Harley-Davidson to move production overseas to avoid EU tariffs

US motorcycle firm Harley-Davidson is planning on shifting production overseas to avoid the recently implemented EU tariffs on its motorbikes.

In a securities filing on Monday, Harley-Davidson said that although its made-in-the-USA label is central to the appeal of its customers, the overseas clients are becoming more important and the firm has had to open local factories to hold down prices.

The 31% tariffs on its motorcycles would raise the costs for each bike it ships to Europe by approximately $2,200. To avoid the rising costs, the company said it would produce its motorbikes for the EU outside of the US.

Almost 40,000 people bought Harley motorcycles in Europe in 2017, the firm said, making the Continent the company’s second-largest source of revenue, behind the US.

The shift in production will occur within the next 18 months, with Harley-Davidson omitting whether to which of its overseas facilities, in Australia, Brazil, India, or Thailand it would shunt European orders.

"Increasing international production to alleviate the EU tariff burden isn’t the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe," Harley-Davidson said.

They company said it would provide more details of the financial implications and plans to mitigate the impact of retaliatory EU tariffs during the company’s second quarter earnings conference call on July 24, 2018.

In response to the company's announcement, analysts at RBC slashed their target price on the company' shares from $48 to $40.

"Some may question the decision not to raise price, but we believe this speaks to the competitiveness in the market. And while it may have been a tough decision not to price for the increase, management presumably calculated that this was the lesser of two evils vs. lower volume and upsetting their dealer base," they said.

"The latter shouldn't be dismissed considering international growth was a big portion of their future plans and passing on the cost to the dealer and ultimately the consumer could have a significant and lasting negative impact on their EU business."

Harley-Davidsons's shares are down 5.11% on Monday, trading at $41.95