the tariffs.
The EU decision says the conditions to revoke the more favorable treatment of Harley’s products were met “even if the avoidance of the commercial policy measures may not necessarily be the only purpose of the shift of production.”
Harley said it plans to “vigorously defend its position” and launch a legal challenge, noting the decision “will effectively prohibit the company from functioning competitively in Europe.” The company noted European motorcycle makers are able to import similar bikes into the U.S. at a 2.4% tariff.
“This is an unprecedented situation and underscores the very real harm of an escalating trade war to our stakeholders on both sides of the Atlantic,” said Jochen Zeitz, chairman, president and CEO of Harley-Davidson. “Imposing an import tariff on all Harley-Davidson motorcycles goes against all notions of free trade and, if implemented, these increased tariffs will pose a targeted competitive disadvantage for our products, against those of our European competitors."
In announcing its guidance for the remainder of 2021, Harley said its operating margins could be cut by 2 percentage points if the tariffs cannot be mitigated. Without mitigating actions the company anticipates it faces $135 million in costs this year and $200 million to $225 million on an annualized basis.
Europe is a significant market for Harley. As recently as 2018, the company had more than 10% market share for new registrations of 601cc and up motorcycles. In 2020, Harley’s market share was down to 7.7% with around 31,500 bikes registered.
