As Harley-Davidson reports good financial news for the first quarter, with motorcycle sales rising nine percent worldwide and a strong 30 percent in North America, it faces a new threat that could significantly affect sales in Europe, which are already falling.
The European Union is set to impose a 56 percent tariff on all Harley-Davidson motorcycles starting June 1. This is part of a trade dispute dating back to 2018 when the Trump administration in the United States introduced new tariffs on steel and aluminum. The EU retaliated by imposing tariffs on exclusively American products such as Kentucky bourbon and Harley-Davidson motorcycles. Harley-Davidson circumvented the tariff by selling motorcycles manufactured in its factories outside the United States in Europe and paying only the customary duty of six percent. But now, the EU is adding a 50 percent duty to all Harleys, regardless of where they are manufactured, bringing the total duty to 56 percent.
The company said it would take legal action to oppose the fee. Furthermore, there is a possibility that the Biden administration could reach an agreement with the EU to reverse trade disputes inherited from the previous administration, but there is no guarantee that will happen.
“This is an unprecedented situation and underscores the very real damage of an escalating trade war to our shareholders on both sides of the Atlantic,” said Harley-Davidson Chairman and CEO Jochen Zeitz. He said the tariff “goes against all notions of free trade” and will have a significant impact on the company. In its first quarter financial report, the company said that the fees would negatively impact around $ 200 million to $ 225 million per year.
The Harley-Davidson statement also noted that European manufacturers selling motorcycles in the United States face an import duty of up to 2.4 percent, less than half the usual EU tariff of six percent, and much less than 56 percent. cent that will go into effect.
Good news at home, bad news abroad
Overall, Harley-Davidson’s first quarter report was positive, with sales, revenue and earnings increasing. Motorcycle retail sales worldwide were up nine percent in the first quarter of 2021, compared to last year, but that was primarily due to a strong 30 percent increase in North America. Meanwhile, sales in the EMEA (Europe, Middle East, Africa) region fell 36 percent to 4,900 motorcycles as the company stopped selling Sportster and Street models in Europe. The company’s share of the 600+ cc market in the EU has dropped to 3.9 percent (compared to 48.3 percent in the United States) and if the cost of purchasing a Harley- Davidson for the EU consumer increases another 50 percent from June 1, it is easy to imagine another big plunge.
Harley-Davidson projected revenue growth of 30 to 35 percent for the full year. The projections call for an operating income margin of seven to nine percent, if Harley-Davidson can mitigate the effect of EU tariffs. If it can’t, the margins are expected to be five to seven percent, as originally projected.
In other words, what happens in the EU is expected to make the difference between Harley-Davidson having the good year it was hoping for or surprising on the upside with an even better 2021.